Chip maker Intel Corp (NASDAQ: INTC) had some embarrassing emails published today by the European Union that show the company may have been strong arming its customers into buying its products over competing chip makers.

The emails were part of the evidence that led to a record EU fine set against the company last May of $1.45 billion, when it was determined that the company had used strong-arm sales tactics in its competition with Advanced Micro Designs (NYSE: AMD).

On Thursday morning, European Union regulators announced the launch of an antitrust probe into U.S. software maker Oracle's (NASDAQ: ORCL) takeover of Sun Microsystems. The regulatory group believes that the deal could lead to higher prices and limited choice for database software. Approval from this group is considered the main stumbling block for the deal, which has cleared the Department of Justice in the United States.

The final decision has a deadline of 90 days, or January 19, 2009. By this date, the European Commission can decide to clear or to block the deal. More often than not, the Commission will force companies to make changes that would eliminate any concerns over antitrust regulations.

Intel (NASDAQ: INTC) is recently up 17 cents to $15.38 in pre-open trading. INTC was fined $1.45 billion by the European Union for using rebates to impede competition. INTC said orders and billing so far in the June quarters have been better than INTC originally expected. INTC May 15 straddle is priced at 63 cents, June 15 is priced at $1.65. INTC option implied volatility of 44 is below its 26-week average of 52, according to Track Data suggesting decreasing price movement.

Arcelor Mittal (NYSE: MT) closed at $26.23. MT has recently announced it would make layoffs and idle iron-producing operations. MT June option implied volatility of 80 is below its 26-week average of 93, according to Track Data, suggesting decreasing price movement.

Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

It has been widely anticipated that the EU would bring new antitrust charges against Intel (NASDAQ: INTC). The FTC and other US authorities are chasing the largest chip company in the world for similar reasons. South Korea has already fined Intel for anti-competitive behavior.

The theory behind the charges is that Intel induced PC companies and their retailers to use its chips and not those from rival AMD (NYSE: AMD). According to The Wall Street Journal, "The European Union launched new antitrust charges against Intel Corp., saying the chip giant paid rebates to a major retailer to encourage it not to carry computers using chips from smaller rival Advanced Micro Devices Inc ."

If the charges are true, it shows the extent to which a company of real size, like Intel, can be its own worst enemy. Microsoft (NASDAQ: MSFT) ran into similar problems a decade ago for being too aggressive killing off competition in the browser and media player markets.

The irony of Intel's legal bind is that it almost certainly did not need to pressure or give incentives to keep AMD in a distant second place. It had the balance sheet to keep margin pressure on AMD and the engineering prowess to offer better chips.

Arrogance and carelessness often go with being in first place. This time it appears that it has caught up to Intel.

Douglas A. McIntyre is an editor at 247wallst.com.

MAJOR PAPERS:

• The Wall Street Journal reported that is is not yet certain whether Merrill Lynch & Co Inc (NYSE: MER) will need to raise money. If it does, selling common stock could be expensive due to a 12-month protection the bank offered the investors that bought $12B in common and preferred shares earlier this year and selling assets like its interest in Bloomberg may present a different problem.
• The Wall Street Journal also reported that investigators from the European Union are probing deeper into the pharmaceutical industry in an effort to determine whether drug companies have used unfair tactics to increase prices and block competition. Investigators have reportedly ask for views on direct-to-pharmacy distribution channels, which Pfizer Inc (NYSE: PFE) and AstraZeneca Plc (NYSE: AZN) recently established in Britain.
• After Anheuser-Busch Companies Inc (NYSE: BUD) said it would reject InBev's $46B bid as "financially inadequate," InBev said it would launch a hostile bid. According to court documents, the Financial Times reported that InBev is preparing to launch a proxy battle seeking the removal of Anheuser's entire board.
• The Financial Times also reported that soaring energy prices are forcing U.S. consumer goods company The Procter & Gamble Company (NYSE: PG) to rethink how it distributes products. The company may consider shifting manufacturing sites closer to consumers in order to lower its transport bill.

Advanced Micro Devices (NYSE: AMD) shares opened in the green this morning but have dropped as the day moved on after rumors surfaced that the EU was planning to take action against competitor Intel (NASDAQ: INTC). AMD headed back down after the EU denied that it has yet reached a decision in the matter. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on AMD.

After hitting a one-year high of $16.19 in July, the stock hit a one-year low of $5.31 in January. This morning, AMD opened at 7.01. So far today the stock has hit a low of $6.77 and a high of $7.07. As of 12:45, AMD is trading at $6.80, down $0.12 (-1.7%). The chart for AMD looks bullish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

For a bearish hedged play on this stock, I would consider an October bear-call credit spread above the $9 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make an 11.1% return in five months as long as AMD is below $9 at October expiration. AMD would have to rise by more than 32% before we would start to lose money. Learn more about this type of trade here.

Intel (NASDAQ: INTC) is finally making its case to European Union authorities, saying its practices in the region were not anti-competitive. It may be a hard sell.

The extent to which Intel has beaten rival AMD (NYSE: AMD) does not look good on paper. Intel has nearly 80% of the global chip market for PCs and servers. According to The Wall Street Journal: "The EU filed preliminary charges against Intel in July, alleging the company offered rebates to customers only if they didn't use AMD products; paid customers to delay the launch of AMD-based products; and sold its chips below cost to undercut AMD."

If Intel loses the case, it could face major fines and sanctions just as Microsoft (NASDAQ: MSFT) did recently when the EU ruled that its activity violated anti-trust laws.

There may be more riding on the outcome of the hearing for AMD than for Intel. The larger company can afford fines and probably live with some restrictions in the region. AMD may need chain on Intel to turn itself around. The company has over $5 billion in debt and recently took a huge write-off for the falling value of its purchase of graphic chip company ATI. The company's shares are down from over $36 less than two years ago to just above $6.

AMD may not be able to compete in an open marketplace. The courts may be its only refuge.

Douglas A. McIntyre is an editor at 247wallst.com.

Crocs Inc. (NASDAQ: CROX) shares are plummeting again this morning after news came out on Friday that the company's attempt to patent its uniquely-styled shoes in Europe may be unsuccessful. The European Union's Office for Harmonization in the International Market ruled in December that CROX's Beach model shoes "lack individual character" compared with other similar brands, according to a Forbes.com article published Friday evening. The ruling struck a blow, as CROX now faces more difficulty in pushing out its competitors in Europe. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on CROX.

After hitting a one-year low of $21.675 in March, the stock hit a one-year high of $75.21 in October. This morning, CROX opened at $32.76. So far today the stock has hit a low of $27.64 and a high of $32.96. As of 10:50, CROX is trading at $28.41, down $4.34 (-13.2%). The chart for CROX looks bearish and steady.

For a bearish hedged play on this stock, I would consider a March bear-call credit spread above the $45 range. A bear-call credit spread is an options position that combines the purchase and sale of call options to hedge risk in case the stock doesn't do what you think but still leverage nice returns. For this particular trade, we will make a 7.5% return in 11 weeks as long as CROX is below $45 at March expiration. Crocs would have to rise by more than 56% before we would start to lose money.

Mastercard Incorporated (NYSE: MA) stock is lower this morning on news that a European Union ruling on fees levied by MA has been delayed until at least the end of this year. The delay may also put the January launch of the Single Euro Payments Area (SEPA) on hold as well, a plan which would allow consumers to authorize payments and use their debit and credit cards anywhere in the 27 EU member states. If you think this stock won't be rising too far in the coming months, then it could be a good time to look at a bearish hedged play on MA.

MA hit a one-year high of $203.00 last week, after hitting a one-year low of $90.50 in February. This morning, MA opened at $185.00. So far today the stock has hit a low of $182.10 and a high of $188.47. As of 12:15, MA is trading at $184.27, down $2.50 (-1.4%). The chart for MA looks bullish and steady, while S&P gives the stock a neutral 3 STARS (out of 5) hold rating.

Microsoft Corp. (NASDAQ: MSFT) has overcome some legal hurdles in the U.S. in recent years (and has been slammed as well), but the world's largest software maker continues to see complete opposition from its European Union buddies (heh), as evidenced by last week's ruling. It's tough these days for regulatory governments and agencies not to have a say in the role of high-tech now that the sector is one of the world's largest. The largest kid on the block is always (always) the biggest target. Think about Wal-Mart Stores, Inc. (NYSE: WMT) for another example.

In many cases, in the name of "protecting consumers" the stepped-up efforts to curb certain practices end up hurting future innovation, a fact proved over and over in history but shunned by lawmaking bodies consumed with a play for power and the banishment of a main tenet of capitalism -- staying the heck out of the way and letting market forces define equilibrium. But, the equilibrium can be tilted with corporate abuse and monopolistic practices, and so government and private enterprise enter into a grudge match. It's very accusatory, and generally a very expensive process for both sides.

Should the EU examine Microsoft, it would see that the software giant is under attack now more than ever, even as it continues raking in growth and profits every quarter. There are so many alternatives to many of Microsoft's products it could boggle anyone's mind. Who legislates this kind of sea-change as it happens? Customers and market forces, of course. Microsoft was found guilty of anti-competitive practices, which is a fact. It's still vulnerable from being popped off its perch.

Everything from open-source web server software to free operating system and office productivity packages will challenge (oops, is challenging) Microsoft like never before, and the company up for the fight of its life. That's what capitalism is: creating competition by taking power away from government and letting the principles of economics take over. In Microsoft's case, it's unfortunately not that easy when it comes to the EU.

[Disclosure: I own MSFT shares as of 9-24-07]

In the latest salvo of bitterness from the European Union's front lines, the commission has advised Google that it wants a full explanation of the search giant's privacy policies -- and now! Seriously, if the folks in the EU would stop demanding everything from private companies and suing others, maybe there would be nothing to do over there. There's the difference between socialist-controlled unions fearing for, well, anything and free trade and customer serving companies. Oh, EU -- Google's full privacy policy is here.

Apparently the EU does not want Google to retain customer-trackable data for the two years currently explained in its full privacy policy. I guess Europeans are more special than other Google global customers? Google, which is probably getting into the habit of biting its lips as detractors come out of the woodwork attacking it, will comply to the request (i.e., provide an answer) sometime in June, according to the company. Meanwhile, Microsoft is having a laugh as one of its main nemesis companies is now undergoing the EU insanity treatment.

Now, to a point I can realize a concern over the data retention policies that Google has on its "information customers," and I'll still be interested to see what the EU wants from this besides some publicity and public reassurance. Google is not even 10 years old and it's grown to have power most companies would die for. Maybe that was the impetus behind why the EU "demands" so much so soon from it.

While some analysts believe it's time for Microsoft to play nice with the EU and settle its differences in order to smooth the release of Vista, Microsoft certainly doesn't appear to be taking their advice. David Harfst, a Brussels, Belgium-based lawyer at Covington & Burling who represents Microsoft, blasted the European Union Thursday for issuing policy guidelines on trade secrets and the abuse of dominant positions.

Harfst told Bloomberg News, "The guidelines reflect the anti-intellectual property viewpoint" of the European Commission and they should not have been released while Microsoft's antitrust appeal is pending.  Microsoft believes these guidelines degrade intellectual property rights.

Microsoft faces five days of hearings on its appeal of the 2004 antitrust ruling in front of the second highest court in Europe, the European Court of First Instance in Luxembourg, beginning on Monday.  Slamming the EU just before that hearing does not seem, at least to me, a good way to enter the courtroom, if finding a means for settlement is on the table.