Intel Corp.'s (INTC) Japan unit tried to stifle competition in microprocessors by offering unfair rebates to personal computer makers, the country's antitrust watchdog said on Tuesday in a warning against the chip giant.

The warning was the Japanese Fair Trade Commission's (search) second such action against a computer industry giant following a similar move against Microsoft Corp. (MSFT) last July.

Intel, the world's biggest microchip maker, immediately disputed the warning, which came with no monetary penalty.

After the FTC announcement, the European Commission (search) said it was investigating Intel for possible antitrust violations in cooperation with Japanese authorities.

Japan's watchdog said the unit stifled competition by offering rebates to five Japanese PC makers that agreed either not to buy or to limit their purchases of chips made by Intel's rivals Advanced Micro Devices Inc. (AMD) and Transmeta Corp. (TMTA)

The FTC said such practices had been going on since May 2002 after the inflow into Japan of low-priced personal computers heated up competition in the domestic market.

That had prompted Japanese PC makers to turn increasingly to AMD and Transmeta chips, which were typically offered at a discount to Intel products, it said.

The share of Intel's central processing units in the Japanese PC market rose to 87 percent in 2004 from 73.2 percent in 2002, while AMD's share halved to 10.4 percent over the same period, according to data from research firm Gartner.

"In this case, a company with a dominant market position squeezed out rivals by doing business with the five major PC makers on condition of not using competitors' chips," an FTC official told reporters.

The five PC makers are NEC Corp., Toshiba Corp., Hitachi Ltd., Sony Corp (SNE). and Fujitsu Ltd., he said.

Intel said its business practices were fair and lawful and expressed concerns the FTC's finding was not based on antitrust principles commonly accepted worldwide. It said it would evaluate the warning before deciding its next step.

"There is a broad consensus that competition regulators should only intervene where there is evidence of harm to consumers. It is apparent the (FTC's) recommendation did not sufficiently weigh these important principles," Bruce Sewell, vice president and general counsel for Intel, said in a release.

AMD took a different view.

"Using market power illegally to limit innovation and, more importantly, consumers' freedom to choose, cannot be tolerated," said Thomas McCoy, AMD executive vice president, legal affairs and chief administrative officer.

"We encourage governments around the globe to ensure that their markets are not being harmed as well."

The Japanese commission in April raided Intel's Japanese unit in a probe into possible antitrust violations, stirring up decade-old allegations from competitors that Intel's business practices are unfairly aggressive.

The chip maker is required to make it clear by March 18 whether it will challenge or accept the warning and scrap the practices in question.

If Intel challenges the warning, the matter will be reviewed at a court-like body set up by the FTC. If the chip maker is dissatisfied with the results, it can appeal to a high court.

Microsoft's warning from the FTC said the software giant should scrap a provision in its licensing contracts with PC makers that prevents them from filing patent infringement suits if they find Microsoft's Windows software contains features similar to their own technology.

Microsoft chose not to accept the warning and now the FTC's court-like body is reviewing the matter.

Intel's market dominance has also attracted attention from antitrust regulators in Europe.

"We are cooperating with the Japanese authorities. We have a similar investigation into Intel's practices," European Commission spokesman Jonathan Todd said.

The European Commission said last June it had rekindled a three-year-old antitrust investigation into Intel, asking new questions about the chip maker's business practices.

The sudden revival of the investigation came after AMD provided to the commission information on Intel's behavior around the time of major AMD product launches in 2003, a person familiar with the matter has said.

Earlier, Japan's FTC said it was focusing on the practices of Intel's Japan unit, and that it was not involved in any particular cooperation with anti-monopoly regulators overseas.