Semiconductor giant Intel (Nasdaq: INTC) is fighting a huge $1.3 billion fine from the European Union in a case that involves Lenovo.

Lenovo, the world’s No. 2 PC maker, operates its executive headquarters in Morrisville.

Intel said earlier this week that the fine for using rebates to block rivals is based on an “utterly hopeless” and untenable case by European Union regulators.

The 2009 decision by the EU’s antitrust regulator was based on claims that are “utter nonsense,” an Intel lawyer told the EU General Court in Luxembourg.

Claims that Intel made payments to Lenovo to cut Advanced Micro Devices Inc. (NYSE: AMD) out of the market are baseless and should be overturned.

Interestingly, Rory Read, a former Lenovo president who joined the company when Lenovo bought IBM’s personal computing division in 2006, is now the chief executive officer at AMD. He joined the firm last year.

“This case is utterly hopeless and should never have been brought,” Nicholas Green, a lawyer for Intel, told the EU’s second-highest court.

The EU probe concluded Intel impeded competition by giving computer makers rebates from 2002 until 2005 on the condition that they buy at least 95 percent of their chips for personal computers from the Santa Clara, California-based company. Intel imposed “restrictive conditions” for the remaining 5 percent, supplied by AMD, which struggled to overcome Intel’s hold on the PC processor market, the EU said. The infringement continued until at least December 2007, the EU said.

Accusations that Intel paid Lenovo  in 2006 to delay AMD-based notebooks and gave the manufacturer rebates in 2007 under an agreement not to buy from AMD were wrong, Green told the court Thursday, and the commission ignored evidence that showed otherwise.

Not Exclusive

The 2006 payments “were to win business, not to cancel a launch” of AMD-based notebooks, Intel’s lawyer Green said. Lenovo also told the investigators the 2007 deal wasn’t exclusive and “there was serious concern that AMD was not a reliable supplier and business partner,” said Green.

The commission disputed Intel’s account, saying investigators found evidence the deal hinged on exclusivity.

This included an e-mail, informing sub-contractors to stop work on the AMD notebooks, that created “great alarm” within Lenovo because it could show a direct link to Intel, said Nicholas Khan, a lawyer for the commission. “They clearly don’t want the stopping of work on AMD products to be associated in any way at all with any agreements with Intel.”

The EU began investigating after AMD complained in 2000. Intel agreed to pay AMD $1.25 billion in 2009 to end all civil litigation.

Sunnyvale, California-based AMD is no longer involved in the case and won’t intervene at this week’s hearing.

The antitrust fine was the EU’s biggest, more than double the penalty against Microsoft Corp. in 2004. It represented about 4 percent of Intel’s $37.6 billion in sales in 2008, below the maximum penalty of 10 percent of annual sales.

(Bloomberg news contributed to this report.)