By Foo Yun Chee
BRUSSELS (Reuters) - U.S. electronic chipmaker GlobalFoundries has asked European antitrust regulators to investigate market leader TSMC <2330.TW>, accusing the Taiwanese firm of unfair competition, an industry source said on Monday.
GlobalFoundries is the closest challenger to Taiwan-based TSMC in the foundry, or contract market for making chips for firms without plants of their own, with slightly smaller rivals being UMC <2303.TW> of Taiwan and SMIC <0981.HK> of China.
With TSMC holding 58 percent of the market in 2016, according to market research firm IC Insights, it is the world's top foundry and is also the third biggest chipmaker by sales behind Samsung Electronics <005930.KS> and Intel <INTC.O>.
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GlobalFoundries has told the European Commission that TSMC is unfairly using loyalty rebates, exclusivity clauses and bundled rebates and even penalties to discourage customers from switching to rivals, the source said.
The practices, which go back several years, have affected GlobalFoundries' ability to compete, the source said, adding that the tactics escalated after a key GlobalFoundries product started to win new customers.
TSMC denied the allegations.
"Our customers always have the freedom to choose, which we respect greatly, and they choose us because of the value we deliver toward their long-term success," a spokeswoman said.
"Any accusation that TSMC threatens or harms customers isabsolutely baseless, and we will vigorously defend our hard-earned trust and our most valued reputation."
Ten years ago U.S. chipmaker Intel was hit with a 1.06 billion-euro fine, a record at the time, for giving rebates to PC makers in order to force out smaller competitors and GlobalFoundries' former joint owner AMD <AMD.O>.
Companies can be fined up to 10 percent of their global turnover for breaching EU antitrust rules.
EU authorities declined to comment on the claims.
"Generally, the Commission monitors possible anti-competitive market practices and abusive conduct. This includes behavior by operators active in the semi-conductor sector," a spokesman said.
GlobalFoundries said in a formal statement that the EU competition authority should be concerned by the existence of a few dominant players in the semiconductor industry.
A spokesman said TSMC has "a virtual lock on supply".
"It is prudent for the regulator to monitor behaviors more closely and GlobalFoundries will naturally support regulatory agencies as they take a closer look at this key industrial sector for Europe and the world."
TSMC's customers include Apple <AAPL.O>, Qualcomm <QCOM.O>, Intel, Huawei [HWT.UL], Sony Corp <6758.T> and Texas Instruments <TXN.O>.
GlobalFoundries, which is owned by Mubadala Technology, a unit of Abu Dhabi state fund Mubadala Development Company [MUDEV.UL], counts Qualcomm, AMD, Broadcom <AVGO.O> and STMicroelectronics <STM.PA> amongst its customers.
(Reporting by Foo Yun Chee with additional reporting by Jessica Macy Yu in Taipei; Editing by Eric Auchard, Greg Mahlich)