N.Y. attorney general files antitrust lawsuit against Intel

Cuomo alleges a 'systematic campaign' of illegal conduct

New York Attorney General Andrew Cuomo has filed a federal antitrust lawsuit against microprocessor maker Intel, alleging that the company engaged in a "systematic campaign" of illegal conduct to protect a monopoly.

Cuomo's lawsuit, filed in U.S. District Court for the District of Delaware Wednesday, alleges that Intel extracted exclusive agreements from large computer makers and threatened to punish those perceived to be working too closely with Intel competitors.

Intel gave computer makers payments totalling billions of dollars in exchange for the exclusive agreements, and the company threatened to cut off payments to computer makers or fund their competitors when they worked with other microprocessor makers, the lawsuit alleged. Cuomo's lawsuit comes less than two weeks after news reports that the U.S. Federal Trade Commission is considering filing a formal complaint against Intel.

"Rather than compete fairly, Intel used bribery and coercion to maintain a stranglehold on the market," Cuomo said in a statement. "Intel's actions not only unfairly restricted potential competitors, but also hurt average consumers who were robbed of better products and lower prices. These illegal tactics must stop and competition must be restored to this vital marketplace."

Cuomo's lawsuit is a "duplication" of a 2005 lawsuit filed by Intel competitor Advanced Micro Devices, said Chuck Mulloy, an Intel spokesman. The complaints in Cuomo's lawsuit mirror the complaints in the AMD case, which is scheduled to go to trial in March, he said.

In that case, Intel and AMD have exchanged more than 200 million documents, and the two sides have conducted about 2,200 hours of depositions, Mulloy said. Intel is focused primarily on the AMD lawsuit, he added.

"Neither consumers, who have consistently seen lower prices and innovation, nor justice is being served by bringing this case now," Mulloy said. "We will defend ourselves."

Intel paid hundreds of millions, and in some years billions, of dollars a year in so-called rebates to computer makers, including Dell, Hewlett-Packard and IBM, the lawsuit alleges. Cuomo called the rebates "payoffs with no legitimate business purpose" for computer makers to use Intel products.

The payments for exclusive deals that Intel provided could, in some cases, make the difference between a profit and loss for some computer makers or segments of their businesses, Cuomo alleged. In some cases, the payments from Intel exceeded a company's reported quarterly net income.

In 2006, Intel paid Dell nearly $2 billion in rebates, and in two quarters of that year, rebate payments exceeded Dell's reported net income, the attorney general's office said in a press release.

Intel threatened HP that it would derail development of a vital server technology if HP promoted products from AMD, the lawsuit alleges. Intel also paid hundreds of millions of dollars in rebates in return for an HP agreement to cap sales of AMD-based products at 5% of its business desktop PCs, the lawsuit alleged.

Intel threatened HP that it would derail development of a vital server technology if HP promoted products from Advanced Micro Devices, an Intel competitor, the lawsuit alleges. Intel also paid hundreds of millions of dollars in rebates in return for an HP agreement to cap sales of AMD-based products at 5 percent of its business desktop PCs, the lawsuit alleged.

Intel also paid IBM $130 million not to launch an AMD-based server product, Cuomo alleged.

Cuomo published internal e-mail messages from computer makers and Intel in an effort to show monopolistic behavior, including:

* Internal e-mail from HP executive in June 2004 after HP defied Intel and launched an AMD product: "Intel has told us that HP's announcement on Opteron [AMD's server chip] has cost them several $B [Billions] and they plan to 'punish' HP for doing this."

* Internal Dell document from February 2003 in which it was assumed that "aggressive" purchases by Dell from Intel's competitors could result in: "[r]etaliatory [rebate] reductions [by Intel that] could be severe and prolonged with impact to all LOBs [lines of business]."

* Internal e-mail from Intel executive in April 2006: "Let's talk more on the phone as it's so difficult for me to write or explain without considering anti-trust issue."

* Internal e-mail from IBM executive in January 2005: "I understand the point about the accounts wanting a full AMD portfolio. The question is, can we afford to accept the wrath of Intel...?"

The European Commission fined Intel $1.44 billion at the time in May, after finding it guilty of antitrust violations in the PC processor market.

Robert Lande, a professor of law at the University of Baltimore in Maryland, said the New York lawsuit may work to help assure that whatever remedy is reach in Europe, will apply to U.S. consumers as well.

Lande said that while an EC ruling against Intel would likely affect worldwide customers, there's no guarantee it would benefit U.S. users. But the New York antitrust case "makes it much more likely that U.S. consumers protected with whatever relief is eventually ordered," he added.

Like Cuomo, the Commission said Intel had paid rebates to system manufacturers in order to shut out competition from rivals.

The FTC's investigation into Intel started in 2008, just a day after the Korea Fair Trade Commission fined Intel approximately $25 million for abusing its dominant position in the PC processor market.

The Fair Trade Commission of Japan in 2005 recommended that Intel end the practice of offering funds to PC makers in exchange for a commitment not to use processors from its competitors.

A big question for some experts is whether New York's lawsuit will prompt the U.S. Federal Trade Commission to also take action against Intel. The Washington-based American Antitrust Institute (AAI), which advocates strong antitrust enforcement across a number of industries, has been urging the FTC to take on Intel.

The New York lawsuit puts "more pressure on the FTC either to come forward or specify why they are not going forward" with a complaint against the chipmaker, said Alert Foer, the antitrust organization's president. The AAI has received contributions from AMD but not Intel.

The FTC would bring federal resources to the lawsuit if it joined New York in the antitrust action. "It would complicate Intel's life," said Foer. It's also possible that other states could join New York, he said.

Computerworld's Patrick Thibodeau contributed to this story

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