New York's Intel probe may start new IT antitrust battle

State investigates hardware side of Wintel dynasty, after playing key role in Microsoft case

With its launching of an antitrust investigation of Intel Corp., New York's state government is once again taking a leading role in challenging a titan of the technology industry. The state played a key role in the antitrust case against Microsoft Corp., which was settled five years ago, and by its action today opens up the possibility of another landmark legal battle against a powerful and influential IT vendor.

Intel already has been facing probes of its microprocessor business practices in Europe, Japan and South Korea. But the company hadn't been the subject of any investigations in the U.S. until New York Attorney General Andrew Cuomo announced that his office had issued a subpoena seeking business records and information related to the chip maker's pricing policies and possible attempts to quash competitors through the use of its market power.

In a statement, Cuomo outlined reasons for carrying out the probe that are reminiscent of the concerns raised about Microsoft at the onset of that case in 1998. A key issue then was Microsoft's power over PC vendors because of its desktop operating systems dominance. Among the issues that Cuomo said his office will look at are allegations that Intel penalized computer makers for purchasing x86 processors from its rivals and that it paid chip customers in return for exclusive sourcing deals.

"This is the hardware half of the Wintel monopoly," said Robert Lande, an antitrust professor at the University of Baltimore School of Law. "In many ways, it's even more significant [than the operating system side] because entry is more difficult into the chip market."

An Intel spokesman confirmed that the company received the subpoena and said the chipmaker intends to "work very hard to comply with the request. We believe our business practices are lawful, and we believe the microprocessor market is competitive," he said.

The x86 market is primarily served by Intel and Advanced Micro Devices Inc. Until last year, AMD had been gaining market share from Intel in the server processor market, thanks to its Opteron chips. But Intel has since regained some of the ground it lost, due partly to the fact that it beat AMD to the punch with quad-core server chips. In fact, AMD has yet to even start volume shipments of its quad-core Opterons.

If Intel has been illegally taking advantage of its market position, that could put AMD as well as computer users in an even worse position, according to Lande. "It's a two-company industry, and if AMD gets starved for funds too much by the alleged discounting and goes out of business, then we really are at Intel's mercy," he said.

Hillard Sterling, an antitrust attorney at Freeborn & Peters LLP in Chicago, said Cuomo's subpoena will give his investigators a chance to look behind Intel's closed doors in search of evidence. "They will look at Intel's internal e-mails and memoranda," Sterling said. "Those are where the smoking guns probably reside, if they exist."

AMD filed a private antitrust lawsuit against Intel three years ago in U.S. District Court in Delaware. But such cases typically are settled out of court before they ever get to trial. On the other hand, Sterling said that if New York pursues a legal case, it likely will seek changes in the way that Intel does business.

New York was one of 20 states that joined the U.S. government in bringing the antitrust case against Microsoft, and Stephen Houck, the lead trial lawyer for the states, was the chief of New York's antitrust bureau when the trial began.

The Intel probe is also bringing out some familiar faces from the Microsoft case. For instance, the Computer & Communications Industry Association (CCIA) -- whose president, Ed Black, was a vocal critic of Microsoft during that case -- issued a statement today welcoming the investigation of Intel and the chip market.

"New York now joins the European Union, Japan, and Korea -- all governments with recognized antitrust expertise [that] are seeking to uncover the truth about this sector and to take action if warranted," Black said in the CCIA's statement.

The trade association's members include AMD as well as Google Inc., Oracle Corp., Red Hat Inc. and Sun Microsystems Inc. Microsoft also is a member, having later settled its differences with the CCIA. But Intel is not part of the group.

Copyright © 2008 IDG Communications, Inc.

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