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The world's largest microchip maker, Intel, was sued by New York's attorney general for using bullying, bribery and coercion to protect its dominant market position in a lawsuit that followed a record fine for anti-competitive behaviour levied on the company by the European Commission.

After a 20-month investigation, attorney general Andrew Cuomo accused Intel of striking deals in which computer makers such as Dell, Hewlett-Packard and IBM agreed to choose its microprocessors over those of competitors in return for billions of kickbacks disguised as "rebates".

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said by Rik Myslewski :

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The exceptionally detailed 83-page complaint (PDF) alleges that Intel "engaged in a systematic worldwide campaign of illegal, exclusionary conduct to maintain its monopoly power and prices in the market for x86 microprocessors."

In a statement, Cuomo writes that "Rather than compete fairly, Intel used bribery and coercion to maintain a stranglehold on the market. 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."

The suit includes language favorable to Intel's prime competitor, AMD. "Starting in 2001, the threat from competition became salient at Intel," the complaint reads. "Intel’s biggest CPU competitor, Advanced Micro Devices, Inc. ("AMD"), had begun developing x86 chips that not only competed with Intel's offerings, but were in many ways more desirable."

In response to that competition, the suit alleges, Intel began an "illegal campaign" to choke off AMD's distribution channels. In that effort, the suit reads, "Intel paid hundreds of millions – in some cases billions – of dollars in 'rebates' [that] bore no genuine relationship to pro-competitive, volume-based discounts or reasonable efforts to meet specific competitive offers."

In addition, according to the filing, Intel "threatened OEMs with retaliation if they persisted in dealing with AMD." As a result, and in exchange for "billions of dollars in rebate payments and other benefits," the suit notes that Dell, for example, agreed not to sell any AMD products from 2001 to 2006.

Among other charges, the suit alleges that Intel in 2002 reached an agreement with HP (which it subsequently extended to 2004) that "capped HP’s sales of AMD-based business desktop PCs" to a maximum of 5 per cent of that line - which guaranteed that Intel would enjoy the remaining 95 per cent.

Multiple emails cited in the filing indicate that Intel was aware that its actions could be used to implicate it in anti-competitive behavior. One email from "an Intel executive" to Acer, for example, describes an internal Intel electronic record-keeping tool as "a very sensitive and important document which can come under anti-trust scrutiny. Please avoid using strong language like the ones below: a. 'we need kick [sic] them [AMD] out of the major ... companies.' b. ‘maintain the [market segment share] and beat AMD out of the major ... accounts.'"

The lawsuit is just the latest in Intel's legal woes. Having recently been fined €1.06bn ($1.5bn) by the EU for similar - if not identical - anti-competitive practices, the company is reportedly facing a formal complaint by the US Federal Trade Commission in "a matter of weeks or a matter of months," according to sources cited by Reuters.

Intel did not immediately respond to our request for comment.

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said by Kara Reeder :

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FTC to Join Battle Against Intel?

On the heels of New York's antitrust charges against Intel, it is expected that the Federal Trade Commission will join the fray against the chip maker, according to Computerworld. Dan Olds, principal analyst with The Gabriel Consulting Group, says:

It wouldn't surprise me to see the FTC jump into the fight with an antitrust action of their own against Intel, if only so that they don't look like they're being lazy in the face of actions from the European Union and now New York.

According to John Balto, a former policy director at the FTC, charges by the FTC:

would be much more significant than those brought by AMD and the New York Attorney General ... The FTC case will be a case about the future. It will be focusing on dynamic competition, the impact on innovation, on how Intel's conduct ... is going to harm competition and consumers in the future, stifling the ability of new rivals to emerge...

Industry analysts say antitrust action by the FTC could happen before the end of the year.

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said by Andy Patrizio :

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Digging Into N.Y.'s Antitrust Suit Against Intel
Why is New York Attorney General Andrew Cuomo suing Intel?

New York Attorney General Andrew Cuomo caused quite a stir this week with his antitrust suit against Intel, accusing the chip giant of conducting "an illegal campaign to deprive AMD of distribution channels."

More than a few writers and bloggers chalked it up to politics. Cuomo's ambitions are no secret: he wishes to be governor of the state just like his father Mario once was. With current governor David Patterson performing abysmally in opinion polls and up for reelection next year, this could be the time for the son of one of New York's most famous governors to strike.

But really, would even the most ambitious of politicians put together a detailed 83-page complaint (available here in PDF format) as an election gimmick? Glenn Manishin, an antitrust attorney and partner at the Washington D.C. law firm of Duane Morris doesn't think so.

"Considering how much effort went into filing that data, you don't compile that much data just to file for headlines. He has to put up or shut up, so he's got to proceed and litigate this thing," Manishin told InternetNews.com.

Intel has consistently denied any wrongdoing and said it plans to continue to defend itself in court against any antitrust charges.

Cuomo's office said it had examined millions of pages of e-mails and documents since it opened an investigation in late 2007. Much of that has been undoubtedly helped along by the release of documents by the European Commission following its $1.45 billion fine against Intel earlier this year.

Intel certainly has a track record for getting the attention of antitrust officials. The company has been investigated as far back as 1991 for unsavory business practices. In 1995, it settled a lengthy legal case with AMD, but that wouldn't be the last time the two would go at it legally.

In 2004, AMD filed suit against Intel in Delaware for anti-competitive behavior, citing marketing dollars used as extortion to lock out or limit use of AMD processors. Also that year, Japan's competition agency raided Intel's Tokyo offices. A year later, it issued a warning but no fine to Intel for anti-competitive practices.

That year the EU raided multiple Intel European offices, and in 2006, the Korean Fair Trade Commission (KFTC) raided Intel's Seoul offices. Intel was later hit with a $25 million fine. In 2008 the Federal Trade Commission opened another investigation of Intel and may take action as well. Finally came this year's EU fine and Cuomo's suit.

"It's pretty daunting that in Japan, Korea and the EU, where full scale investigations occurred, the outcome is the same, where they issued lengthy detailed statements of fact that looked pretty persuasive. It wouldn't take much for any AG, whether he wants to run for office or not, to see it as his obligation to step forward here," notes Albert Foer, president of the American Antitrust Institute* in Washington, D.C.

Scott Testa, professor of Business Administration at Cabrini College in Philadelphia, adds "My gut is Intel is a very aggressive company and [Cuomo] felt there was an opportunity there, and felt that New York consumers were being wronged, and thought he'd make his move. Intel is very dominant in their market."

So Cuomo is hardly the first to go after Intel. As Intel defends itself in Europe it also prepares to defend itself in the Delaware case against AMD. The first meeting with the judge is in January.

All of which left Manishin confused about Cuomo's actions. "I find it surprising that New York would sue on its own. That's curious because either it means – and I don't know for sure – that New York and attorney general Cuomo felt that the federal government will not proceed against Intel or he knows they want to proceed and wants to go first," he said.

From the outside, it's hard to tell whether this is a split between the feds and the state, because usually they work together. "That's significant because going back to the 1990s, the association of attorneys general, the DOJ and the FTC have worked together, hand in glove and are usually co-plaintiffs," said Manishin.

It's not so unusual for a state to try and protect its citizens if the antitrust laws are being violated, argued Foer. "The guy's job as AG is to protect the consumers and businesses of his state and make sure antitrust laws are being applied," he told InternetNews.com. "They have no reason to assume the FTC will bring a case. Even there, the FTC is not going to get a remedy for the people of his state."

Cuomo didn't just file under the state laws of New York, he went to Delaware and sued under federal law, something he has a right to do, as what's known as a parens patriae action.

Foer wonders if there isn't a potential settlement in the works, something Intel has sworn up and down it would not do. If Intel and AMD settle, New York gets nothing while AMD could walk away a few billion dollars richer.

"Perhaps there's some major settlement under way. Maybe that explains why the FTC has been moving slowly. If there is a settlement, the states might want to be at the table to make sure their interests are satisfied adequately," said Foer.

Manishin thinks that could be a credible explanation for Cuomo's behavior, since it's so outside the norm. "They wouldn't have the advantage of getting testimony of those folks from trial in the [AMD] lawsuit," he notes.

Right now, the testimony is from executives and e-mails dating back as far as 2002. A trial could mean a parade of past and present PC OEM CEOs like Michael Dell, Mark Hurd, Carly Fiorina and Sam Palmisano testifying under oath, which could be either devastating or exculpatory to Intel.

Testa doesn't believe it was on that level. "I truly believe that this was a mid-level, low-level management issue where you had an aggressive sales person or sales managers. That's my gut. These rebates are public knowledge. This is between two public companies," he said.

The latter part of Cuomo's claim that "Intel launched an illegal campaign to deprive AMD of distribution channels and consumers of product choice and lower prices" could be a tough sell, since no one would argue that CPU prices haven't come down over the course of the decade even as they advanced and became more powerful.

Manishin said the counterpoint to the pricing argument is the question of whether Intel's actions prevented AMD from helping to drive prices even lower.

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