Intel Hit With Antitrust Suit In NY

The New York attorney general claims the chipmaker used bribery and coercion to prevent computer makers from using rival products.

New York Attorney General Andrew M. Cuomo on Wednesday filed a federal antitrust lawsuit against Intel, saying the chipmaker used "bribery and coercion" to prevent computer makers from using rival products that threatened the company's market dominance.

The suit filed in a Delaware federal court claimed that over the last several years, Intel paid billions of dollars in kickbacks under the guise of "rebates" to extract exclusive agreements from major computers makers, including Dell, Hewlett-Packard, and IBM. Retaliatory threats against computer manufacturers perceived as working too closely with Intel rivals included cutting off payments from Intel, funding a computer maker's competitors, and ending joint development ventures, according to the suit.

"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."

Intel did not respond to a request for comment in time for this writing.

Cuomo's lawsuit adds to Intel's legal woes stemming from its alleged antitrust practices. The company has faced similar lawsuits in Asia and Europe, and in May was fined $1.45 billion by the European Commission for antitrust violations. In addition, the company is under investigation by the Federal Trade Commission and faces a private antitrust lawsuit filed by its main competitor, Advanced Micro Devices. That suit is expected to go to trial next year.

According to the latest suit, Intel paid hundreds of millions of dollars annually, and in some years billions of dollars, in payoffs, and attempted to hide its anti-competitive practices through "camouflaging language" in written agreements. Sometimes the payments were enough to make the difference between profit and loss for a computer maker.

The lawsuit detailed examples of Intel practices it claims are anti-competitive.

In 2006, Intel paid Dell nearly $2 billion in "rebates," and in two quarters of that year, the payments exceeded the computer maker's reported net income. In addition, the lawsuit claims Intel and Dell worked together to market microprocessors and servers at prices below cost in order to deprive AMD of sales.

In a November 2005 e-mail from Dell chief executive Michael Dell to Intel chief executive Paul Otellini, Dell complained, "We have lost the performance leadership and it's seriously impacting our business in several areas."

Otellini's response was that Intel's products were "improving rapidly daily" and would deliver "increasingly leadership products."

"Additionally, we are transferring over $1 billion per year to Dell for meet comp efforts. This was judged by your team to be more than sufficient to compensate for the competitive issues," Otellini wrote, according to the suit.

The suit says Intel paid HP hundreds of millions of dollars in return for HP's agreement to cap sales of AMD-based products at 5% of its business desktop PCs. And, when HP considered promoting products from AMD, Intel threatened to derail development of a server technology on which HP's future business depended.

To prevent IBM from launching an AMD-based server, Intel allegedly paid the manufacturer $130 million. The chipmaker also threatened to pull funding for joint projects that benefited IBM, if the company marketed AMD-based servers.

The lawsuit is the result of an investigation launched by Cuomo in January 2008. During the probe, Cuomo's office reviewed millions of pages of documents and e-mails and took depositions from several dozen witnesses.

Among the e-mails pointing to Intel's allegedly illegal activities was a January 2005 message from an IBM executive who wrote, "I understand the point about the accounts wanting a full AMD portfolio. The question is, can we afford to accept the wrath of Intel...?"

In June 2004, an internal e-mail from an HP executive discussed possible retaliation from Intel for launching an AMD-based product. "Intel has told us that HP's announcement on Opteron (AMD's server chip) has cost them several billion dollars and they plan to 'punish' HP for doing this."

In a September 2004 e-mail, an HP executive warned of the consequences of marketing products from an Intel competitor. "If you do and we get caught (and we will) the Intel moneys each month is gone (they would terminate the deal). The risk is too high. Without the money we do not make it financially."

In a February 2004 internal Dell e-mail, an executive warned of the repercussions of ending the company's exclusive relationship with Intel. The e-mail said then-president Paul Otellini and then-chief executive Craig Barrett were "prepared for jihad if Dell joins the AMD exodus."

Internal Intel e-mails indicated that the company was aware of its anti-competitive practices and tried to hide them, according to the suit. In April 2006, one executive wrote, "Let’s talk more on the phone as it's so difficult for me to write or explain without considering anti-trust issue."

In September 2006, an internal e-mail from an Intel negotiator asked that references to "market share" be switched to "volume targets," in order to avoid revealing the company antitrust violations, according to the lawsuit.

"Our counsel is very picky on that stuff and I don’t want to infer we had conversations about anything other than volume targets or relative volume targets," the e-mail said.

The suit asks the federal court to bar Intel from further anti-competitive acts. In addition, it seeks to restore lost competition and recover monetary damages suffered by New York governmental entities and consumers and to collect penalties.

InformationWeek Analytics has published a guide to the Open Government Directive and what it means for federal CIOs. Download the report here (registration required).

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