[Infowarrior] - NY files antitrust suit against Intel

[Richard Forno]

November 5, 2009
Cuomo Files Federal Antitrust Lawsuit Against Intel
By ASHLEE VANCE
http://www.nytimes.com/2009/11/05/technology/companies/05chip.html?_r=1&ref=technology&pagewanted=print
Following the lead of foreign regulators, New York’s attorney general,  
Andrew M. Cuomo, filed a federal antitrust lawsuit Wednesday against  
Intel, the world’s largest chip maker.

The lawsuit charges that Intel violated state and federal laws by  
abusing its dominant position in the chip market to keep its main  
rival, Advanced Micro Devices, at bay. Intel has faced similar  
lawsuits in Asia and Europe, and in May the European Commission fined  
the company a record $1.45 billion for antitrust violations.

These cases have largely revolved around deals Intel had struck with  
computer makers and retailers that, regulators said, pressured them  
into picking the company’s microprocessors — which serve as the  
central chip inside personal computers and servers — instead of  
competing products from A.M.D.

“Rather than compete fairly, Intel used bribery and coercion to  
maintain a stranglehold on the market,” Mr. 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 has denied the charges and has filed an appeal against the  
European Commission’s ruling.

The New York attorney general’s suit is the first formal antitrust  
action against Intel by any government agency in the United States in  
more than a decade. The Federal Trade Commission has been  
investigating Intel since 2008, but has not begun formal proceedings  
against the company.

Intel, based in Santa Clara, Calif., also faces a four-year-old  
antitrust lawsuit filed by A.M.D. in Delaware. That suit is scheduled  
to go to trial in late March.

An Intel spokesman, Chuck Mulloy, said the company will contest the  
New York suit. “Neither consumers, who have consistently benefitted  
from lower prices and increased innovation, nor justice are being  
served by the decision to file a case now,” he said. “Intel will  
defend itself.”Intel shares were up about 1 percent, to $18.68, in  
midday trading Wednesday.

The New York move increases the chances that the F.T.C. will take  
action against Intel, according to a person who was familiar with the  
state’s investigation but was not authorized to discuss it. Mr.  
Cuomo’s staff, this person said, regularly communicates and cooperates  
with the commission’s staff.

"These are separate investigations, but it would be very surprising  
for New York State to go off on its own without being fairly confident  
the F.T.C. would pursue Intel as well," the person said.

At a news conference announcing the lawsuit, Mr. Cuomo said, “We have  
been cooperating with the F.T.C. We have a good, productive dialogue  
on this matter.”

A spokeswoman for the trade commission, Claudia Bourne Farrell, would  
not comment beyond saying that the commission’s investigation was  
continuing.

Intel and Microsoft have long been the personal computer industry’s  
two most dominant players. About 90 percent of all PCs rely on  
Microsoft’s Windows software, while Intel’s chips go into about 80  
percent of the PCs and computer servers sold every year.

Both companies have caught the attention of antitrust regulators in  
the past, although Microsoft’s legal battles have been far more  
confrontational and enduring.

In 1993, the F.T.C. dropped a two-year investigation into Intel’s  
business practices, saying it lacked evidence to back a lawsuit, and  
the agency ended a second investigation in 2000. In 1995, Intel  
settled a number of cases with A.M.D., including one involving  
antitrust charges.

“Intel has been more willing to negotiate with the government and less  
bellicose than Microsoft,” said Harry First, a professor at the New  
York University School of Law and the former chief of the New York  
attorney general’s antitrust bureau. “Frankly, I think they’ve been  
smarter litigants and have escaped more than Microsoft.”

Over the past couple of years, however, regulators have dug in and  
secured victories against Intel. In 2005, Japanese regulators  
determined that Intel had violated antitrust laws in that country, and  
South Korean antitrust authorities followed suit in a similar case.  
But the verdict in May by the European Commission was by far the  
biggest blow against the company.

During the press conference, New York prosecutors said Intel abused  
its monopoly power “as a central business strategy” rather than just  
in isolated incidents. In addition, the attorney general’s office  
claimed to have evidence linking Intel’s top executives to these  
abusive actions.

“We intend to stop them,” Mr. Cuomo said.

In the 80-page lawsuit, Mr. Cuomo appeared to be piggybacking, in  
part, on extensive e-mail evidence gathered during Europe’s  
investigation into Intel’s business practices.

In the statement, the attorney general pointed to e-mail messages that  
detail Intel’s interactions with companies like Hewlett-Packard, Dell  
and I.B.M. that he said support the case against Intel.

For example, Intel is accused of paying I.B.M. $130 million to hold  
back on selling a server based on A.M.D.’s Opteron chip, while also  
threatening to curtail joint projects if I.B.M. marketed A.M.D.’s  
products.

“The question is, can we afford to accept the wrath of Intel?” an  
I.B.M. executive wrote in a 2005 e-mail message, according to Mr.  
Cuomo’s office.

A similar e-mail message from an unnamed Hewlett-Packard executive  
talks about Intel planning to “punish” the company for selling  
products based on A.M.D.’s chips.

Most of the past antitrust cases in Europe and Asia have centered on  
Intel’s actions in the PC market. But Mr. Cuomo’s case seems to place  
substantial emphasis on the company’s server-chip business as well.

In 2003, A.M.D. released a chip called Opteron that thrust the company  
into the mainstream server market for the first time. For about four  
years, the product was hailed by analysts and hardware makers as  
superior to Intel’s Xeon chip.

With Opteron on its side, A.M.D. for the first time managed to attract  
Hewlett-Packard , I.B.M., Dell and Sun Microsystems as server-chip  
customers. A.M.D. executives, however, have long contended that Intel  
thwarted the adoption of Opteron through abusive practices and blunted  
A.M.D.’s ability to capitalize on the product.

They have also argued that Intel has blocked A.M.D.’s attempts to  
place its chips in computers purchased by businesses. Both the server  
and business PC markets tend to generate higher profits than the  
consumer computer market.

I.B.M., which competes with Intel in the server chip market, and  
A.M.D. have invested billions of dollars in chip plants in New York.

Along with e-mail messages from hardware makers, Mr. Cuomo has  
presented messages exchanged between Intel executives in which they  
express antitrust concerns. “Let’s talk more on the phone as it’s so  
difficult for me to write or explain without considering antitrust  
issue,” one Intel executive was said to have written in an April 2006  
message.

In interviews, a number of antitrust experts found similar e-mail  
exchanges presented by the European Commission unconvincing and said  
the regulators’ evidence was thin on details.

“I look at it, and I don’t have a lot of confidence in what the E.C.  
alleges,” said John E. Lopatka, a professor and antitrust expert at  
Penn State’s Dickinson School of Law. “It does smack of a brief more  
than an objective and honest recitation of the results of  
investigation.”

The issue of so-called loyalty discounts provided by a supplier to its  
customers remains a murky area in United States law.

“European law is much harsher on loyalty discounts,” Mr. First said.  
“There is still a lot of debate here among commentators and the courts  
on this issue, and the Supreme Court has not spoken on how we should  
treat this sort of loyalty pricing.”

Mr. Cuomo’s office said it had examined millions of pages of e-mail  
messages and documents during its 23-month investigation into Intel  
and taken testimony from dozens of witnesses.

Mr. Cuomo contends that consumers would have benefited from lower  
prices and better products had there been an even playing field in the  
chip market. His lawsuit seeks to stop Intel from continuing what he  
called its anticompetitive practices and to recover damages and  
penalties.

Steve Lohr contributed reporting.