Posted by
alfredlester on Wednesday, November 04, 2009 4:00:54 PM
Following the lead of foreign regulators, New York&S217;s attorney general, Andrew M. Cuomo, filed a federal antitrust lawsuit Wednesday against Intel, the world&S217;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 has struck with computer makers and retailers that, regulators say, pressured them into picking the company&S217;s microprocessors &<51; which serve as the central chip inside personal computers and servers &<51; instead of competing products from A.M.D.
&S220;Rather than compete fairly, Intel used bribery and coercion to maintain a stranglehold on the market,&S221; Mr. Cuomo said in a statement. &S220;Intel&S217;s actions not only unfairly restricted potential competitors, but also hurt average consumers who were robbed of better products and lower prices.&S221;
To date, Intel has denied the charges against it and has filed an appeal against the European Commission&S217;s ruling.
The New York attorney general&S217;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 early next year.
The New York move increases the chances that the F.T.C. will take action against Intel, according to a person who is familiar with the state&S217;s investigation but is not authorized to discuss it. Mr. Cuomo&S217;s staff, this person said, regularly communicates and cooperates with the commission&S217;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.
A spokeswoman for the F.T.C., Claudia Bourne Farrell, would not comment beyond saying that the commission&S217;s investigation was continuing.
Intel and Microsoft have long been the personal computer industry&S217;s two most dominant players. About 90 percent of all PCs rely on Microsoft&S217;s Windows software, while Intel&S217;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&S217;s legal battles have been far more confrontational and enduring.
In 1993, the F.T.C. dropped a two-year investigation into Intel&S217;s business practices, saying it lacked evidence to back a lawsuit, and it ended a second investigation in 2000. In 1995, Intel settled a number of cases with A.M.D., including one involving antitrust charges.
&S220;Intel has been more willing to negotiate with the government and less bellicose than Microsoft,&S221; said Harry First, a professor at the New York University School of Law and the former chief of the New York attorney general&S217;s antitrust bureau. &S220;Frankly, I think they&S217;ve been smarter litigants and have escaped more than Microsoft.&S221;
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 handed down in May by the European Commission was by far the biggest blow against the company.
In the 80-page lawsuit, Mr. Cuomo appears to be piggybacking, in part, on extensive e-mail evidence gathered during Europe&S217;s investigation into Intel&S217;s business practices payday advance lender.
In the statement, the attorney general pointed to e-mail messages that detail Intel&S217;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.&S217;s Opteron chip, while also threatening to curtail joint projects if I.B.M. marketed A.M.D.&S217;s products.
&S220;The question is, can we afford to accept the wrath of Intel...?&S221; an unnamed I.B.M. executive wrote in a 2005 e-mail, according to Mr. Cuomo&S217;s office.
A similar e-mail from an unnamed H.P. executive talks about Intel planning to &S220;punish&S221; the company for selling products based on A.M.D.&S217;s chips.
Most of the past antitrust cases in Europe and Asia have centered on Intel&S217;s actions in the PC market. But Mr. Cuomo&S217;s case seems to place substantial emphasis on the company&S217;s server chip business as well.
In 2003, A.M.D. released a chip called Opteron that thrust it 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&S217;s Xeon chip.
With Opteron on its side, A.M.D. for the first time managed to attract H.P., 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 its abusive practices and blunted the company&S217;s ability to capitalize on the product.
They have also argued that Intel has blocked A.M.D.&S217;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 based in New York.
Along with e-mail from hardware makers, Mr. Cuomo has presented e-mail messages exchanged between Intel executives in which they express anti-trust concerns. &S220;Let&S217;s talk more on the phone as it&S217;s so difficult for me to write or explain without considering anti-trust issue,&S221; one Intel executive is 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&S217; overall evidence was thin on details.
&S220;I look at it, and I don&S217;t have a lot of confidence in what the E.C. alleges,&S221; said John E. Lopatka, a professor and antitrust expert at Penn State&S217;s Dickinson School of Law. &S220;It does smack of a brief more than an objective and honest recitation of the results of investigation.&S221;
The issue of so-called loyalty discounts provided by a supplier to its customers remains a murky area in United States law.
&S220;European law is much harsher on loyalty discounts,&S221; Mr. First said. &S220;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.&S221;
Mr. Cuomo&S217;s office said it had examined millions of pages of e-mail 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 its anticompetitive practices and to recover damages and penalties.
Steve Lohr contributed reporting.
Cuomo Files Federal Antitrust Lawsuit Against Intel
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