New York AG files antitrust charges against Intel; alleges bribery, coercion

The New York Attorney General's office today accused chip maker Intel of engaging in "a worldwide, systematic campaign of illegal conduct," including paying kickbacks and threatening computer makers, and filed federal antitrust charges against it. (PDF of Complaint)

In a statement, New York Attorney General Andrew Cuomo said that e-mails revealed that Intel has scored  exclusive agreements with computer makers to use its microprocessors by resorting to "rebates" and threats, such as cutting off payments, funding a competitor or ending joint development ventures. In a press release, Cuomo said:

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.

Intel spokesman Chuck Mulloy told the Wall Street Journal that the company will defend itself against the charges and that "Neither consumers who have consistently benefited from lower prices and increased innovation, nor Justice, are being served by the decision to file a case now."

Cuomo's office said the company also tried to erase traces of its practices by "eliminating crucial but flagrantly objectionable provisions from written agreements or by camouflaging language about illegal guaranteed market shares with terms like 'volume targets.' "

The AG's office noted specific instances of the illegal practices involving Intel and Dell, HP and IBM. Among the allegations:

• From 2001 to 2006, Intel granted Dell a privileged position vis-à-vis other computer makers in return for Dell’s agreement not to market any products from Advanced Micro Devices, Intel’s major competitor
• Intel threatened HP that it would derail development of a server technology on which HP’s future business depended if HP promoted products from AMD
• Intel paid HP hundreds of millions of dollars in rebates in return for HP’s agreement to cap HP’s sales of AMD-based products at 5% of its business desktop PCs
• Intel paid IBM $130 million not to launch an AMD-based server product
• Intel threatened to pull funding for joint projects that benefited IBM if IBM marketed AMD-based server products

The AG's office also offered examples of instances where PC makers agreed to go along with Intel's practices, specifically a 2006 deal between HP and Intel that involved payment of $925 million to HP to increase Intel's shares of HP's sales at AMD's expense and a collaboration between Intel and Dell to market microprocessors and servers at prices below cost to "deprive AMD of strategically important competitive successes."

However, the AG positions the PC makers as victims here, not collaborators. For example, the AG's office offers these examples, unveiled as part of its 20-month investigation:

• Internal e-mail from IBM executive in January 2005: “I understand the point about the accounts wanting a full AMD portfolio. The question is, can we afford to accept the wrath of Intel…?”
• Internal e-mail from HP executive in June 2004 after HP defied Intel and launched an AMD product: “Intel has told us that HP’s announcement on Opteron [AMD’s server chip] has cost them several $B [Billions] and they plan to ‘punish’ HP for doing this.”
• Internal Dell e-mail in February 2004 regarding the possibility of Dell ending its exclusive relationship with Intel: “PSO/CRB [Intel CEO Paul Ottelini and Intel Chairman Craig Barrett] are prepared for jihad if Dell joins the AMD exodus.
• Internal e-mail from Intel executive in April 2006: “Let’s talk more on the phone as it’s so difficult for me to write or explain without considering anti-trust issue.”