NY State attorney launches anti-trust battle against Intel

5 Nov 2009

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New York State attorney Andrew Cuomo has launched a major federal lawsuit against chip giant Intel, accusing the company of violating anti-trust laws and of using its financial clout to encourage manufacturers to buy its chips instead of rivals’ chips.

The move comes just months after the European Commission slapped a €1.06-billion fine on Intel for the same alleged offences. Intel, which employs more than 4,000 people in Leixlip, says it plans to appeal the EU fine.

Background

According to the commission, throughout the period October 2002–December 2007, Intel abused its dominant position in the worldwide x86 CPU market by engaging in illegal anti-competitive practices designed to exclude competitors. In its decision in May, the commission found that Intel gave wholly or partially hidden rebates to computer manufacturers on condition that they bought all, or almost all, their x86 CPUs from Intel.

In New York, however, State attorney Andrew Cuomo accused Intel of extracting exclusive agreements from large computer makers in which they agreed to use Intel’s microprocessors in exchange for payments totalling billions of dollars. Cuomo said Intel also threatened and punished computer makers that it perceived to be working too closely with its competitors.

Retaliatory threats included cutting off payments the computer maker was receiving from Intel, directly funding a computer maker’s competitors, and ending joint development ventures.

Accusations

“Rather than compete fairly, Intel used bribery and coercion to maintain a stranglehold on the market,” said Cuomo. “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.”

Cuomo said that to obtain exclusive agreements, Intel paid hundreds of millions of dollars annually – and in some years billions of dollars – in so-called “rebates” to individual computer makers. These rebates, he said, were actually just payoffs with no legitimate business purpose that Intel invented to disguise its anticompetitive nature.

He said Intel also attempted to erase the most obvious traces of its anticompetitive scheme by eliminating crucial but flagrantly objectionable provisions from written agreements or by camouflaging language about illegal guaranteed market shares with terms like “volume targets.”

Cuomo said payments for exclusivity that Intel provided could make the difference between profit and loss for a computer maker and sometimes, the payments from Intel exceeded a company’s reported quarterly net income.

Intel’s response

Intel has challenged Cuomo’s allegations and said the decision to file the suit against the company was wrong.

“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,” Intel stated.

A thinktank on the digital revolution and its impact on public policy, the Progress & Freedom Foundation, has come to Intel’s defence, describing the action by the New York State attorney as political opportunism rather than out of concern for the consumer.

“It’s unfortunate that the NY Attorney General has decided to interfere in a market that is actually working for consumers,” said Ken Ferree, senior fellow at the Progress & Freedom Foundation.

“Despite all of the rhetoric and grandstanding, there is no evidence that I’ve seen of any harm to Intel’s competitors, to competition, or to consumers.

“On the contrary, the microprocessor market is characterised by rapidly falling prices, increasing outputs, and improved performance. Indeed, the only reason evident for bringing this case is the political splash it will no doubt make. That’s not how sound competition policy is grounded,” Ferree said.

By John Kennedy

Photo: Intel is the world’s largest maker of computer microprocessors.

Editor John Kennedy is an award-winning technology journalist.

editorial@siliconrepublic.com