After a 22-month investigation into Intel's trading practices,
the State of New York has decided to
bring anti-trust charges against Intel.
The suit charges that Intel violated state and federal
anti-monopoly laws by engaging in a worldwide, systematic campaign
of illegal conduct - revealed in e-mails - in order to maintain its
monopoly power and prices in the market for microprocessors.
The Attorney General for the State of New York, Andrew Cuomo,
today filed the charge which alleges that Intel threatened computer
makers and paid them kickbacks to deter them from using AMD
processors.
Intel has been found guilty on similar charges by anti-trust
regulators in
Korea, Japan and
Europe.
'Over the last several years, Intel has extracted exclusive
agreements from large computer makers in which they agreed to use
Intel's microprocessors in exchange for payments totalling billions
of dollars', says the charge, 'Intel also threatened to and did in
fact punish computer makers that they perceived to be working too
closely with Intel's 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.'
"Rather than compete fairly, Intel used bribery and coercion to
maintain a stranglehold on the market," said Attorney General
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."
The charge continues: '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 were actually just payoffs with no legitimate
business purpose that Intel invented to disguise their
anticompetitive nature. 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."'
The charge adds: 'The payments for exclusivity that Intel
provided could make the difference between profit and loss for a
computer maker or a segment of its business. Sometimes, the
payments from Intel exceeded a company's reported quarterly net
income. Intel's illegal behaviour was highly detrimental to
individual consumers and to the entire marketplace for computers.
Intel repeatedly pressured computer makers to guarantee it
specified market shares of their sales, which prevented computer
makers from responding to consumer demand. With actual competition,
consumers would have enjoyed more choices, lower prices, and better
products. Furthermore, Intel's illegal acts harmed innovation in a
market that is critical to productivity growth throughout the
economy.'
The suit, which was filed today in federal court, seeks to bar
further anticompetitive acts by Intel, restore lost competition,
recover monetary damages suffered by New York governmental entities
and consumers, and collect penalties.
Intel's 'illegal' actions involved HP, Dell and IBM, alleges the
New York charge sheet, which continues:
'In 2006, Intel paid Dell almost $2 billion in "rebates," and in
two quarters of that year, rebate payments exceeded Dell's reported
net income
'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 and Dell collaborated to market microprocessors and
servers at prices below cost in order to deprive AMD of
strategically important competitive successes.'
'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.'
'In 2006, Intel and HP entered into a broader, company-wide
agreement to pay HP $925 million to increase Intel's shares of HP's
sales at AMD's expense.'
'Intel paid IBM $130m 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.'
Intel pressured IBM to launch another AMD-based server only on
an "unbranded" basis.'
The lawsuit includes e-mail correspondence demonstrating Intel's
illegal activities. Examples include:
- 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 e-mail from HP executive in September 2004 regarding
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."'
- 'Internal Dell document from February 2003 in which it was
assumed that "aggressive" purchases by Dell from Intel's
competitors could result in: "[r]etaliatory [rebate] reductions [by
Intel that] could be severe and prolonged with impact to all LOBs
[lines of business]."'
- 'Internal Dell e-mail in February 2004 regarding the
possibility of Dell ending its exclusive relationship with Intel:
"PSO/CRB [Intel CEO Paul Otellini and Intel Chairman Craig Barrett]
are prepared for jihad if Dell joins the AMD exodus. We [will] get
ZERO [rebates] for at least one quarter while Intel 'investigates
the details' - there's no legal/moral/threatening means for us to
apply and avoid this."'
- Internal e-mail from an Intel negotiator in September 2006
attempting to make sure that the company's internal e-mails did not
reveal Intel's antitrust violations: "Could you just take the mss
[market share] references off and just leave everything at volume
targets. 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 . . . "'
- '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." '
- Internal e-mail from Dell CEO Michael Dell to Intel CEO Paul
Otellini in November 2005: "We have lost the performance leadership
and it's seriously impacting our business in several areas."
Otellini replied: "There is nothing new here. Our product roadmap
is what it is. It is improving rapidly daily. It will deliver
increasingly leadership products Additionally, we are transferring
over $1B [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."'
See also:
Mannerisms, the blog of David Manners. Updated twice daily,
it's the distinctive, entertaining, authoritative and never dull
commentary on the semiconductor industry, from someone who knows.
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