Intel Sued By NY Atty Gen Cuomo For Alleged Antitrust Violations

Intel, which dominates the global computer microprocessor business, has used illegal means to reinforce its power according to New York State Attorney General Andrew Cuomo who filed a federal antitrust lawsuit Wednesday.

Cuomo essentially accused Intel of violating federal and state antitrust laws by bribing computer makers to use its microprocessors and not those of its competitors.

Intel denies the charges.

An excerpt from Cuomo's press release:

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 totaling billions of dollars. 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."

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."

 

According to Cuomo, the payments not only hurt Intel's competitors, chiefly AMD, but consumers who were hurt by the lack of competition allegedly created by Intel's rebates.

The lawsuit includes internal e-mails from Intel and other technology companies.

An example provided by the New York AG's office:

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."

Another example:

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."

As The Wall Street Journal reports, Cuomo has been making headlines with many big investigations as he prepares for what's expected to a run for the governor's office once occupied by his father.

Mr. Cuomo is expected to be a Democratic candidate for governor in New York in November 2010. This lawsuit comes on the heels of many high profile lawsuits and investigations he's brought during the financial crisis on topics ranging from the sale of auction-rate securities to Bank of America's merger with Merrill Lynch.

The antitrust unit of his office has also brought cases, including filing charges in March of 2008 with 25 other states against Abbott Laboratories and a French drug company Fournier for inhibiting competing drug companies from producing a generic version of its cholesterol drug Tricor7.

The WSJ also has reaction from an Intel spokesman.

"We disagree with the New York attorney general," said Chuck Mulloy, an Intel spokesman. "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."

He added: "Intel will defend itself."

Intel is coming under increasing scrutiny from regulators. In May, the European Union fined the company $1.4 billion for abusing its dominant market power to hurt AMD.

Last year, South Korea also fined Intel, levying a $25 million penalty on the company.

Like Cuomo's office, EU officials also revealed Intel e-mails that strongly suggested to regulators that Intel was using its muscle in the microprocessor market to strong arm customers and hurt AMD.

Meanwhile, AMD has sued Intel for alleged anti-competitive practices.