NY AG: Intel Is An Illegal Monopoly That Uses "Bribery And Coercion"

Andrew Cuomo, the Attorney General of New York, has filed a lawsuit against Intel, claiming that the company is an illegal monopoly that engages “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.”

From the NY AG’s office:

“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.”

As for how this affects you, the consumer, the AG’s office says that “Intel repeatedly pressured computer makers to guarantee it specified market shares of their sales, which prevented computer makers from responding to consumer demand.”

The AG’s office quotes some internal emails from Dell, HP and Intel in which alleged “anti-trust” activity is discussed. For example this is from an 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.”

And here’s another one in which a HP executive discusses the possible repercussions for using another company’s products:
“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.”

Here’s the breakdown of how the AG’s office says different computer makers were paid off by Intel to guarantee market share and keep businesses from using their competitor’s products:

Dell

* 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 (“AMD”) (NYSE: AMD), 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

HP

* 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 an broader, company-wide agreement to pay HP $925 million to increase Intel’s shares of HP’s sales at AMD’s expense

IBM

* 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
* Intel pressured IBM to launch another AMD-based server only on an “unbranded” basis

The NYT says that Cuomo’s suit is the “first formal antitrust action against Intel by any government agency in the United States in more than a decade.”

ATTORNEY GENERAL CUOMO FILES ANTITRUST LAWSUIT AGAINST INTEL CORPORATION, THE WORLD’S LARGEST MAKER OF MICROPROCESSORS [NY AG]
Full Complaint (PDF) [NY AG]
(Photo:hanapbuhay)