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 successesHP
* 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 expenseIBM
* 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)
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Comments:
Because Intel doesn't employ anyone (or pracitcally anyone) in NY and AMD/IBM does...same as in Europe (Intel's Ireland presence is quite small nowadays).
You know, when I was in college a few years ago, I preferred AMD over Intel everyday. My Intel PCs would overheat, and overclock when running simulations of a CPU. I then switched to AMD [with the recommendations from tons of computer geeks], and while it wasn't the powerhorse of a Pentium, it had great performance, and best of all, it never overclocked.
Then something happened in the last few years. I think Intels current processors addressed some issues I had with its performance. As a result, AMD got left in the dust, and now I slightly prefer Intel CPUs over AMDs.
But I haven't really looked into AMD's latest offerings. Maybe it's because Intel paid off everyone to not talk about AMD.
great. now when do we go after nvidia & ati?
@dragonfire81: Throwing your weight around in terms of threatening to cancel, raise prices is normal. Using your massive market share to explicitly conspire to restrict your customer's use of a competitor is not.
@W10002:
Not sure what you mean by saying that the system "overclocked" itself????
Overclocking is something that you as the user choose to do *IF* the hardware supports it. Traditionally Intel has "locked" their CPU clock speed meaning you can't adjust it while AMD has offered many "unlocked" CPUs where you could adjust the clock speed.
Not really a surprise - how about grocery stores selling shelf space to companies - if you want more Tide on the shelf, then pay for the facing.
The "marketing funds" that retailers get behind the scenes pay for all sorts of hidden anti-competitive practices.
@W10002: I really followed the same logic. P4s were absolutely terrible, while the AMD Athlon chips were far more stable and cool. Once the Core2 Duo chips came out from Intel, AMD fell off the face of the planet.
So it looks like Apple wasn't a party to these illegal schemes, while almost all their competitors had no problems diving face first into the muck with Intel. (Yay!)
Sucking up billions of dollars in illegal bribes from Intel puts quite an interesting spin on the claims that Apple's product line is overpriced (they're not, on an apples to apples comparison, particularly when software bundles are included, but still...)
But... Intel is friendly! They have dork rock-parties that aren't like ours at all! They all get together in ethnically diverse groups and sing the "dum... dum dun dun dun dum!" song every day!
Just when Dell bought Alienware I was able to get and AMD chipped laptop for home and a 64-bit processor for work. The cost savings over comparable Intel machines was significant. A little latter I went back to see if they were still selling AMD machines but they had gone all Intel and the price was way up.
Let's face it, Intel processors are better. Why do you think Apple started using them?
@dragonfire81: i don't think i've ever read about walmart paying vendors bribes not to sell in other stores, or vendors paying walmart bribes not to carry other manufacturers' products.
i suppose it's possible, but walmart simply using their market size to pressure vendors to sell their items for less doesn't compare to this. this is outright racketeering: "sell our product exclusively or we'll end our rebate program & charge you 3x as much for our processors."
It is nice this is seeing the light of day... but it is no surprise for anyone who has worked in the industry. And certainly no surprise for anyone who observes "Free Market" practices as practiced by huge multinational corporations. It goes without saying the "free" part refers to them being free to do as they please in the market.
@tailstoo:
It's not quite the same. The proper analogy would be to just give a discount to PC makers when they buy Intel chips, not aggressively discourage and/or threaten them with repercussions if they don't reduce their AMD offerings.
just like the current economic crisis, big banks pushing little banks and people around how they see fit.
same thing with intel. they have money, they buy the pc mnftrs. so without intel I guess hp, dell & ibm wouldnt exist or be as big as they are now.
they should add the word intel after their company name hpintel, dellintel, ibmintel.
I wasn't aware you could have a monopoly when you had competition...does AMD not count?
@CapitalC:
There is absolutely no correlation between Apple using some product & that product being the best in the industry. Best is a perception that differs from person to person. I am sure you will find lots of people who think Apple products are *NOT* top of the line. Even the iPhone isnt perfect for everyone's standards.
@Trai_Dep:
Your pro-Apple arguement is as pure fail as it always has been.
To the other point, PC OEMs didn't really have much choice when Intel put their illegal pressures on. You don't get to say they "had no problems diving face first into the muck with Intel." Intel had them by the balls and was threatening them with massive penalties by not playing their game - in exactly the same way the mob enters a small business and proposes "protection" payments. You can either go along, or you can get your ass handed to you.
Also, this all happened WAY before Apple started using Intel processors. So that's a total red herring.
@bitslammer: Based on the simulations I was running at the time [it's been years so I don't know the details], yes the Intel CPUs didn't support it. I didn't know this until after I ran them. It was for a class where I had to design a CPU, and run simulations of it. Once I bought a new PC with an AMD CPU, I was able to run my simulations without any problems.
@Pibbs: Yeah. I was in college when the best Intel had to offer was the Pentium 4s. Once Core2 Duo came out... I really don't know where AMD went.
@CapitalC:
That is debateable on how you define "better" - but even in the most objective pure-performance standpoint, that crown has traded back and forth.
If you're going to use "what Apple uses" as a benchmark for what's "best" - then apparently the rest of the world was wrong for not using Motorola chips exclusively for so long? Clearly, the company that owns 5% of the worldwide computer market should be the belwether for what's "best."
@coren:
...it depends on more than that. Like the way Microsoft can be a monopolist in the OS market when Apple, Linux, and Bob's OS were around.
@W10002: My homade computer is using an AMD Phenom II black, which overclocks amazingly and cost 1/5 what an i7 would have cost me. To be fair, it's not as fast as an i7, but my other, store-bought i7 desktop just isn't that much faster at anything but straight benchmark programs. I'll take the AMD any day.
@mac-phisto: Leave my GPUs alone... NVidia and ATI are both very competitive and reasonably priced and make their chipsets available to many distributors who sell their GPU's for even less.
@mac-phisto: Um, you mean just nVidia, right? Who do you think pays for all those "Runs better on nVidia" ads in front of every single PC game today?
Our marketing strategies are not like your marketing strategies. ♪bum… bu bu bu bum♪
@coren:
Monopoly is about market power and how it is used. Using market power to illegitimately squash competition through means other than a purely superior product can violate the Sherman Act.
The strong-arming happens EVERYWHERE. its not illegal. I'm a manufacturers rep that sells to distributors and small-to-medium store chains. We get pushed around all the time but its only logical following effing "ECONOMIES OF SCALE!!!" if i remember Econ 101 correctly
@arguewithme:
Wrong and illegal are different concepts. You may not think that strong-arming is wrong, but that doesn't mean it's legal. Certain types of "Strong arming" do indeed violate the US Anti-trust laws and can result in large civil, and in some cases criminal, penalties.
@mac-phisto: Watch the anti-Walmart documentary. I bet you'll revise your comment after that! Walmart definitely does bribe/threaten vendors.
@YouDidWhatNow?: I'm not sure Linux would have mattered, but then again I don't know a ton about this (because Linux is free and not sold)
If this were truly the case of where Intel would raise prices or pull out, AMD would be there to step in.. I do not see where they are monopolizing the market.. AMD have decreased market share because tech wise they have been getting their butt kicked.. And if you ran a company would you say no to millions if not billions of dollars for selling something you were already selling??
Maybe the NY AG should also file lawsuit in all the corruption of officals in his town first..
@mac-phisto: Vendors actually frequently pay retailers to not carry other products. It's disguised as buying shelf real estate. For example, go to any conveneince store or grocery store and look at how much space they devote to Marlboro cigarettes, Coke/Pepsi products, Lay's chips, etc compared to other brands like Jones Soda, Camel, Tim's Cascade, etc. They buy up as much space as possible, and buy out other spaces by paying more money than others can afford or are willing to pay.
Intel is too big to fail.
I would hope, for your sake, that your "strong-arming" doesn't include bribes, kickbacks, or threats to not supply your product if the customer wants to also buy product from your competitor. Because that's not strong-arming...that's criminal.
If this all turns out to be true, then AMD is pretty Bad Ass for surviving this long.
...actually, I should say this started way before Apple started using Intel CPUs. I don't recall the actual time when Apple started using Intel product...might have been 2006.
This was going on in the nineties to be sure.
@dragonfire81: You are right that it happens all of the time. Just more good reason and incentive for the government to crack down on them. These kinds of business practices exploit the natural weaknesses of a capitalistic society that doesn't contain enough effective regulation. A large effort to lessen those weaknesses is long over due.
@Persistence: ...but how much opportunity is there for new competition to arise? That is my concern. I share that same concern for many industries.
@W10002:
I agree, this exact same thing happened to me. I have been building my own desktops since college and always used an AMD CPU. Never had a problem with any of those systems and I saved so much money I could afford to build new systems more often. Now Intel CPUs are so expensive I can't afford to them.
Now I use an old dual Xeon Dell Precision 650 workstation. Does everything I need, except run Windows 7 that is.
Intel locks its multiplier. However, raising the FSB of the motherboard is dependent on the mobo manufacture, and will raise the clock speed of the processor regardless of the processor.
@W10002: I was strictly AMD for a while, they were killing Intel a few years ago when they beat them to the punch on the 64 bit chips. They had better prices and better performance in a lot of cases. It seems since intel released the core duo they haven't released anything that can compete. Maybe that has some relation to this article.
And how is this much different from Wal-Mart constantly pressuring their vendors for lower prices and otherwise throwing their weight around to get what they want?
Big businesses do this. It may not be ethical, it may not be legal in some cases but it happens all the time.