Intel's antitrust troubles haven't ended with the European Union's record-breaking $1.45 billion fine. New York Attorney General Andrew Cuomo filed suit Wednesday against the company, alleging bribery, coercion and other anticompetitive activities.
"Rather than compete fairly, Intel used bribery and coercion to maintain a stranglehold on the market," Cuomo said. "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 suit says Intel essentially bribed major personal-computer manufacturers by offering huge rebate checks if they agreed to buy chips only from Intel rather than archrival Advanced Micro Devices. But Intel offered not just a carrot to stifle competition but also a stick, according to Cuomo, who said, "Intel also threatened to and did in fact punish computer makers that they perceived to be working too closely with Intel's competitors."
'We Never Threatened Anyone'
Intel threatened to cut off those PC makers from payments, fund the manufacturer's competitors, and cut off joint-development projects, he said.
Intel spokesperson Chuck Molloy vehemently denied Cuomo's allegations. "We never threatened anyone," he told National Public Radio.
The so-called "rebates" to PC makers actually had no legitimate business purpose, Cuomo said, and to make matters worse, Intel attempted to cover its tracks by "eliminating crucial but flagrantly objectionable provisions from written agreements or by camouflaging language about illegal guaranteed market shares with terms like 'volume targets.'"
Dell, HP, IBM Pressured
AMD, which has filed its own suit against Intel, high-fived the lawsuit, crowing, "The New York attorney general's 83-page complaint, filed on behalf of New York State consumers and governmental entities, details explicit evidence of Intel's harm to U.S. consumers and computer manufacturers," according to Tom McCoy, AMD's executive vice president of legal, corporate and public affairs. "Stopping that illegal harm will serve the settled purpose of the American antitrust laws: Ensuring that innovation is unconstrained and competition is free to serve consumers."
Specifically, the lawsuit alleges that in 2006 Dell received almost $2 billion in "rebates," that from 2001 to 2006, Dell agreed not to sell any AMD-based computers, and that Dell and Intel joined forces to sell servers below cost in order to "deprive AMD of strategically important competitive successes."
Intel allegedly paid hundreds of millions of dollars to Hewlett-Packard to limit its sales of AMD-based computers to five percent, threatened HP that it would derail development of an important server technology, and agreed to pay HP $925 million to increase Intel's sales at AMD's expense.
Intel also paid IBM $130 million not to launch an AMD-based server product, threatened to pull funding for joint IBM-Intel projects, and pressured IBM to sell an AMD-based server only on an unbranded basis, the suit says.
Tarnished Reputation
New York's suit may be the first government action in the U.S., but it likely won't be the last. "I wonder if this is the precursor to other state attorneys general and the federal government getting into the mix," Charles King, principal analyst with Pund-IT, said in a telephone interview.
If this suit or others drag on for some time, Intel may wind up with a seriously damaged reputation. And while customers may not have anywhere else to go, Intel faces a long-term risk that customers may start to view Intel as a "black hat." That might create pent-up demand for an alternative, much as Microsoft suffered at the hands of open source and Mozilla.
"At a certain point, it may be better to settle and move on and promise you won't do anything like this again, rather than continue to fight," King said. "But at this point, it looks like Intel will have plenty of opportunities to continue protesting their innocence for quite a while."
