NY Attorney General Cuomo Files Antitrust Lawsuit Against Intel


New York Attorney General Andrew Cuomo on Wednesday filed a federal antitrust lawsuit against Intel Corp. (INTC), alleging that the world's largest maker of computer microprocessors paid billions of dollars in kickbacks and threatened computer manufacturers to prevent the sale of competitors' products.

The suit, filed in a Delaware federal court, charges that Intel violated state and federal anti-monopoly laws by engaging in a worldwide, systematic campaign of illegal conduct in order to maintain its monopoly power and prices in the microprocessor market.

The suit 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.

"Rather than compete fairly, Intel used bribery and coercion to maintain a stranglehold on the market," Cuomo said in a statement. "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 New York Attorney General claimed that over the past several years Intel has extracted exclusive agreements from large computer makers such as Dell Inc. (DELL), Hewlett-Packard Co.. (HPQ) and International Business Machines Corp. (IBM) to use its microprocessors in exchange for payments totaling billions of dollars. Cuomo also alleged that Intel used retaliatory threats with computer maker including ending joint development ventures and directly funding a computer maker's competitors if they did too much business with Intel's competitors.

Cuomo's office began its investigation into Intel's competitive practices in January 2008. During the investigation, Attorney General's office has reviewed millions of pages of documents and e-mails and took testimony from several dozen witnesses.

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, according to Cuomo. 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), Intel's major competitor.

Intel also allegedly threatened HP that it would derail development of a server technology on which HP's future business depended if HP promoted products from AMD.

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.

Cuomo's lawsuit includes e-mail correspondence showing Intel's illegal activities. For example; one HP executive wrote in an email in June 2004: "Intel has told us that HP's announcement on Opteron [AMD's server chip] has cost them several $B[illion] and they plan to 'punish' HP for doing this."

Internal e-mail from Dell CEO Michael Dell to Intel CEO Paul Ottelini in November 2005 said, "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."

Intel is the world's largest supplier of microprocessors, the brains of personal computers, with roughly 80% of the global market share. The company has caught the attention of antitrust regulators in the past. In May, the European Commission slapped a $1.45 billion fine for antitrust violations on Intel, which has recently filed an appeal against that ruling.

Intel shares are currently trading at $18.62, up 12 cents.

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