Cuomo Files Antitrust Suit Against Intel
NOVEMBER 5, 2009
By LIZ RAPPAPORT AndDON CLARK
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New York's attorney general filed antitrust charges against Intel Corp., alleging the chip giant threatened computer makers and paid huge kickbacks to stop them from using competitors' chips.
The suit, filed in a Delaware federal court, adds to a string of cases alleging the Santa Clara, Calif., company, which has long dominated the market for microprocessors, abused its market power. It also alleges Intel's practices hurt consumers by influencing pricing and limiting innovation.
The suit brought by New York's top state prosecutor, Andrew Cuomo, alleges that for several years Intel sought to maintain its dominance by paying billions of dollars in kickbacks to computer makers under the guise of "rebates."
The suit also alleges Intel threatened computer-makers—including Hewlett-Packard Co., International Business Machines Corp., and Dell Inc.—with retribution if they marketed products with chips made by competitors.
"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."
Officials from H-P and Dell declined to comment. IBM wasn't immediately available.
Mr. Cuomo's office began its investigation into Intel's competitive practices in January 2008. Intel is being investigated for possible antitrust violations on multiple continents, and by numerous regulators, including the U.S. Federal Trade Commission, based on similiar grounds. Intel has denied wrong-doing.
Intel recently appealed antitrust charges brought by the European Union, which levied on it a €1.06 billion ($1.56 billion) fine. Intel's main rival, Advanced Micro Devices Inc., is also suing Intel over antitrust issues in Delaware federal court.
Intel engaged in "a world-wide, systematic campaign of illegal conduct," Mr. Cuomo said in a press release. "Intel used bribery and coercion to maintain a stranglehold on the market."
Related
Document: Complaint Against Intel
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Law Blog: Making Sense of Cuomo's Suit
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Digits: What Did Cuomo Find in Intel's Emails?
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Mr. Cuomo is expected to be a Democratic candidate for governor in New York in November 2010. The 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 Corp.'s merger with Merrill Lynch.
The antitrust unit of his office has also brought cases, including filing charges in March 2008 with 25 other states against Abbott Laboratories and European drug company Fournier Pharma for allegedly inhibiting others from producing a generic version of a cholesterol drug.
Mr. Cuomo's staff reviewed millions of documents and emails and took depositions from several dozen witnesses. Like the EU's case, the New York suit cites emails between Intel executives as well as internal emails from Dell, H-P and IBM.
Mr. Cuomo's complaint outlines Intel's relationship with Dell, at a time when Dell was facing weakening sales and profits.
On Nov. 10, 2005 Dell founder Michael Dell wrote to Intel Chief Executive Paul Otellini that Dell was losing ground to competitors and that his business was suffering, according to an email described in the complaint.
Mr. Otellini responded that his products were still improving and reminded Mr. Dell he'd transferred over $1 billion a year to Dell to help Dell meet offers from the competition, which Mr. Otellini added was "judged by your team to be more than sufficient to compensate for the competitive issues," according to another email in the complaint.
In another Dell email from February 2004, an employee wrote that Mr. Otellini, who was then Intel's president, and then-CEO Craig Barrett "are prepared for jihad" if Dell opted to use AMD chips, according to the suit.
Some of the payments made by Intel were so large that they made the difference between a profit and a loss for a computer maker or a segment of its business, according to Mr. Cuomo
In 2006, Intel allegedly paid about $2 billion to Dell to maintain its relationship as the computer maker's exclusive chip supplier—a "rebate" package that was so large, it exceeded Dell's own reported net income, according to the complaint.
The complaint also alleges Intel threatened computer makers when they veered from exclusivity pacts. Intel told H-P that it would "derail" one of its products in development if the company promoted any products from AMD, according to the suit.
In an email described in the complaint, one H-P executive wrote in an email in June 2004: "Intel has told us that H-P's announcement on Opteron [AMD's server chip] has cost them several $B[illion] and they plan to 'punish' H-P for doing this."
The lawsuit also alleges that Intel took steps to hide its behavior from regulatory inquiry. In an email described in the complaint, one Intel executive in April 2006 wrote in an email, "Let's talk more on the phone as it's so difficult for me to write or explain without considering anti-trust issue."
Write to Liz Rappaport at liz.rappaport@wsj.com
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