Bribery And Coercion By Intel? That’s What Cuomo’s Complaint Charges

New York State Attorney General Andrew Cuomo earlier today filed a federal antitrust lawsuit against Intel Corporation, the world’s largest maker of computer microprocessors. The suit charges that Intel violated state and federal anti-monopoly laws by engaging in a worldwide, systematic campaign of illegal conduct – revealed in e-mails – to maintain its monopoly power and prices in the market for microprocessors.

 
According to Cuomo, over the last several years, Intel extracted exclusive agreements from large computer makers in which they agreed to use Intel’s microprocessors in exchange for payments totaling billions of dollars. The complaint also alleged that Intel threatened to and did in fact punish computer makers that they perceived to be working too closely with Intel’s competitors. Retaliatory threats included cutting off payments the computer maker was receiving from Intel, directly funding a computer maker’s competitors, and ending joint development ventures.
 
“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.”
 
According to Cuomo: 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.”
 
According to Cuomo: 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. Intel’s illegal behavior was highly detrimental to individual consumers and to the entire marketplace for computers. Intel repeatedly pressured computer makers to guarantee it specified market shares of their sales, which prevented computer makers from responding to consumer demand. With actual competition, consumers would have enjoyed more choices, lower prices, and better products. Furthermore, Intel’s illegal acts harmed innovation in a market that is critical to productivity growth throughout the economy.
 
According to Cuomo: Intel’s x86 microprocessors – the “brains” of most personal computers – are not generally sold directly to businesses or consumers, but are instead sold as components to computer makers. Intel’s illegal actions involving three of the largest computer manufacturers in the United States – Dell, Hewlett-Packard, and IBM - included the following:
 
·                     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”), Intel’s major competitor
·                     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
·                     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