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Intel Accused Of Bribery, Coercion

November 5, 2009

New York Attorney General Andrew Cuomo filed an antitrust lawsuit against Intel Corp. on Wednesday, accusing the world’s largest chipmaker of threatening computer firms and paying billions in kickbacks to protect its market dominance.

“Rather than compete fairly, Intel used bribery and coercion to maintain a stranglehold on the market,” said Cuomo 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,” he added.

The lawsuit accuses Intel of violating state and federal antitrust laws through engaging in “systematic worldwide campaign of illegal, exclusionary conduct to maintain its monopoly power and prices in the market for x86 microprocessors.”

The bullying and coercion to monopolize the market came at the expense of rival Advanced Micro Devices Inc. (AMD), the lawsuit alleges.

Cuomo said Intel exacted “exclusive or near-exclusive agreements from large computer makers in exchange for payments totaling billions of dollars” and threatened retaliation against firms that did not play along.”

Intel’s retaliatory threats allegedly included discontinuing payments, funding competitors and terminating joint development ventures.

Intel was accused of paying billions in so-called “rebates” to computer makers in order to secure exclusive agreements.

“These rebates were actually just payoffs with no legitimate business purpose that Intel invented to disguise their anticompetitive nature,” said Cuomo in his statement.

The lawsuit seeks to prohibit “further anticompetitive acts by Intel, restore lost competition, recover monetary damages suffered by New York governmental entities and consumers, and collect penalties.”

The suit is only the latest legal challenge for Santa Clara-Calif.-based Intel, which is currently under investigation by the Federal Trade Commission.  AMD has also sued the chip giant in a case expected to go to trial next year.  In May, regulators in the European Union fined Intel a record $ 1.45 billion for antitrust violations, claiming the company had abused its dominance in the semiconductor market to quell AMD.   Intel has appealed that ruling.

The AFP news agency quoted Intel spokesman Chuck Molloy as having rejected Cuomo’s allegations.

“We disagree with the New York attorney general,” Molloy said.

“Neither consumers, who have consistently benefited from lower prices and innovation, nor justice are being served by a decision to file a case now.

“Intel will defend itself,” he told the AFP.

AMD executive vice president Tom McCoy said the lawsuit includes “explicit evidence of Intel’s harm to US consumers and computer manufacturers.”

“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.”

Ed Black, president and chief executive of the Computer and Communications Industry Association (CCIA), said Intel must “admit its misconduct, repair the harms it has perpetrated and change its business practices.

“The quicker Intel owns up to its actions the quicker it, and the entire computer industry, can move on,” he told the AFP.

Attorney General Cuomo’s lawsuit accuses Intel of paying computer giant Dell nearly two billion dollars in “rebates” in 2006. Hewlett Packard was allegedly paid hundreds of millions in rebates in exchange for an agreement to limit HP’s sales of AMD-based products at five percent of its business desktop PCs. 

The lawsuit also cited internal documents and e-mails alleging that IBM was paid $130 million not to launch an AMD-based computer server product.

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