New York attorney general sues Intel; accuses chipmaker of using bribery and coercion to crush competition

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New York Attorney General Andrew Cuomo this morning announced an antitrust lawsuit against dominant computer chip maker Intel, alleging the company bribed, threatened and cheated to maintain its dominance in the marketplace.

Intel, Cuomo said, bullied its business partners and pushed aside competition --hurting consumers who could have benefited from the cost savings that comes with a competitive environment. Intel's chips are the guts of the vast majority of PCs.

"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."

In the lawsuit, Cuomo alleges: "Intel has distorted competition and harmed consumers, depriving them of the lower prices and increased rates of innovation which competition would have yielded. Absent Intel's illegal acts, prices would likely have been lower, product innovation more dynamic, and consumer gains greater."
The 83-page lawsuit filed in U.S. District Court in Delaware alleges that Intel tried to crush competition from rival Advance Micro Devices (better known as AMD) by paying billions of dollars in payoffs that were called "rebates" to computer giants HP and Dell. In exchange those companies limited their dealings with AMD. Cuomo also alleges Intel threatened to pull away from its business relationships with those companies and others if they continued to grow their business with AMD.

Cuomo said his office has been communicating about the case with the Federal Trade Commission, which is also investigating the issues. The case is far larger than just New York, he said. European regulators already have filed similar cases against Intel.

In 2005, AMD filed a series of lawsuits in the U.S., Asia and Europe against Intel making similar allegations. The European Union levied a $1.45 billion fine in May against Intel for its selling practices. Intel is challenging the findings.

Intel did not immediately respond for a request for comment on the New York lawsuit.

"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," AMD Executive Vice President Tom McCoy said in a statement emailed to reporters:. "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."

New York Executive Deputy Attorney General Eric Corngold said the New York investigation showed Intel "has illegally used its monopoly power as its central business strategy." He said emails and other documents obtained by investigators show the message of dominance at any price came from Intel executives all the way up to the CEO, Paul Ottelini.

New York officials released highlights of a large collection of emails gathered during the investigation that appear to indicate how much power Intel had over computer makers and how intent it was to keep AMD from competing.

In one email an IBM executive wrote: "I understand the point about the accounts wanting a full AMD portfolio. The question
is, can we afford to accept the wrath of Intel...?"

And then there is this exchange between Dell CEO Michael Dell and Paul Ottelini in November 2005:

Dell: "We have lost the performance leadership and it's seriously impacting our business in several areas."

Otellini: "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."

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