Antitrust suit against Intel (Finally?)

June 29, 2005
A.M.D. Suit Says Intel Bullied Clients
By LAURIE J. FLYNN


SAN FRANCISCO, June 28 - Advanced Micro Devices Inc. has opened a broad
legal assault against the Intel Corporation, charging that Intel employed
unfair tactics to keep computer companies from buying A.M.D.
microprocessors.


In an antitrust lawsuit filed late Monday in Federal District Court in
Delaware, A.M.D. contends that Intel, the world's largest chip maker,
bullied dozens of computer makers, retailers and distributors by
threatening to retaliate against them if they did business with A.M.D.


The 48-page complaint also states that Intel uses improper tactics like
discriminatory rebates and subsidies to win and keep customers.


"For over a decade, Intel has unlawfully maintained its monopoly by
engaging in a relentless, worldwide campaign to coerce customers to refrain
from dealing with A.M.D.," the complaint says.


The suit says I.B.M., Hewlett-Packard, Dell and Sony are some of the
companies that have been subject to Intel's illegal business practices.


Intel said on Tuesday that it strongly disagreed with A.M.D.'s allegations
and would fight the suit.


"Intel feels it is competing fairly and believes customers are benefiting
from vigorous competition," Tom Beermann, an Intel spokesman, said in a
statement. "A.M.D. has chosen, once again, to complain to a court about
Intel's success with a legal case full of excuses and speculation."


A.M.D.'s allegations are largely based on conversations with Intel's
customers. Toshiba executives, for example, are quoted in the complaint as
comparing Intel's financial inducements to "cocaine," describing themselves
as "hooked."


In another example, A.M.D. says it was making inroads in the Japanese
market, with a 22 percent share in 2002, until Intel paid Sony
"multimillion sums, disguised as discounts and promotional support" in 2003
in exchange for exclusive use of Intel chips.


A.M.D. also contends that executives of the Gateway Corporation said their
company paid a high price for doing business with A.M.D. and that Intel had
"beaten them into guacamole."


Hector Ruiz, A.M.D.'s chief executive, said he fully expected that computer
companies that were coerced or threatened by Intel's tactics would
cooperate with any investigation.


David Balto, a former policy director at the Federal Trade Commission and
now an antitrust lawyer with Robins, Kaplan, Miller & Ciresi, said that
A.M.D. could have an easier time persuading a court of its case today than
it would have just a few years ago.


"Courts these days are taking a microscopic view of the conduct of dominant
firms," he said. "In several recent cases, courts have condemned dominant
companies for handcuffing their customers where there's not a legitimate
business reason."


Mr. Balto pointed to the ruling against 3M, the office supply company, in a
federal appeals court two years ago. The company had been offering rebates
to customers who also purchased other 3M products.


A.M.D. is seeking an injunction against Intel as well as unspecified
damages.


The case caps a long history of legal battles between the companies. The
most significant case was settled in 1995 and gave A.M.D. the right to make
chips based on Intel's x86 design for computers running Windows and Linux.


A.M.D.'s lawyers said that they would press to have the new case go to
trial before the end of 2006.


The antitrust suit comes just a few months after the Fair Trade Commission
in Japan ruled that Intel had stifled competition in that country by
offering rebates to five computer companies, including Toshiba and Sony.
The rebates were contingent on limiting their purchases from A.M.D. or
Transmeta, another Intel rival.


At the time of the ruling in March, Intel said it would abide by the
Japanese agency's decision, but did not agree with the finding against it.


Thomas McCoy, A.M.D.'s executive vice president for legal affairs, said the
ruling in Japan added credibility to its complaints about Intel's practices
in other global markets, including the United States.


"You don't have to take our word for it when it comes to Intel's abuses,"
Mr. McCoy said. "The Japanese government condemned Intel for its
exclusionary and illegal misconduct."


The European Commission is also investigating Intel's conduct.


Intel, based in Santa Clara, Calif., has more than 80 percent of the unit
sales and 90 percent of the revenues in the market for x86 microprocessors.
In its suit, A.M.D., based in Sunnyvale, Calif., contends that its share of
x86 unit sales peaked in 2001 at 20.8 percent and then declined to 15.8
percent by 2004 despite its technical advances, because of Intel's unfair
business practices.


Last year, A.M.D.'s sales increased more than 40 percent over 2003, to $5
billion, as profit grew to $91 million, in contrast to a net loss of $274
million the year before. Intel's revenue last year was $34.2 billion, and
its profit rose 33 percent, to $7.5 billion.


Tim Luke, an analyst at Lehman Brothers who is neutral on A.M.D. stock,
said the suit was "likely to be viewed as constructive by investors because
it will heighten A.M.D.'s profile as it launches new products."


A.M.D. rose $1.05 on Tuesday to close at $17.70 a share, a 6 percent gain.
Intel rose 47 cents to close at $26.33 a share.