Intel Corp. was slapped with new charges alleging it abused its dominance of the computer-chip market, this time from New York's attorney general, whose complaint includes a raft of revealing emails between some of the technology industry's most powerful executives.
The lawsuit alleges the chip giant threatened computer makers including Dell Inc., Hewlett-Packard Co. and International Business Machines Corp. and paid billions of dollars in kickbacks to stop them from using a competitor's chips. In one email, Intel Chief Executive Paul Otellini called Dell, which used Intel chips exclusively, "the best friend money can buy," according to the suit.
The antitrust complaint, filed in a Delaware federal court, adds to cases and investigations across several countries that accuse the Silicon Valley company of anticompetitive practices. Dell, H-P and IBM declined to comment on the complaint.
Though the charges are familiar, the latest complaint increases the pressure on Intel, which has already paid a $1.45 billion fine to antitrust authorities in Europe and faces an investigation by the U.S. Federal Trade Commission.
It also provides the fullest picture yet of the measures Intel, which for years has commanded 80% of the microprocessor market, allegedly used to keep rival Advanced Micro Devices Inc. from expanding its market share.
Intel, which is appealing the EU ruling, has denied the allegations. It says its practices have benefited consumers by bringing innovations at lower prices. Intel "will defend itself," said a spokesman. AMD said it welcomed the latest lawsuit and the details disclosed in it.
Attorney General Andrew Cuomo's complaint includes excerpts of emails between top Intel executives and leaders at its big partners, who discuss Intel's market power and fears of retaliation if they dealt with AMD. It also provides some of the first estimates for how much Intel allegedly paid in rebates and other incentives to dissuade PC makers from buying AMD chips.
For example, the complaint alleges that Dell received approximately $6 billion in rebates from Intel between February 2002 to January 2007, adding that in two quarters of 2006 the Intel payments exceeded Dell's net income. The Austin, Texas, company for much of the decade was the only major computer maker that purchased microprocessors only from Intel.
In one email exchange described in the suit, Dell Chairman Michael Dell complained to Mr. Otellini over the agreement to use only Intel chips. "We have lost the performance leadership and it's seriously impacting our business in several areas," Mr. Dell wrote in November 2005. Mr. Otellini wrote back that Intel had given more than $1 billion in rebates and payments to Dell, which Dell had deemed "more than sufficient" compensation.
In April 2006, after Dell informed Intel that it had decided to begin buying from AMD, the complaint states, then-Intel Chairman Craig Barrett said Intel should respond by cutting off payments and discounts to Dell.
"Not a time for weakness on our part," Mr. Barrett wrote in an email quoted in the complaint. "Stop writing checks immediately and put them back on list prices ASAP."
Following the change, rebates to Dell, which totaled about $800 million for February, March and April of 2006, shrank to $200 million from that November through January 2007, the complaint states.
Mr. Otellini and Mr. Barrett, who has retired from Intel, were not available for comment. A spokesman said Intel has evidence that answers issues raised by the emails, but it can't be released due to a protective order in an antitrust case by AMD.
Some observers found the timing of Mr. Cuomo's move surprising, especially since some lawyers expect the FTC to soon file its own suit The FTC declined to comment.
"It is highly unusual for a state attorney general to take on a national monopoly case before the Feds have acted," said John DeQ. Briggs, an antitrust expert at D.C. law firm Axinn, Veltrop & Harkrider LLP.
Benjamin Lawsky, a special assistant to Mr. Cuomo, said the prosecutor is acting to protect competition. "Of course, we look forward to continuing to partner with the federal government when appropriate," he added.
The case is one of a string of high-profile investigations launched by Mr. Cuomo, a Democrat who is expected to run for New York governor in 2010.
Mr. Cuomo described Intel's practices as harming consumers, companies and governments. He said Intel has "no laws of supply and demand," adding that it "ruled with an iron fist"
Intel argues that the rebates and other incentives targeted by regulators are lawful forms of price competition, based on the volume of chips customers purchase.
In the case of H-P, which was a regular AMD customer, the complaint states that Intel was determined to limit sales of AMD-based computers to corporate customers, a lucrative segment of the market. Internal H-P emails cited in the complaint say executives became worried that Intel could retaliate by reducing support for a chip line called Itanium that was crucial for some H-P computers.
Confronted with Intel threats and eager to retain rebate payments, the complaint alleges, H-P agreed to restrictions that include limiting global sales of AMD-based desktop PCs to business to no more than 5% of that business. One agreement between the companies, negotiated in 2004, contained incentives that H-P calculated was worth $182 million to the company, the complaint states.
IBM, which in 2003 agreed to use AMD chips in some server systems, was pressured by Intel not to extend its use of that technology, the complaint states. In April 2004, for example, Intel agreed to pay IBM $130 million not to launch a line of servers using AMD chips, the suit states.
In a statement, IBM said it "has cooperated with the requests for information from the government, and believes it has conducted its business appropriately.We have no comment on the allegations in the complaint."
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