FAQ: Why Intel is under fire for alleged antitrust violations

FAQ: Why Intel is under fire for alleged antitrust violations

New York joins fray, launches investigation

Intel once again stands accused of anticompetitive practices designed to squeeze chief rival AMD out of the processor market. This time, New York Attorney General Andrew Cuomo is taking a stand in the Intel-AMD rivalry, saying he may sue Intel. This FAQ answers eight key questions about the antitrust accusations lobbed against Intel.

What happened Thursday?

Cuomo subpoenaed Intel for documents and information to aid his investigation into whether Intel violated state and federal antitrust laws. Cuomo thinks Intel may have maintained its dominant position over AMD in the x86 CPU market by essentially rewarding customers for not buying AMD devices.

Is this the first time Intel has been accused of anticompetitive practices?

No. AMD sued Intel in a U.S. federal court in 2005. More recently, the European Commission in July 2007 issued a Statement of Objections -- essentially a formal complaint -- accusing Intel of three types of abuse. Allegedly, Intel provided big rebates to OEM vendors if they agreed to limit AMD purchases, paid OEM customers to delay or cancel product lines based on AMD chips, and sold CPUs at prices below cost to customers choosing between Intel and AMD. Intel has also faced legal actions in Japan and Korea. The company agreed to a cease and desist order in 2005 after the Japanese Fair Trade Commission ruled that Intel violated competition laws, according to Cuomo's office.

Has Intel responded to these accusations?

Intel issued a formal response to the European Commission only a few days ago, and has asked for a hearing on the matter, according to news reports. The formal response was not made public and Intel did not release details of the response.

Intel has previously pointed to AMD's market presence as proof that there is healthy competition. Saugatuck Technology analyst Charlie Burns would agree. "AMD has been really producing very high quality, competitive chips to Intel and increasingly so for the last several years," Burns says.

What is Cuomo's next step?

Once Intel gives up the requested documents, Cuomo's office will review them and decide whether there is enough evidence to file a lawsuit in civil court, says Albert Foer, president of the American Antitrust Institute, a nonprofit research and advocacy group in Washington, D.C. Specifically, Cuomo says he is looking into whether Intel improperly paid customers for exclusivity, illegally cut off competitors from distribution channels, and penalized computer manufacturers for buying x86 CPUs from competitors.

Cuomo would probably file any lawsuit in a state court, though he could take it to the federal level, Foer says. New York alone has enough clout to make Intel take notice, but it's possible other states could join Cuomo in legal action, he also says.

How much money is at stake?

The worldwide x86 market is worth US$30 billion a year, and Intel commands 90% of that market by revenue and 80% by volume, Cuomo says. Antitrust violations are punishable by treble damages, so if a court finds the company guilty it could have to pay three times the actual monetary damages suffered by AMD and customers, according to Foer. Most antitrust cases end in settlements, however, and the process can take years, he says.

Will Cuomo's action hurt Intel, even if the vendor is ultimately exonerated?

Maybe. Intel might be wary of pursuing strategies that could lead to dramatic market share improvements, as the company's own market dominance would be at the heart of any legal proceeding. Legal action could also place doubts in the minds of Intel customers, Burns says. "Any time a large company is under any form of investigation by the government, there's this reluctance that some buyers have ... just because they're not sure what the results may be," Burns says. "It may help AMD gain market share in the chip business."

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