Digging Into N.Y.’s Antitrust Suit Against Intel

New York Attorney General Andrew Cuomo caused quite a stir this week with his antitrust suit against Intel, accusing the chip giant of conducting “an illegal campaign to deprive AMD of distribution channels.”

More than a few writers and bloggers chalked it up to politics. Cuomo’s ambitions are no secret: he wishes to be governor of the state just like his father Mario once was. With current governor David Patterson performing abysmally in opinion polls and up for reelection next year, this could be the time for the son of one of New York’s most famous governors to strike.

But really, would even the most ambitious of politicians put together a detailed 83-page complaint (available here in PDF format) as an election gimmick? Glenn Manishin, an antitrust attorney and partner at the Washington D.C. law firm of Duane Morris doesn’t think so.

“Considering how much effort went into filing that data, you don’t compile that much data just to file for headlines. He has to put up or shut up, so he’s got to proceed and litigate this thing,” Manishin told InternetNews.com.

Intel has consistently denied any wrongdoing and said it plans to continue to defend itself in court against any antitrust charges.

Cuomo’s office said it had examined millions of pages of e-mails and documents since it opened an investigation in late 2007. Much of that has been undoubtedly helped along by the release of documents by the European Commission following its $1.45 billion fine against Intel (NASDAQ: INTC) earlier this year.

Intel certainly has a track record for getting the attention of antitrust officials. The company has been investigated as far back as 1991 for unsavory business practices. In 1995, it settled a lengthy legal case with AMD (NYSE: AMD), but that wouldn’t be the last time the two would go at it legally.

In 2004, AMD filed suit against Intel in Delaware for anti-competitive behavior, citing marketing dollars used as extortion to lock out or limit use of AMD processors. Also that year, Japan’s competition agency raided Intel’s Tokyo offices. A year later, it issued a warning but no fine to Intel for anti-competitive practices.

That year the EU raided multiple Intel European offices, and in 2006, the Korean Fair Trade Commission (KFTC) raided Intel’s Seoul offices. Intel was later hit with a $25 million fine. In 2008 the Federal Trade Commission opened another investigation of Intel and may take action as well. Finally came this year’s EU fine and Cuomo’s suit.

“It’s pretty daunting that in Japan, Korea and the EU, where full scale investigations occurred, the outcome is the same, where they issued lengthy detailed statements of fact that looked pretty persuasive. It wouldn’t take much for any AG, whether he wants to run for office or not, to see it as his obligation to step forward here,” notes Albert Foer, president of the American Antitrust Institute in Washington, D.C.

Scott Testa, professor of Business Administration at Cabrini College in Philadelphia, adds “My gut is Intel is a very aggressive company and [Cuomo] felt there was an opportunity there, and felt that New York consumers were being wronged, and thought he’d make his move. Intel is very dominant in their market.”

Page 2: Why New York?

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Why New York?

So Cuomo is hardly the first to go after Intel. As Intel defends itself in Europe it also prepares to defend itself in the Delaware case against AMD. The first meeting with the judge is in January.

All of which left Manishin confused about Cuomo’s actions. “I find it surprising that New York would sue on its own. That’s curious because either it means – and I don’t know for sure – that New York and attorney general Cuomo felt that the federal government will not proceed against Intel or he knows they want to proceed and wants to go first,” he said.

From the outside, it’s hard to tell whether this is a split between the feds and the state, because usually they work together. “That’s significant because going back to the 1990s, the association of attorneys general, the DOJ and the FTC have worked together, hand in glove and are usually co-plaintiffs,” said Manishin.

It’s not so unusual for a state to try and protect its citizens if the antitrust laws are being violated, argued Foer. “The guy’s job as AG is to protect the consumers and businesses of his state and make sure antitrust laws are being applied,” he told InternetNews.com. “They have no reason to assume the FTC will bring a case. Even there, the FTC is not going to get a remedy for the people of his state.”

Settlement?

Cuomo didn’t just file under the state laws of New York, he went to Delaware and sued under federal law, something he has a right to do, as what’s known as a parens patriae action.

Foer wonders if there isn’t a potential settlement in the works, something Intel has sworn up and down it would not do. If Intel and AMD settle, New York gets nothing while AMD could walk away a few billion dollars richer.

“Perhaps there’s some major settlement under way. Maybe that explains why the FTC has been moving slowly. If there is a settlement, the states might want to be at the table to make sure their interests are satisfied adequately,” said Foer.

Manishin thinks that could be a credible explanation for Cuomo’s behavior, since it’s so outside the norm. “They wouldn’t have the advantage of getting testimony of those folks from trial in the [AMD] lawsuit,” he notes.

Right now, the testimony is from executives and e-mails dating back as far as 2002. A trial could mean a parade of past and present PC OEM CEOs like Michael Dell, Mark Hurd, Carly Fiorina and Sam Palmisano testifying under oath, which could be either devastating or exculpatory to Intel.

Testa doesn’t believe it was on that level. “I truly believe that this was a mid-level, low-level management issue where you had an aggressive sales person or sales managers. That’s my gut. These rebates are public knowledge. This is between two public companies,” he said.

The latter part of Cuomo’s claim that “Intel launched an illegal campaign to deprive AMD of distribution channels and consumers of product choice and lower prices” could be a tough sell, since no one would argue that CPU prices haven’t come down over the course of the decade even as they advanced and became more powerful.

Manishin said the counterpoint to the pricing argument is the question of whether Intel’s actions prevented AMD from helping to drive prices even lower.

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