AMD Files Antitrust Lawsuit Against Intel

The rivalry between the industry's two biggest chip makers heated to a boiling point Tuesday as AMD announced it had filed an antitrust complaint against Intel in U.S. federal district court.

AMD's bold move rekindles a long-dormant legal feud between the two companies and shifts the competition away from the technology front, where AMD had been gaining mind share with its 64-bit computing microprocessors. The lawsuit, filed in U.S. district court in Delaware, accuses Intel of unlawfully maintaining its market-leading position in the x86 microprocessor field by coercing customers from dealing with AMD, violating the Sherman Antitrust Act as well as California law. The complaint identifies 38 companies that AMD says have been victims of Intel's illegal business practices, including large computer makers, distributors, systems builders and retailers.

AMD filed an antitrust suit against Intel in the early 1990s with similar allegations, but the suit was settled out of court, which led to a legal cease fire that lasted until now.

In an open letter on AMD's Web site, Hector Ruiz, AMD's chairman, president and chief executive officer, described the allegations against his company's chief competitor and the largest chip maker in the world.

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"Our competitor has harmed and limited competition in the microprocessor industry," Ruiz wrote. "On behalf of ourselves, our customers and partners, and consumers worldwide, we have been forced to take action. These serious allegations deserve serious attention. Earned success is one thing. Illegal maintenance of a monopoly is quite another."

The 48-page complaint was drafted after an investigation by AMD's lead outside counsel, Charles P. Diamond of O'Melveny & Myers LLP. Diamond describes Intel's actions as "a pervasive, global scheme to coerce Intel customers from freely dealing with AMD to the detriment of customers and consumers worldwide," according to AMD's statement. The lawsuit details myriad allegations against Intel, including forcing major customers, such as Dell, Sony, Toshiba, Gateway and Hitachi, into Intel-exclusive deals in return for outright cash payments, discriminatory pricing or marketing subsidies conditioned on the exclusion of AMD; forcing other major customers, such as NEC, Acer and Fujitsu, into partial exclusivity agreements by conditioning rebates, allowances and market development funds (MDFs) on their agreements to severely limit or forego entirely purchases from AMD; forcing PC makers and tech partners to boycott AMD product launches or promotions; and establishing and enforcing quotas among key retailers, such as Best Buy and Circuit City, effectively requiring them to stock overwhelmingly or exclusively Intel computers, artificially limiting consumer choice.

The lawsuit also offers a number of examples of Intel's allegedly unlawful practices. For example, AMD claims that when it began to see traction with Hewlett-Packard's mobile computers, Intel responded by withholding HP's fourth quarter 2004 rebate check and refusing to waive HP's failure to achieve its targeted rebate goal; it allowed HP to make up the shortfall in succeeding quarters by promising Intel at least 90 percent of HP's mainstream retail business.

In addition, AMD claims that then-Compaq CEO Michael Capellas said in 2000 that Intel withheld delivery of critical server chips because of Compaq's growing business with AMD and later told AMD he had to stop buying its products because "he had a gun to his head." The complaint also outlines a similar accusation concerning Gateway, where executives say Intel has "beaten them into 'guacamole'" in retaliation for doing business with AMD.

AMD's lawsuit also puts Intel's top executives in the crosshairs. For instance, part of the complaint alleges that former CEO Craig Barrett threatened Acer with "severe consequences" for supporting the AMD Athlon 64 launch, which AMD says coincided with an unexplained delay by Intel in providing $15 million to $20 million in MDFs owed to Acer, which led to Acer's withdrawing from the Athlon launch in September 2003.

AMD's legal action follows a recent ruling from the Fair Trade Commission of Japan (JFTC), which found that Intel abused its monopoly power to exclude fair and open competition, violating Japan's Antimonopoly Act by deliberately engaged in illegal business practices to stop AMD's increasing market share by imposing limitations on Japanese PC manufacturers. Intel did not contest these charges. The European Commission has stated that it is pursuing an investigation against Intel for similar possible antitrust violations and is cooperating with the Japanese authorities.

"You don't have to take our word for it when it comes to Intel's abuses," said Thomas M. McCoy, AMD's executive vice president of legal affairs, in a prepared statement. "The Japanese government condemned Intel for its exclusionary and illegal misconduct. We encourage regulators around the world to take a close look at the market failure and consumer harm Intel's business practices are causing in their nations. Intel maintains illegal monopoly profits at the expense of consumers and computer manufacturers, whose margins are razor thin. Now is the time for consumers and the industry worldwide to break free from the abusive Intel monopoly."