New York State Sues Intel for Evidence Showing Market AntiTrust

New York Attorney General Andrew Cuomo filed antitrust charges against Intel Tuesday, alleging the company threatened computer makers and paid huge kickbacks to stop them from using chips from competitors such as Advanced Micro Devices.

Mr. Cuomo's office reviewed millions of documents and emails and took depositions from several dozen witnesses. The suit cites messages between Intel executives, including Chief Executive Officer Paul Otellini, as well as internal emails from Dell, Hewlett Packard and IBM. Excerpts from the complaint:

30. At the highest levels, Intel routinely takes steps to make its displeasure felt when it feels threatened by OEM actions - even when those actions appear to be routine commercial behavior. Intel's customers are constantly reminded where their primary loyalty should lie. For example, in March 2006, Intel's CEO Paul Otellini received a courtesy "heads-up" from an HP executive that HP was sponsoring an advertisement featuring HP's relationship with AMD and the theme of customer choice. Otellini reacted: "So, ... why did you feel compelled to do this? It is certainly insulting to us and I do not see how it helps you.... If we are your key partner, this is nothing but a slap at us ... I really don't want to get in a pissing contest over this ... But running an ad touting 10 years with amd [sic] and ‘choice' is not the behavior of someone who wants to bring our two companies together."

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59. Other emails suggest that internal Intel discussions which might raise antitrust issues were consciously not reduced to writing at all, or carried on in an instant messaging format less likely to be retained. In an April 2006 email one executive concluded an emailed list of "key issues" with the suggestion: "Let's talk more on the phone as it's so difficult for me to write or explain without considering anti-trust issue." In a June 2006 email string regarding Intel's rebate strategy vis-à-vis Toshiba "to compete against AMD" a senior Intel executive ended the email discussion with the directive: "Dude, c'mon. IM [instant messaging] please."

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105. Dell understood that Intel's reaction would likely be severe if "Dell joins the AMD exodus." Specifically, the Dell executive who served as Intel's informal liaison to Dell management wrote the following analysis: If we play this right, we walk away with a 3-year contract that drives structural Dell advantage in cost, supply, and influence....PSO/CRB [Paul Ottelini, Intel's CEO, and Craig Barrett, Intel's Chairman] are prepared for jihad if Dell joins the AMD exodus. We [will] get ZERO MCP for at least one quarter while Intel ‘investigates the details' - there's no legal/moral/threatening means for us to apply and avoid this.

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135. On November 4, 2005 Otellini reported internally in a "Confidential - DO NOT FORWARD" email about "one of the most emotional calls I have ever, ever had with [Michael Dell]." In this email, Otellini wrote:

- [Michael Dell] opened by saying "I am tired of losing business" ... he repeated it 3-4 times. I said nothing and waited.
- He has been traveling around the USA. He feels they are losing all the high margin business to AMD-based sku's ...
- He is ‘tired of being behind for 4 years (when I protested that it was 2, he said, no the last 2 years, this year, and next year).
- As a result, "Dell is no longer seen as a thought leader"

136. On Nov. 10, 2005, Michael Dell followed up with an email to Otellini: "We have lost the performance leadership and it's seriously impacting our business in several areas." Otellini's reply: "There is nothing new here. Our product roadmap is what it is. It is improving rapidly daily. It will deliver increasingly leadership products ... Additionally, we are transferring over $1B per year to Dell for meet comp efforts. This was judged by your team to be more than sufficient to compensate for the competitive issues."

137. Michael Dell, however, continued to press home to Intel its performance deficit and its effects on Dell. On November 24, 2005 he capped an email exchange with Otellini by writing: "None of the current benchmarks and reviews say that Intel based systems are better than AMD. We are losing the hearts, minds and wallets of our best customers."

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139. On February 16, 2006, Intel took note of a service report in which Dell's CEO Kevin Rollins had said that Dell had "made no plans to begin using" AMD chips. "Finally something positive" commented one Intel executive. Otellini commented: "The best friend money can buy."

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140. By April 2006, Dell's relationship with Intel reached a breaking point. As Michael Dell wrote: "Intel - we overestimated both their ability to execute and our true competitive position with them and we underestimated AMD. And we relied too much on rebates from Intel."

141. Dell was finally ready to act, despite the pressure and incentives from Intel. In an April 29 email to other top Dell executives, Michael Dell wrote: "We have been looking at the situation for a long time, and have decided to introduce a broad range of AMD based systems into our product line to provide the choice our customers are asking for."

142. The reaction of Craig Barrett, Intel's Board Chairman, was unequivocal: Dell should immediately be deprived of the payments it had long enjoyed in return for its willingness not to offer AMD products, and should start paying "list prices." Barrett told Ottelini: "[T]hey have just signaled they are only interested in being a transaction based customer. I think you
should reply in kind. Not a time for weakness on our part. Stop writing checks immediately and put them back on list prices asap." (Emphasis added).

143. The direction Otellini gave his subordinates the next day was consistent with Barrett's advice. Intel should make clear to Dell that if Dell offered any AMD products all of the "mcp" payments Dell received from Intel would be at risk - just as Dell had always feared: "[W]e should be [pre]pared to remove all mcp and related programs. Post haste... then we ought to enter negotiations."

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181. In a September 2004 reply email, a senior HP executive emphatically vetoed the plan, because without the "Intel moneys ... we do not make it financially": "You can NOT use the commercial AMD line in the channel in any country, it must be done direct. If you do and we get caught (and we will) the Intel moneys (each month) is gone (they would terminate the deal). The risk is too high. Without the money we do not make it financially."

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