Paul Otellini, CEO, Intel
This week, New York State’s Attorney General, Andrew Cuomo, filed an antitrust lawsuit against Intel, alleging that they’ve been making sure that their competitors don’t have a fair chance in the market by offering special rebates to their customers to use their microchips.
It sounds like a strange thing, paying someone to use your products, but this isn’t the first time Intel has been accused of this. The European Union has fined them $1.45 billion for doing the same thing, and the Federal Trade Commission supposedly has the same type of lawsuit ready to go at some point in the future.
The idea behind this is in making sure that no other company has a chance to break through. What happens is that a company, in this case both Dell and Hewett Packard are who’s being mentioned most of the time, pays for the processors at the normal price. Then, based on sales, they earn rebates back from Intel for what Cuomo states are billions of dollars. The computer makers end up spending less to make the computers, don’t have to claim the payments as profit, as rebates they’re nontaxable income, and Intel sales skyrocket to the point where offering the rebates still makes them a lot of money.
Dell supposedly made $6 billion in a 5-year period, and in 2006 made $1.2 billion. In one of those quarters in 2006, the amount earned by Dell from Intel was higher than the income they generated from selling their own products.
Intel denies the claim, saying computer makers have always had the choice in using any chipmaker they wanted to. Unfortunately for them, it seems their own email is doing them in. Cuomo released email where some of the company’s top executives discussed their worry that what they were doing might be illegal, ye they did it anyway. Sure, companies can say they’re free to choose to use someone else, but having the kind of money dangling in front of them that Dell obviously took advantage of would make almost anyone think twice if they were trying to be fiscally responsible.
Andrew Cuomo NY Attorney General
The fallout could be interesting. Intel could easily survive another fine, and it seems like no one could actually go to jail for what they’re being accused of. What ends up costing a lot of money is fighting the lawsuits, especially if the FTC gets in. That could open the markets up for chipmakers like AMD, and a settlement could also end up with anyone who purchased one of these computers getting their own rebates. Also, lawsuits against computer makers who participated in the program aren’t out of the realm of possibility. After all, Intel computers have always cost more than their competitors, and consumers have always been told that Intel is better without being told why.
The FTC’s potential lawsuit may come within the next few months, and supposedly will be based on more recent Intel practices than the NY suit.
