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N.Y. lawsuit details Intel's 'largesse' toward Dell

Attorney General Andrew Cuomo's federal antitrust case filed Wednesday alleges a longstanding symbiotic relationship between Intel and Dell.

An antitrust lawsuit filed Wednesday by the New York attorney general alleges a longstanding symbiotic relationship between Intel and Dell.

New York Attorney General Andrew M. Cuomo filed the federal lawsuit against Intel accusing it of paying computer makers rebates to illegally maintain its monopoly power and preventing AMD from gaining business with PC makers.

In a similar case earlier this year, the European Commission fined Intel $1.45 billion, alleging illegal rebates to PC makers such as Dell and Hewlett-Packard. AMD also made analogous allegations in its case filed against Intel in June 2005 that is slated to come to trial in March 2010.

And this may not be the last major case filed against Intel that makes these allegations. The Federal Trade Commission is also expected bring charges against Intel, according to reports.

"It is the AMD case filed 4.5 years ago. It's the same case the EU brought. There's nothing significant or new here that hasn't been discovered," Intel spokesperson Chuck Mulloy said about Wednesday's complaint filed by the New York Attorney General. "Neither consumers--who have consistently benefited from lower prices and increased innovation--nor justice are being served by the decision to file this case now," Mulloy said.

Doling to Dell
The complaint singles out Dell as a large recipient of Intel's "largesse," echoing the 2005 AMD lawsuit. Quoting exchanges between Intel and Dell executives, the suit alleges that Intel gave Dell massive rebates totaling in the billions of dollars over a period of, at least, several years. Hewlett-Packard and IBM, among others, are also cited in the complaint, but Dell is the focus of some of the most egregious Intel behavior, as alleged by the attorney general.

"We use both Intel and AMD chips and we do provide customer choice," Dell spokesman David Frink said Wednesday. Dell used Intel processors exclusively until May of 2006, when it adopted AMD chips for the first time.

"In pure dollar terms, Dell was far and away the leader in receiving Intel's largess," the complaint alleges. "For example, over the four-year period from February 2002 to January 2007, it received approximately $6 billion in 'rebates.'"

Attorney General Andrew M. Cuomo
New York Attorney General Andrew M. Cuomo New York Office of the Attorney General

The complaint continues. "Most of this money was furnished to Dell under programs initially titled 'MOAP' and then 'MCP.' 'MOAP' was an acronym standing for "Mother of all Programs,'" according to the document. MCP stood for "Meet Competition Payments." Both referred to Dell's global percentage based rebates and to lump-sum payments made by Intel to Dell during the relevant period, according to the document.

Intel payments were "decoupled from particular products" and then later Intel would "create paper work at both Intel and Dell which purported to allocate portions of the total to individual CPU products," the attorney general alleges. (CPU stands for central processing unit.)

Intel also allegedly used a "bid bucket" program against AMD. "Under this program, Intel encouraged Dell to make below-cost bids, with Intel subsidies, when competing against AMD-based server products," the complaint says.

And the attorney general cites a 2002 Dell document titled "Intel Funding Overview" that allegedly states that Dell loyalty to Intel means "no AMD processors." The complaint alleges that increases in Dell's MOAP was tied to excluding AMD products from its lineup.

The attorney general also makes some alarming allegations about the extent to which Dell's net income was tied to rebates. "A comparison of Dell's reported net income with the rebates it received from Intel for some quarterly periods show that, by 2004, the rebate payments amounted to more than a third of Dell's earnings," the complaint alleges.

The document continues: "In 2006, Dell received approximately $1.9 billion in rebates....and in two quarterly periods of that year, rebate payments exceeded reported net income. From February to April of 2006, rebates ($805 million) amounted to 104 percent of net income ($776 million). The following 3 months, between May and July of 2006, the proportion was even higher, 116 percent ($554 million of rebates and $480 million in net income)."

The complaint also discusses a period in 2004 when AMD was offering server processors that demonstrated "relative superiority" to Intel servers, according to a statement cited in the document made by Dell's "lead negotiator with Intel." Intel's negotiator with Dell queried Dell's lead negotiator about what Dell needed to "meet comp exposure." Dell's negotiator, e-mailed back: "This is really easy. MSD (Michael Dell) wants $400M more."

Furthermore, the document alleges that Intel punished Dell for expanding its lineup of AMD processors in September of 2006 by significantly reducing the size of the rebate. "Intel's retaliation was massive. For February, March, and April of 2006, Intel had paid Dell approximately $800 million in rebates; in the three-month period from November 2006 through January 2007--after it had first offered an AMD-based product--Dell received less than $200 million in rebates."

In the case brought against Intel by the European Commission, Intel claims that Dell was never pressured to use Intel products. In Intel's September 21, response to the European Commission's decision, the chipmaker asserts that "Dell has confirmed publicly that it always considered itself entirely free to choose to buy from AMD, without fear of reprisal or punishment."

The Intel document continues: "The record before the Commission contains sworn testimony of Dell executives that contradicts this essential premise of the Commission's case...Dell's affirmation of its freedom to choose its suppliers, which undercuts the central premise of the Commission's case, serves as a caution that the Commission's one-sided depiction of the evidence will not withstand scrutiny."