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Are AMD's accusations of Intel unjustified? And how do the U.S. antitrust laws stack up to those abroad?

Thanks to AMD's vocal efforts, Intel is facing antitrust charges from the European Union's (EU) European Commission (EC) and has been subject to raids.  However, here in the U.S., it was thought that Intel was safe thanks to looser anticompetition laws; that is until the Federal Trade Commission (FTC) announced a formal investigation into Intel's discounting practices.

So where exactly does Intel stand in the case?  Stephen Labaton of The New York Times first broke the story several weeks ago, stating that the FTC intended to examine "accusations that Intel’s pricing is intended to maintain a near monopoly on the microprocessor market."

The accuser obviously was AMD, who has served in recent years the role as the only real rival to Intel in the microprocessor market.  AMD has been the eternal underdog, yet it has constantly complained that a majority of its failures were due to predatory behavior by Intel

Little attention was paid to AMD's claims until 2003 when AMD finally offered up an offering truly superior to what Intel had on the market -- the Opteron.  In Intel's Pentium 4 era of mediocrity, one would assume that AMD with its promising processor would make great strides.  However, a combination of missed opportunities on AMD's part and aggressive rebates on Intel’s part limited AMD's gains.

Now AMD has returned to another era of mediocrity.  Its Barcelona chip was found to contain important defects that have handicapped its potential.  Basically, AMD has been forced to concede the round to Intel as it waits to try to unveil its next gen processor to compete with Intel's Nehalem architecture.

The real question surrounding the FTC investigation is whether Intel, with its rebates, broke U.S. anticompetition laws.  One tough thing is that antitrust laws are very loosely interpreted in the U.S., so one judge's views on what amounts to illegal activity can differ greatly from another judges. 

In the U.S., past legal precedent has made it only illegal to rebate prices to beneath cost of production to undercut competitors.  This is a virtually impossible violation to prove, as a company can easily argue that in offering rebates it was upping its mass production, thus lowering its costs to an acceptable level over time.

In the 1950s and 1960s almost any rebates and discounts were considered predatory.  Rulings were handed down that prevented such activity, unfortunately such rulings also frequently hurt the consumer by preventing legitimate rebates.  In the 1970s, this state shifted thanks to the Chicago School of antitrust theory, which argued that the burden of proof in antitrust cases is significantly higher.

Since the shift, U.S. courts have only very rarely ruled against companies in the most extreme of antitrust abuses, such as the 2000 ruling against Microsoft.  Robert E. Cooper, a lawyer at Gibson, Dunn & Crutcher, who is representing Intel knows his history and is citing numerous pro-discount rulings since 1970 that support Intel's case.

So are Intel's discounts predatory?  Well they certainly aren't friendly, if the allegations hold true.  AMD alleges that Intel coerced Sony and Toshiba to ditch AMD processors or face losses.  This is how AMD alleges it worked, claims given credence by many insiders.  Intel approached the manufacturers, whose sales were slipping and told them they could no longer offer the generous discounts they had been handing out; but, they said if they ditched AMD, they would still give the discount.

While it does not seem unfathomable that such an exchange occurred, it would be tough to prove.  Even if the FTC does find strong evidence for such a deal, it is unclear whether it is illegal under U.S. law.

European law and other international courts, such as South Korea (which recently handed down a large $25.4 million fine against Intel) follow a post-Chicago School of antitrust theory that is more wary of discounts.  Thus it is very possible and in fact likely that the FTC may find Intel innocent, while its contemporary, the EC finds Intel guilty.

Such a confusing "split decision" is striking many in the legal and business communities as wrong.  Joe Nocera of The New York Times writes, "The world economy really won’t function very well if multinational companies have to dance between dueling regulators. Either we need to adopt their standards, or they need to adopt ours. The Intel-A.M.D. shows, if nothing else, how untenable the current state of play is in antitrust."

One factor working against AMD -- it did make gains in the Opteron era, jumping from 17 percent marketshare in March 2005 to 25 percent in December 2006.  And since, thanks likely to its missteps, the marketshare has fallen to about 20 percent.

The FTC investigation is still ongoing and may hold surprises.  However, barring major policy shifts, as likely as it seems that the EC will find Intel in violation, it seems equally likely that the FTC will fine Intel innocent.  Such a process may amount to a hassle for Intel, but its quickly amounting to a big headache for the global legal community which is trying to come to grips with conflicting antitrust standards.



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Funny
By amanojaku on 6/23/2008 12:11:54 PM , Rating: 1
quote:
One factor working against AMD -- it did make gains in the Opteron era, jumping from 17 percent marketshare in March 2005 to 25 percent in December 2006. And since, thanks likely to its missteps, the marketshare has fallen to about 20 percent.


I would say that the Opteron's success was a good thing, even if it seems to undermine AMD's claims of antitrust violations by Intel. If AMD can prove its claims against Intel it would get legal validation AND street cred; the Opteron was, and still is, pretty damn nice. Of course, better processors should be the ultimate goal, not drawn out legal battles whose costs affect us either by higher prices or less innovation. Strong arm tactics by Intel wouldn't stop manufacturers from selling Athlons and Opterons if they were that much better.




RE: Funny
By weskurtz0081 on 6/23/2008 12:28:48 PM , Rating: 4
Sure they would not sell AMD based processors.

For one, not many consumers really knew much about AMD, and were blinded by the idea more Ghz=faster.

Couple that with Intel threatening to withhold supply or substantially jack up prices if company A sells AMD based units (Intel had around 70% of the market), why would anyone company in there right mind choose AMD over Intel. Intel CPU's simply sold much better.


RE: Funny
By dragonbif on 6/23/2008 12:42:54 PM , Rating: 2
If AMD could not sell to where the most money is made OEMs then they would have hard time getting money for development. If Intel was keeping them out of that market then I would say they are guilty even if AMD made some gains in the servers.
I thought Dell sued Intel for not letting them sell AMD based computers for years. It takes money to develop new stuff and if Intel was keeping AMD from the biggest money making market then AMD would fall behind and then fall out.


RE: Funny
By Master Kenobi (blog) on 6/23/08, Rating: 0
RE: Funny
By Phynaz on 6/23/2008 12:57:55 PM , Rating: 2
And now, with a poor product again, they have an entire fab siting empty.

I wonder if Hector will see the pattern here.


RE: Funny
By erikejw on 6/23/2008 1:38:15 PM , Rating: 5
"In the U.S., past legal precedent has made it only illegal to rebate prices to beneath cost of production to undercut competitors."

Rebating should be no problem as long as it does not contain the word exclusive. If they wanna rebate their processors that is fine but if they say we give you rebate only if you go Intel exclusive, that is where the problem is.


RE: Funny
By michael67 on 6/23/2008 3:58:43 PM , Rating: 2
Yes and no

I also still remember that mobo makers ware sending out mobo's in white boxes because they ware shitting there pants because Intel was treating to hold back chip sets.
IMO during the the Athlon XP time and the beginning of the Athlon64 Intel was really not playing nice and behaved like a bully.
So yes AMD maxed out it production on the peak of the Athlon/Opteron sales, but before that time AMD had a hard time selling a very good product, and imo that mainly had to do whit Intel's predatory behavior.

I am from the EU and i am not going to say what system is better yours ore ours but here in the EU the feeling is if you have a dominant market share, the rules change a bid for you and you have to give the smaller guys a change to compete.

This is also why MS has suds problems in the EU they think the rules are the same as in the US, they found out the hard way that it isn't.
Maybe Intel is going to find that out now to.

But there are also many company's that are doing businesses in the EU for years whit out a problem, like IBM, GE, P&G, ect. and they have no problems.

I am not sure but imho i think that giving smaller company's ore competition a change to compete is in the long run better.

And i now i now will get flamed for being a socialist commy
Yeah its not the capitalistic/American way dose it mean its the wrong way i am not 100% shore but i think so, but that my opinion.

The US and the EU have completely different philosophies how to manage/control the market.
Both government's try to do whats best for there citizens

The US has a philosophy that the market balance it self out and that to many rules will hurt the economy.

The EU has a philosophy that the market needs to be more regulated even do it will will hurt the economy in the short run it will be better in the long run.

I will not say its all perfect but things like 2 year mandatory warranty on all products, better consumer protection i like, even do it comes whit a higher prize tag.


RE: Funny
By Nyamekye on 6/23/08, Rating: -1
RE: Funny
By PitViper007 on 6/24/2008 2:22:58 PM , Rating: 1
Not everyone uses English as a first language. How many do you speak and write?


RE: Funny
By Amiga500 on 6/23/2008 6:15:18 PM , Rating: 1
Just to reinforce this.

Big companies/universities etc have contracts with OEMs... for instance ours was Dell - nothing I could do about it and ended up ordering shitty P4s.

Even though I was well aware of dual core K8 coming the following year and slotting into the 939 socket, not a thing could be done... because Intel buttfucked dell into only dealing out Intel CPUs.


RE: Funny
By just4U on 6/24/2008 4:56:19 AM , Rating: 2
While Amd was churning out alot of chips .. if most of you remember was it "HARD" to get a amd part? I don't recall them ever really being out of stock of anything...

(in debate of they didnt make more money because they couldn't make more)


One thing everyone forgets
By BaronMatrix on 6/23/2008 4:32:20 PM , Rating: 2
If you look at CPU pricing before Core 2 and after, you will see a definite slide in ASP. Intel didn't drop the price on P4 while Core 2 was building up.

Then amazingly, Intel decided that selling 2 E6600s($229 Newegg) as a Q6600($279 Newegg) was not undercutting and presenting a barrier to entry to quad core. How could AMD possibly sell two chips for close to the price of one?

Answer they couldn't. That's why they are losing money. Intel knew they just got profitable in 2006, so hey kick the bottom out of the desktop market, keep a premium on the fast growing mobile space and voila, they make money, AMD doesn't.

That's why AMD had to buy ATi, the lawsuit would be nothing if they went out of business first.

I personally have no pity for Intel as MS is paying for their CRAPPY GRAPHICS in the form of a class action lawsuit. Someone should sue Intel for ripping people off on IGPs(an MS VP got a $2000 email box).

The IGP thing is almost like IE in Windows, it's bundled so ATi and nVidia can't sell as much. Intel even canceled Via's license for nothing as they did with nVidia and Nehalem. ATi already has the innards of LGA775, so what would it hurt to let them continue making chipsets?

Easy, that's less market for Intel, as if 60% of the CPU market and 40% of the graphics market isn't worth enough. Standard growth means 13%\year. Not to mention that inflation is a factor.

As Rahul Sood said, it's a shame to commoditize CPUs, but it's too late now. Prices can't ever go back to pre-Core 2 levels.




RE: One thing everyone forgets
By Roy2001 on 6/23/2008 5:51:23 PM , Rating: 2
To sue Intel for IGP? Intel gives it for almost free, why?


RE: One thing everyone forgets
By BaronMatrix on 6/24/2008 8:51:07 AM , Rating: 2
IE was given away for free. It was bundled, preventing competition from getting above a certain market share, hence why Intel has the worst graphics yet the biggest share.


RE: One thing everyone forgets
By Adonlude on 6/24/2008 1:41:05 PM , Rating: 2
Intel's integrated graphics are a perfectly acceptable solution for people looking to build a cheap box for surfing the internet and running MS Office. Why shouldn't Intel fill the bottom end of the graphics range with a cheap easy solution? You want everyone to have to purchase an extra graphics board regardless of their performance requirements?


RE: One thing everyone forgets
By BaronMatrix on 6/24/2008 2:26:33 PM , Rating: 2
So you're saying that 60% of PC users can live with crappy graphics or 60% of PC users don't know the difference because it's not that easy to find Intel PCs with other company's graphics.

Explain why a Microsoft VP got a $2000 email box that couldn't run Aero.

Besides, X1200, X1250, 6150, 6100 are IGPs that at least play some games and BluRay. Intel can barely play BluRay with a low end chip. An E8500 is at about 25-30% with the latest IGP. Put in a E4100 and you're screwed.


RE: One thing everyone forgets
By Pryde on 6/24/08, Rating: 0
is this news?
By Proteusza on 6/23/2008 1:03:25 PM , Rating: 2
Is there any new information in this news post?




RE: is this news?
By therealnickdanger on 6/23/2008 2:16:33 PM , Rating: 2
quote:
Is AMD's accusations of Intel unjustified? And how does the U.S. antitrust laws stack up to those abroad?

Since this thread is probably on its way out, I'll post this here.

I believe it should be "Are AMD's accusations" or "Is AMD's accusation". Also, "How do... laws" or "How does... law".


RE: is this news?
By Reclaimer77 on 6/23/08, Rating: -1
Fine them innocent, I say!
By Icelight on 6/23/2008 4:09:32 PM , Rating: 2
quote:
it seems equally likely that the FTC will fine Intel innocent.


Further proof that the rich are above the law! Make them pay enough money and you abolish them of their crimes!

:)




I don't understand
By jeromekwok on 6/24/2008 3:52:17 AM , Rating: 1
I don't understand how this antitrust works.

Look Microsoft has 95%+ of market share, demanding a very high price that pushing customers to piracy. MS does not allow retailers to sell computers without OS in it. ME and Vista suck, but we had/have no choice to get out of.

Intel, on the other hand, selling cheap CPUs and has got around 70-80% share. It is easy to swap for AMD. Most computer manufacturers were staying away from AMD because either AMD cannot make fast CPUs or AMD cannot make enough fast CPUs.

Intel sold a lot cheap CPUs, but Intel is still maintaining a good margin. This is how market works.




Refreshing article but too much for this crowd
By DallasTexas on 6/23/08, Rating: -1
By C'DaleRider on 6/24/2008 3:11:31 AM , Rating: 4
A rather simplistic view on how AMD came to produce x86 cpus...but rather naive, too.

Realize that when AMD began making x86 cpus, it was at the request of Intel, not because AMD saw something that was selling and decided to copy it.

AMD was tasked to produce, initially, x86 cpus by Intel due to a contract Intel entered into with IBM, and at the time IBM required companies that supplied it hardware to have a secondary source of supply of said hardware...to ensure against supply chain shortfalls and/or interruptions. (Remember, prior to this, AMD had no x86 cpus in design or production but was instead into other chip design and manufacture, such as some communication-based chipsets in modems, etc., some graphics chips, and a non-x86 cpu that was not really gaining traction.)

So, to that end, Intel asked AMD to become its secondary supplier for x86 cpus....I believe this was around the 8088 timeframe....and licensed the x86 cpu design to AMD.

Unfortunately for Intel, the license that was crafted gave AMD to right to Intel's succeeding x86 cpu designs...the 386's and 486's.

Of course, Intel did cut off the license arbitrarily with the reasoning that Intel, having multiple fabs by this point, could count its fabs as multiple sources of cpu supply, thereby negating the necessity of having AMD as a secondary source.

A major court battle was waged over this....actually several cases, in fact....and Intel lost all of them as they were decided in AMD's favor.

But by the time the Pentium came around, the die was pretty much cast, no matter the outcome of the court battles or chip design by AMD....Intel's marketing strategy for consumers was very powerful and it was seen as "THE" cpu on the market. (Remember Intel's commercials on TV throughout the years? Now, remember any more than one or two AMD commercials ever airing? Say what you will, marketing to the vast unwashed and uninformed out there does have an impact, something AMD seems to have missed or forgotten...)

And while it is completely true that AMD's first real homebrewed cpu, the Athlon series, was very successful and was in many ways superior to Intel's offerings at the time, Intel was already established as the dominant cpu player.

In my opinion, AMd had the golden egg in its hands, the Athlon series, and made oatmeal out of it...no marketing worht a damn outside word of mouth. And you depend upon word of mouth between ITs, geeks, and hardware freaks, and you get sales pretty much centered around ITs, geeks, and hardware freaks, and miss out on all the Joe Beer Mug and Jill Soccer Mom sales.

I'm not saying Intel is completely absolved in all of this...history has shown Intel to be quite the ogre in trying to defend its turf. And while exclusivity deals aren't uncommon at all in business (anyone ever find more than one brand of soft drink in a fast food chain, even those that aren't owned by the parent company of Pepsi/Coke? Or the games that are "exclusive" to one gaming console over another? Seems these can exist in life.....it's just Intel stepped way over the line in trying to keep their "partners" in check.)

I just hope that AMD doesn't obliterate ATi like it has shot itself in the foot repeatedly. ATi has now come around and is finally putting out some nice pieces of hardware....the 3xxx series was quite nice and the newly released 4xxx series is even better. I just hope ATi/AMD learns from past mistakes and begins to effectively market the darned things across the board, not just to us.


By DallasTexas on 6/24/2008 10:39:30 AM , Rating: 2
My reply to your many points..

A rather simplistic view on how AMD came to produce x86 cpus...but rather naive, too.
Yep, I tried to keep it simple for obvious reasons

Realize that when AMD began making x86 cpus, it was at the request of Intel, not because AMD saw something that was selling and decided to copy it.
Actually, not exactly. It was at the request of IBM who wanted a reliable supply and forced Intel to license the design. An important technicality that you chose to bury in the below paragraph.

AMD was tasked to produce, initially, x86 cpus by Intel due to a contract Intel entered into with IBM, and at the time IBM required companies that supplied it hardware to have a secondary source of supply of said hardware...to ensure against supply chain shortfalls and/or interruptions. (Remember, prior to this, AMD had no x86 cpus in design or production but was instead into other chip design and manufacture, such as some communication-based chipsets in modems, etc., some graphics chips, and a non-x86 cpu that was not really gaining traction.)
Ahh yes, I remember. Maybe because I was there, in Boca Raton when all this happened. Either way, it helps to backdrop.

So, to that end, Intel asked AMD to become its secondary supplier for x86 cpus....I believe this was around the 8088 timeframe....and licensed the x86 cpu design to AMD.
Yeah, OK. If that helps your case you can phrase it like that.

Unfortunately for Intel, the license that was crafted gave AMD to right to Intel's succeeding x86 cpu designs...the 386's and 486's.
So, you agree that AMD's first strategy was to COPY intel designs, now that they had a license. GOOD!

Of course, Intel did cut off the license arbitrarily with the reasoning that Intel, having multiple fabs by this point, could count its fabs as multiple sources of cpu supply, thereby negating the necessity of having AMD as a secondary source.
Yes. What is givith, can be taken away. It's called business.

A major court battle was waged over this....actually several cases, in fact....and Intel lost all of them as they were decided in AMD's favor.
Agreed. Intel signed over too much of a license not knowing the size of the PC industry.

But by the time the Pentium came around, the die was pretty much cast, no matter the outcome of the court battles or chip design by AMD....Intel's marketing strategy for consumers was very powerful and it was seen as "THE" cpu on the market. (Remember Intel's commercials on TV throughout the years? Now, remember any more than one or two AMD commercials ever airing? Say what you will, marketing to the vast unwashed and uninformed out there does have an impact, something AMD seems to have missed or forgotten...)
Agreed again! Intel spent money to position the CPU as an important component, hence benefiting AMD as well. They also created a great brand and brand is a good thing, right?

And while it is completely true that AMD's first real homebrewed cpu, the Athlon series, was very successful and was in many ways superior to Intel's offerings at the time, Intel was already established as the dominant cpu player.
Discounting the fact that Athlon was a x86 knockoff, yes, it was a good product. However, a good product does not guarantee success - something you too can learn in MBA grad school.

In my opinion, AMd had the golden egg in its hands, the Athlon series, and made oatmeal out of it...no marketing worht a damn outside word of mouth. And you depend upon word of mouth between ITs, geeks, and hardware freaks, and you get sales pretty much centered around ITs, geeks, and hardware freaks, and miss out on all the Joe Beer Mug and Jill Soccer Mom sales.
Agree. So you agree with my second point that AMD did not follow through with what was a good product? Failed to produce enough of them and failed to create the market awareness for it.

I'm not saying Intel is completely absolved in all of this...history has shown Intel to be quite the ogre in trying to defend its turf.
Yes. Intel is a tough competitor. Stockholder like that.

And while exclusivity deals aren't uncommon at all in business (anyone ever find more than one brand of soft drink in a fast food chain, even those that aren't owned by the parent company of Pepsi/Coke? Or the games that are "exclusive" to one gaming console over another? Seems these can exist in life.....it's just Intel stepped way over the line in trying to keep their "partners" in check.)
Ahh, that's getting back to the article which clearly suggests that this is not a simple, objective finding. That it varies nation to nation. You seem to have come up with your own opinion and position as fact. This is where we part ways. I like dealing in facts, not opinion.

I just hope that AMD doesn't obliterate ATi like it has shot itself in the foot repeatedly. ATi has now come around and is finally putting out some nice pieces of hardware....the 3xxx series was quite nice and the newly released 4xxx series is even better.
Me too. I like it when competition is around good products and services. Not about governments interfering with what is clearly the most competitive industry in the world.
I just hope ATi/AMD learns from past mistakes and begins to effectively market the darned things across the board, not just to us.
Me too. Now that AMD is forbidden by contract to STOP COPYING INTEL designs, maybe they can be successful.


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