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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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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?

"This is from the It's a science website." -- Rush Limbaugh

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