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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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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 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 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'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.

"I mean, if you wanna break down someone's door, why don't you start with AT&T, for God sakes? They make your amazing phone unusable as a phone!" -- Jon Stewart on Apple and the iPhone

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