SAN JOSE, Calif. - Intel Corp. pushed price cuts and rebates on computer sellers in exchange for exclusionary contracts — and punished those that used competing microprocessors, rival Advanced Micro Devices Inc. claims in a lawsuit against the world's leading chip maker.
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The industry underdog says 38 companies — including Dell Inc., Sony Corp (NYSE:SNE - news). and Hewlett-Packard Co. — were strong-armed into buying Intel rather than AMD chips. The bullying also affected distributors and retailers like Office Depot and Fry's, AMD contends.
AMD's suit, filed late Monday in Delaware federal court, seeks an end to the alleged practices, which it says ultimately hurt consumers the world over.
It also seeks billions of dollars in damages in the case, which some experts say could take years to litigate and rival Microsoft Corp.'s landmark antitrust battle in complexity.
"We have a responsibility to stand up to the industry's Goliath," said Tom McCoy, AMD's chief administrative officer. "We have a responsibility to the entire industry to win and we will win because we stand on the truth of how this industry suffers under the yoke of monopoly."
Intel strongly denied AMD's allegations and will "respond appropriately," said spokesman Tom Beermann. The Intel microprocessors that run Windows operating systems account for about 80 percent of the worldwide market by unit volume and 90 percent by revenue.
"Intel believes in competing fairly and believes consumers are benefiting from this vigorous competition," said Beermann. "AMD has chosen, once again, to complain to a court about Intel's success, with a legal case full of excuses and speculation."
Shares of Intel closed at $26.33, up 47 cents, or 1.8 percent, in Tuesday trading on the Nasdaq Stock Market, while shares of AMD rose $1.05 cents, or more than 6 percent, to $17.70 on the New York Stock Exchange.
The 48-page suit repeats claims that go back more than a decade but also offers spicy new details.
In one section, Intel is compared to a cocaine dealer, hooking Toshiba Corp. on its financial inducements of $25 million to $30 million a quarter. Elsewhere, an unnamed Gateway official is quoted as saying threats from Intel beat the company into "guacamole."
Former Compaq Computer Corp. CEO Michael Capellas is quoted as saying he had a gun to his head when he stopped buying AMD chips because Intel threatened to hold back needed parts for servers.
Among other claims, AMD said Intel "has done its utmost" to interfere with two recent AMD product launches by threatening partner companies such as Taiwan's Acer, Lenovo, NEC and HP.
In the Acer case, AMD claims, then-Intel CEO Craig Barrett visited the computer maker's chairman and said Acer would suffer "severe consequences" if it participated in the launch of the Athlon 64 chip.
At the same time, as much as $20 million in "market development funds" — incentive payments — from Intel were delayed.
"Acer's president subsequently reported that the only thing different about Intel's threats was the messenger — they were `usually done by lower ranking managers,' not Intel's CEO," according to the lawsuit.
AMD's timing in filing the lawsuit coincides with some successes it is now having in gaining a technological edge over Intel after years of playing catch up. Still, sustained profitability has remained elusive, with AMD posting a $17.4 million loss in the first quarter.
"We're successful and business is strong," McCoy said. "No one can say at this time AMD is simply a whiny competitor unable to compete in the marketplace and therefore resorting to the courts."
Earlier this year, Japanese regulators found Intel to have violated antitrust rules — a case believed to have been triggered by AMD. The company eventually aGREed to halt some practices the regulators found objectionable. The European Commission also has said it is pursuing an investigation against Intel.
The U.S. Fair Trade Commission has investigated Intel's practices but said in 2000 that it was closing the case and taking no action against the world's largest chip maker.
Still, legal experts and analysts said AMD's suit faces several significant hurdles: For one, no U.S. antitrust regulators or courts have declared Intel a monopoly. AMD must thus prove the monopolist allegation even though AMD's very existence could be wielded as a counterargument.
"The more common course is for the private plaintiff to wait until the U.S. government does something — like all the lawsuits against Microsoft after it was sued," said Rod Thompson, a partner at the law firm Farella Braun and Martel LLP.
"It will be difficult for AMD to prove it all on its own," he said.
In addition, AMD also must convince the court that Intel's practices are in fact a monopolist's exclusionary practice and not a legitimate business practice.
And AMD's customers and potential customers — including HP, Dell and Sony — will have to confirm the often extraordinary claims made in the lawsuit.
"Dell is awfully big to be coerced," said Roger Kay, an analyst at the research firm IDC. "It's hard for me to believe they haven't made these decisions on their own."
In an indication of AMD's tough task ahead, PC manufacturers either did not return calls or refused to comment when asked for reaction to the lawsuit.
"We wouldn't comment on a dispute between two other companies or discuss relationships we have with our suppliers," said Mike Maher, a Dell spokesman.
AMD expects voluntary compliance with requests for information, but "we expect to crack open their files through the subpoena process and we have already started that process," said Charles Diamond, a lawyer who is representing AMD.
Rick Whittington, a Caris & Co. analyst, had been expecting the lawsuit.
"The timing of this suit, in our view, is Sales and Marketing 101," he said in a research note.
