New York Times Editorial/Intel Will Pay $1.25 Billion to Settle Disputes With Rival/A.M.D.-Intel Settlement Won’t End Their Woes

New York Times Editorial: Intel’s $1.25 Billion Settlement
Copyright by The New York Times
Published: November 12, 2009
http://www.nytimes.com/2009/11/13/opinion/13fri1.html?th&emc=th


Intel’s antitrust and patent settlement with Advanced Micro Devices is good news for A.M.D., which now finds itself $1.25 billion richer, but it is less clear what it does for the general public. Intel has been accused of stifling competition and driving up prices through a wide array of anticompetitive practices, which may or may not continue now that Intel has agreed to write a large check. Government agencies that have sued Intel or are considering it should not back away.

A.M.D.’s suit against Intel, which has been in the works for years, was supposed to be a major antitrust showdown. Instead, A.M.D. has agreed to call off the fireworks for a sum that means a lot more to A.M.D., whose stock price soared on the news, than to Intel. As part of the deal, Intel also agreed to adhere to some new business practices.

Intel is the big gorilla of the microchip industry. Four out of five PCs in the world use its chips, which gives it an enormous amount of market clout that can be misused. Regulators have accused Intel of offering big rebates and co-marketing agreements to induce large computer makers to choose its chips over its competitors’ products.

Intel’s behavior has drawn censure not just in the United States, but internationally. In May, the European Union leveled a $1.45 billion fine on Intel for using illegal, anticompetitive practices. The European Union’s competition commissioner ordered Intel to change how it does business, including not offering rebates conditioned on the purchaser buying less of a competitor’s products, or not buying them at all. Intel is appealing the European Union ruling.

This month, Attorney General Andrew Cuomo of New York filed a sweeping antitrust lawsuit against Intel, focusing in part on Intel payments to PC makers that are allegedly tied to the companies continuing to use Intel products. In announcing the suit, Mr. Cuomo charged Intel with using “illegal threats, coercion, fines and bullying to preserve its stranglehold on the market.” Based on what is known so far about the A.M.D. settlement, there is no reason for Mr. Cuomo to let up in that lawsuit.

The Federal Trade Commission has also been considering opening formal proceedings against Intel. Like Mr. Cuomo’s lawsuit, the focus of the F.T.C. investigation should be on what impact Intel’s actions have on consumers. Intel and its smaller rival, A.M.D., may well have reached an agreement that is good for both companies, but that does little for computer buyers.

Antitrust law can seem like an abstraction, but in the case of computer chips the impact on ordinary Americans is very real. Chips are a significant part of the cost of new desktop and laptop computers, and the quality of those chips has a big effect on computer performance. If Intel is using its market power to keep prices high and fend off better products, it is consumers — and not just competitors like A.M.D. — who are the losers.







Intel Will Pay $1.25 Billion to Settle Disputes With Rival
Copyright By THE NEW YORK TIMES
Published: November 12, 2009
http://www.nytimes.com/2009/11/13/technology/companies/13chip.html?_r=1&hp


Trying to resolve a longstanding legal case, the chip maker Intel agreed on Thursday to pay its rival, Advanced Micro Devices, $1.25 billion to settle antitrust and patent disputes.

The settlement will resolve a case pending in Federal District Court in Delaware and two in Japan. In addition, A.M.D. will also withdraw all of its regulatory complaints worldwide.

In the antitrust complaint filed in 2005 in Delaware, A.M.D. contended that Intel had bullied dozens of computer makers, retailers and distributors by threatening to retaliate against them if they did business with A.M.D. The complaint also accused Intel of using improper tactics, like discriminatory rebates and subsidies to win and keep customers.

As part of Thursday’s settlement, Intel agreed to abide by a set of business practice provisions.

In a joint statement, the companies said, “While the relationship between the two companies has been difficult in the past, this agreement ends the legal disputes and enables the companies to focus all of our efforts on product innovation and development.”

But Jonathan Todd, the spokesman for European Union’s competition commissioner, Neelie Kroes, said Thursday that the settlement would have no effect the decision in May to fine Intel a record sum of $1.5 billion for antitrust offenses.

Mr. Todd said the European Commission "takes note that Intel and A.M.D. have settled all their litigation and that Intel is paying A.M.D compensation of one-and-quarter billion dollars."

“Intel has an ongoing obligation,” Mr. Todd, said “to comply with the commission’s antitrust decision and with E.U. competition law."

“The commission continues to vigorously monitor Intel’s compliance with its obligations under the E.U. antitrust decision,” he said.






A.M.D.-Intel Settlement Won’t End Their Woes
By STEVE LOHR and JAMES KANTER
Copyright by The Associated Press
Published: November 12, 2009
http://www.nytimes.com/2009/11/13/technology/companies/13chip.html?th&emc=th


The giant chip maker Intel, facing antitrust challenges around the world, announced on Thursday that it would pay $1.25 billion to settle its long-running disputes with its smaller rival, Advanced Micro Devices.

The settlement, covering both antitrust and patent claims, ends the computer industry’s most bitter legal war.

But the truce may not be enough to turn around the fortunes of A.M.D, which has struggled to come up with chips that give it any significant technological or performance edge over Intel, which supplies about 80 percent of the microprocessors that sit at the heart of personal computers.

At least in the short term, the settlement also does not end Intel’s antitrust problems. Governments in Europe, the United States and Asia have accused the company of systematically using large rebates and co-marketing arrangements to persuade computer makers to use its chips instead of those made by A.M.D.

The regulators contend that Intel’s tactics have not only hurt competitors, but also effectively forced customers to pay higher prices. On Thursday, both the European Union and the New York attorney general’s office said they would continue to press their cases against the company.

Still, legal experts say the agreementresolves some of the antitrust issues surrounding Intel and could dissuade other government agencies from bringing cases against the company.

The Federal Trade Commission, for example, has been investigating the big chip maker for the past year but has taken no action. “This private settlement has probably taken a lot of wind out of the sails” of the F.T.C.’s case, said Herbert Hovenkamp, an antitrust expert and law professor at the University of Iowa.

The agreement between the two Silicon Valley companies mainly covers A.M.D.’s claims that Intel rewarded computer makers that used only Intel chips and punished those who bought from A.M.D. Intel contends that it never engaged in tactics to exclude A.M.D. from the marketplace but agreed in the settlement not to do so in the future.

The pact provides for quarterly meetings between the companies and programs for mediating disputes over exclusionary practices. The firms will also cross-license each other’s patents for five years.

But it’s unclear whether the deal will truly change the competitive dynamics between the companies. A.M.D., founded 40 years ago, rose to prominence as a maker of Intel-compatible chips, but it has had difficulty producing notably better products than Intel and often ended up in devastating price wars.

Dirk Meyer, the chief executive of A.M.D., said the settlement opened the door to a “transformation in the way our industry operates,” though he admitted change would not be immediate.

Thomas M. McCoy, A.M.D.’s executive vice president for legal affairs, said his company’s long-time goal had only been fair competition. “We’re not looking for any help, just do not hurt us,” he said.

Intel executives said that settling the case was a pragmatic business decision, a careful weighing of risks.

The jury trial in A.M.D.’s antitrust case against Intel was scheduled to begin in Delaware next spring. If things had gone against Intel, the chip maker could have been hit with triple damages, executives said.

“We have never wavered in our position that Intel did nothing outside the law,” said Intel’s chief executive, Paul S. Otellini. “It made sense to step back and find a way to settle this.”

Michael Salinger, an economist at the Boston University School of Management and a former F.T.C. official, said the substantial settlement “suggests Intel knew they faced a serious risk of losing” in the A.M.D. trial.

However, analysts said that the deal was unlikely to have a significant impact on how Intel did business.

“A.M.D. did very well from this settlement, but Intel’s business model is not changing,” said Stacy Rasgon, a chip analyst at Bernstein Research.

The Intel settlement with A.M.D. does not cover a range of business practices, including Intel’s broad pricing policies and its marketing payments to PC makers under its Intel Inside branding campaign.

Those pricing and marketing practices have drawn the scrutiny of regulators worldwide.

In May, the European Union hit Intel with a record $1.45 billion fine, which the company is appealing. And last week, New York’s attorney general, Andrew M. Cuomo, filed a wide-ranging antitrust suit against Intel.

Jonathan Todd, the spokesman for the European Union’s competition commissioner, Neelie Kroes, said on Thursday that the settlement would have no effect on Europe’s case.

“Intel has an ongoing obligation to comply with the commission’s antitrust decision and with E.U. competition law,” Mr. Todd said. “The commission continues to vigorously monitor Intel’s compliance with its obligations under the E.U. antitrust decision.”

A spokesman for Mr. Cuomo’s office said its suit against Intel also was continuing.

Intel and A.M.D. said that talks to end their disputes began in April, but negotiations got serious over the summer, after the Europeans ruled against Intel. Mr. Otellini said New York’s suit had no effect on the timing of the deal, although the state’s investigation began last year.

The final negotiating point, Mr. Otellini said, was how much Intel would pay A.M.D. He said it pained him to write a big check, but $1.2 billion might be a “small multiple” of the company’s liability if it lost a jury trial.

Intel and A.M.D. have wrangled legally for more than two decades, and A.M.D. has been the primary instigator behind various government investigations of its rival over the years. By now, the two sides have exchanged 200 million documents, and witness depositions run to 2,200 hours — all of which are available to government investigators.

Besides cash, the settlement gives A.M.D. greater freedom to produce chips at different contract factories around the world. Under a patent cross-licensing deal with Intel, A.M.D. was restricted in producing large volumes of chips in any factory not owned by A.M.D. or a subsidiary.

That part of the agreement, analysts say, could eventually allow A.M.D. to reduce its stake in its former chip-making operations, which in March were spun off into a money-losing joint venture called Globalfoundries. In the third quarter, A.M.D. had operating income of $47 million, excluding the losses from Globalfoundries, on revenue of $1.4 billion.

“A stronger A.M.D. is good for competition in the industry,” said Mr. Rasgon. “The impact will depend on how well A.M.D. does in developing and producing products over time.”

James Kanter reported from Brussels.