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Intel Antitrust Chickens Home to Roost, Though Not Completely Fairly

It's been tough for Intel (INTL) on the governance and compliance front as New York Attorney General Andrew Cuomo yesterday filed an antitrust lawsuit against the company. The topic is kickbacks rebates that the chip maker provided to Dell -- to the tune of $6 billion over 5 years. But when you consider what is going on and how other industries act, you have to wonder whether Intel is that much of an evil competitor, or a scapegoat when the practice of paying for advantage in business is all too common.

According to the New York Times story, it sounds as though Cuomo has some pretty strong evidence on hand:

In an e-mail note to Intel's chief executive, Paul S. Otellini, Mr. Dell threatened to switch to A.M.D. "I am tired of losing business," Mr. Dell wrote. "We are losing the hearts, minds and wallets of our best customers."Mr. Otellini reminded Mr. Dell that Intel had paid Dell more than $1 billion in the last year. "This was judged by your team to be more than sufficient to compensate for the competitive issues," he wrote. Dell delayed buying A.M.D. chips, and Mr. Otellini said in a later e-mail message to a colleague that Dell was "the best friend money can buy."
If that is accurate, it's pretty damaging and comes right on the heels of a walloping fine that the EU levied on the company. It's not surprising that if something had been going on in Europe that there was a U.S. component. It also wouldn't be surprising that other computer manufacturers, including HP and IBM also allegedly received payments. And clearly having a market leader pay to keep a competitor out is detrimental to all the companies involved, particularly when Intel was trying to product advances by AMD, meaning that AMD's business was hurt and Intel actually hurt its technical competitiveness.

Bad, bad, bad all around. But I can think of other industries where similar shenanigans are commonplace. If you know anything about the grocery industry, then you've heard of slotting fees -- money charged by the store chain for the privilege of carrying products by vendors. Pay enough and you can also push out competitors. Retail? Same situation. In these industries, such tactics are apparently considered legal. It seems a bit unfair to center on high tech.

However, Intel has a second and potentially more dangerous result. Back in the 1980s, Pillsbury, through its Haagen-Dazs ice cream brand, tried to keep Ben & Jerry's out of major distributors, limiting their potential competitiveness. The Vermont-based Ben & Jerry's undertook a clever campaign with the theme, "What's the Doughboy afraid of?" The resulting wave of media coverage, combined with a lawsuit that Ben & Jerry's undertook, broke Pillsbury's resistance. So what if AMD took a leaf out of that book and started the "Are Intel's chips really that bad?" campaign. Push the idea that Intel tacitly admits AMD's technical superiority, and that might fuel a whole lot of sales.

Image courtesy of Erik Sherman, all rights reserved.