July 18, 2005
AMD sues Intel
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Jack Horgan - Contributing Editor


by Jack Horgan - Contributing Editor
Posted anew every four weeks or so, the EDA WEEKLY delivers to its readers information concerning the latest happenings in the EDA industry, covering vendors, products, finances and new developments. Frequently, feature articles on selected public or private EDA companies are presented. Brought to you by EDACafe.com. If we miss a story or subject that you feel deserves to be included, or you just want to suggest a future topic, please contact us! Questions? Feedback? Click here. Thank you!

Introduction


On June 28, 2005 Advanced Micro Devices (AMD) announced that it filed an antitrust complaint against Intel Corporation yesterday in U.S. federal district court for the district of Delaware under Section 2 of the Sherman Antitrust Act, Sections 4 and 16 of the Clayton Act, and the California Business and Professions Code.


On June 29, 2005 Intel Corporation President and CEO Paul Otellini said in response to the lawsuit that
"Intel has always respected the laws of the countries in which we operate. "We compete aggressively and fairly to deliver the best value to consumers. This will not change."
"Over the years, Intel has been involved in other antitrust suits and faced similar issues. Every one of those matters has been resolved to our satisfaction. We unequivocally disagree with AMD's claims and firmly believe this latest suit will be resolved favorably, like the others."
In an open letter AMD CEO Hector Ruiz accuses Intel of harming and limiting competition in the microprocessor industry. The letter states in part:


“Intel's actions include:
- Forcing major customers to accept exclusive deals,


- Withholding rebates and marketing subsidies as a means of punishing customers who buy more than prescribed quantities of processors from AMD,


- Threatening retaliation against customers doing business with AMD,


- Establishing quotas keeping retailers from selling the computers they want, and


- Forcing PC makers to boycott AMD product launches
    For most competitive situations, this is just business. But from a monopolist, this is illegal.”


AMD also released a copy of the 48 page compliant that can be found on


This action followed the release of Japan Fair Trade Commission (JFTC)'s findings in its March 8, 2005 Recommendation that Intel K.K. committed violations of the Antimonopoly Act. The JFTC Recommendation concluded that Intel K.K. interfered with AMD Japan's business activities by providing large amounts of funds to five Japanese PC manufacturers (NEC, Fujitsu, Toshiba, Sony, and Hitachi) on the condition that they refuse to purchase AMD processors.


In response to the JFTC recommendation Bruce Sewell, Intel general counsel, said in a statement. "Intel respectfully disagrees with the allegations contained in the recommendation, but in order to continue to focus on the needs of customers and consumers, and continue to provide them with the best products and service, we have decided to accept the recommendation"


AMD Japan has since filed two claims against Intel Corporation's Japanese subsidiary, Intel K.K., in the Tokyo High Court and the Tokyo District Court for damages arising from violations of Japan's Antimonopoly Act.


On July 5, 2005 AMD won a court order to preserve documents. The U.S. District Court for Delaware ruled that AMD can subpoena several computer makers, microchip distributors and retailers for the documents.




Some historical background as recounted in AMD's complaint


In the 1980 IBM choose the Intel architecture (x86) and Microsoft DOS operating system for its PC. IBM demanded that Intel contract with another integrated circuit company and license it to manufacture x86 chips as a second source. AMD, which had worked with Intel before in supplying microprocessors, agreed to abandon its own, competing architecture, and it undertook to manufacture x86 chips as a second source of supply. AMD alleges that Intel soon set out to torpedo the 1982 AMD-Intel Technology Exchange Agreement by which each would serve as a second source for products developed by the other. Intel subsequently decided that it would be the sole-source for the 80386 chip but kept this
decision secret from AMD and thereby prevented AMD from offering a timely second source or developing its own alternate. After 5 years of litigation an arbiter awarded AMD $10 million as well as a permanent, nonexclusive and royalty-free license to any Intel intellectual property embodied in AMD's own 386 microprocessor, including the x86 instruction set. AMD was forced to reinvent itself as a developer of microprocessor technology not just a second source.


X86 Worldwide CPU Unit Market Share




Clearly Intel has a dominant market share. Most x86 microprocessors are used in desktop PCs and mobile PCs, with desktops currently outnumbering mobile by a margin of three to one. Tier One OEMS including HP, Dell, IBM/Lenovo, Gateway/eMachines and Fujitsu/Fujitsu Siemens collectively account for almost 80% of servers and workstations, more than 40% of worldwide desktop PCs, and over 80% of worldwide mobile PCs.


AMD's Complaint alleges that:
“Intel arsenal includes direct payments in return for exclusivity and near-exclusivity; discriminatory rebates, discounts and subsidies conditioned on customer “loyalty” that have the practical and intended effect of creating exclusive or near-exclusive dealing arrangements; threats of economic retaliation against those who give, or even contemplate giving, too much of their business to AMD, or who refuse to limit their AMD business to Intel-approved models, brands, lines and/or sectors, or who cooperate too closely with AMD's promotion of its competitive processors; and misuse of industry standards-setting processes so as to disadvantage AMD products in the
marketplace.”
The compliant cites instances of these alleged abuses with virtually every Tier-One vendor, often citing explanations given by customer executives for changing their mind relative to AMD purchases as evidence.


Beginning in 1999 with the introduction of its Athlon microprocessor AMD began to make inroads in Japan. By the end of 2002, AMD had achieved an overall Japanese unit market share of approximately 22%. But according to AMD Intel business practices reversed this trend. AMD's share of Sony's business dropped from 23% in 2002 to 8% in 2003, and then to 0%, where it remains today. AMD had 84% share of NEC's Japanese consumer desktop business in the third quarter of 2002 but sales plummeted to virtually zero in the first quarter of 2003. During the first part of 2002, AMD was shipping 50,000 Athlon microprocessors to Hitachi per quarter. But by the middle of the year, AMD sold no
microprocessors to Hitachi at all. And so on and so forth. AMD points to the JFTC Recommendation as confirmation of its charges.


AMD points to its recent gains in technology leadership. In April 2003 AMD introduced its Opteron 64-bit microprocessor and later Athlon64 which unlike Intel's Itanium had backwards compatibility with 32-bit software. However, AMD's market share has not kept pace with its technical leadership. AMD's explanation is Intel's misconduct.
“Intel has unlawfully maintained the monopoly IBM bestowed on it and systematically excluded AMD from any meaningful opportunity to compete for market share by preventing the companies that buy chips and build computers from freely deploying AMD processors; by relegating AMD to the low-end of the market; by preventing AMD from achieving the minimum scale necessary to become a full-fledged, competitive alternative to Intel; and by erecting impediments to AMD's ability to increase its productive capacity for the next generation of AMD's state of the art microprocessors. Intel's exclusionary acts are the subject of the balance of this complaint.”


Background on Antitrust


The history of antitrust regulation and legislation can be traced back to 1870's. After the Civil War the railroad industry experienced a boom. The transcontinental Union Pacific Railroad was completed in 1869. Over 35,000 miles of track had been lain and the railroads became the nation's largest employers. Railroads offered farmers a way to transport produce to distant markets. However, the grain needed to be stored prior to transportation. In the minds of farmers the railroads, grain elevators and warehouses were overcharging for their services. An American agrarian movement, the Granger movement, became a major force in the politics in the Midwest, gaining control of several state legislatures. These legislatures passed law to control the railroads for example by fixing maximum rates for storage of grain and by establishing state railroad commissions. Railroads and other challenged the constitutionality of these state laws. In 1876 the U.S. Supreme Court, in Munn (a warehouse owner) v. Illinois ruled against the railroads and established as constitutional the principle of public regulation of private utilities devoted to public use. Furthermore, the court said that "until Congress makes use of its power, a state might act even if in so doing it may indirectly operate upon commerce outside its jurisdiction." In 1866 in a second case, Wabash, St. Louis & Pacific Railroad Company v. Illinois, the Supreme Court declared invalid an Illinois law prohibiting long- and short-haul clauses in transportation contracts as an infringement on the exclusive powers of Congress granted by the commerce clause of the Constitution. The result of the case was denial of state power to regulate interstate rates for railroads. In 1887 the Federal government established the Interstate Commerce
Commission. The Commission's first act was to ensure "just and reasonable" rates from businesses and to prevent the formation of monopolies.


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-- Jack Horgan, EDACafe.com Contributing Editor.


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