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Intel’s Legal Woes: Justice or Witch Hunt?

intelvsamd

intelvsamdIt was announced mid last week that Microprocessor giant Intel was being sued by New York’s Attorney General Andrew Cuomo for violating United States antitrust laws. Intel is accused of coercing computer manufacturers such as Dell and HP into purchasing Intel microprocessor chips in exchange for payment. Rather than paying the companies directly, Intel offered to pay for the manufacturer’s consumer rebates, giving these companies a competitive edge and a huge incentive to purchase the Intel x86 microprocessor. Cuomo and the New York State government argue that this violates antitrust laws because it discourages competition in the marketplace. But why is the government ready to spend millions of taxpayers dollars now, especially in the middle of a recession? Could it possibly be because Intel’s main competitor AMD is struggling to stay afloat, grappling for a tiny piece of the market? When is it the right time to prosecute big business and when does it simply disadvantage the consumer?

Let’s discuss why antitrust laws exist and why we care as consumers. Antitrust laws were put in place to protect consumers from monopolistic practices, which often result in astronomical prices and lack of diversity. Without competition, there’s no incentive for a better product, there’s no way to drive costs down, and innovation is lost. To ensure competition, the U.S. government puts antitrust laws into practice to keep costs reasonable for the consumer and to foster innovation. With Intel’s history of innovation and low costs, is going after them really in the consumer’s best interest? AMD is considered Intel’s main competitor in the microprocessor arena, and this is not the first time the companies have gone head to head. In 2005, AMD sued Intel for violating antitrust laws. Most recently AMD was in the news for insider trading and low earnings, causing their stock to drop a dramatic 6% in October, 2009. And then emerges Cuomo’s movement to file suit against Intel. Seemingly AMD’s last ditch effort to extort funds from Intel, this could explain why the government is pursuing Intel now. People are left wondering why the government is going after Intel, when the cost of microprocessors and the computers that house them are lower than ever.

Reminiscent of the Microsoft antitrust case filed in 1998, Microsoft was also sued for violating the laws of competition. The allegation was that when Microsoft bundled Internet Explorer with their Windows operating system, they unfairly wiped out competing Internet browsers. Microsoft argued that Internet Explorer was the most compatible with Windows, making it an obvious choice and the best product for Microsoft customers. They also argued that consumers could easily download another Internet browser if they weren’t happy with Internet Explorer. Microsoft didn’t block the use of other browsers, they simply bundled Internet Explorer with their operating system. In the end, Bill Gates stepped down as Microsoft Chairman and the company was found in violation of antitrust laws. Throughout the trial, both Microsoft and other economists defended the company’s actions. In a full-page ad that appeared in both The Washington Post and The New York Times on June 2, 1999, the Independent Institution, a group of well known economists, ran the ad entitled “An Open Letter to President Clinton From 240 Economists On Antitrust Protectionism,” and stated:

“Consumers did not ask for these antitrust actions – rival business firms did. Consumers of high technology have enjoyed falling prices, expanding outputs, and a breathtaking array of new products and innovations…Increasingly, however, some firms have sought to handicap their rivals by turning to government for protection. Many of these cases are based on speculation about some vaguely specified consumer harm in some unspecified future, and many of the proposed interventions will weaken successful U.S. firms and impede their competitiveness abroad.”

One Nobel Peace Prize winner, Milton Friedman, went so far as to say that the Microsoft antitrust case set a dangerous precedent for government interference and that progress in technology is likely to be impeded as a result. Even after all of this, Microsoft was able to bounce back and reinvent themselves into a company that didn’t solely make operating systems, thanks to innovations like the xbox and other ground breaking products. Netscape however died away….so what was the point in the end? Microsoft may have had a set back, but the main losers were the taxpayers whose hard earned money went to a case that benefited no one in the end. Like Microsoft, Intel is facing similar antitrust action prompted by the poor sales of a rival company. Previously forced to pay fines by the European Commission, Intel faces a $1.45 billion dollar fine in Europe, and another law suit for $25 million presented by the South Korean authorities in June 2008. Currently in a dispute with the Japanese government, this newest law suit becomes that much more important to Intel’s survival.

Also comparable to Microsoft, Intel offers what many people deem a superior product, and the fact that they are able to offer it at a cheap price (via rebates) has huge benefits for consumers. If Intel goes down and suffers significant monetary losses, the consumer will be left without rebates and processor prices are likely to rise. So if antitrust laws aim to enhance innovation and keep prices low, then why is the government prosecuting a company that excels in both of these fields? Without Intel, the consumer is the one losing with higher prices and less advanced innovation. Not to mention the ridiculous amount of taxpayer money wasted on a competing company’s last ditch effort to stay afloat. If Intel goes down and AMD were to be the last company standing, there is no guarantee that they will actually step up to the plate and truly become innovators on the same level as Intel. So if Intel does lose, whose to say where the winnings will end up, and if they will be rewarded to AMD, or not just some other bureaucratic blackhole.

Those of us interested in technology, of course welcome additional options and choices for other processors besides just Intel. In the 1990’s and early 2000’s AMD processors were a chipset to be reckoned with, but over the past few years Intel’s flagship Quad Core processors have been down right outperforming AMD. Regardless, we know that many people still love and use AMD processors and they still provide good value and performance.At the end of the day, giving people options is what American capitalism is all about, but not by penalizing a company that has been consistently innovative, inexpensive, and devoted to offering consumers the best product possible. We just wonder if AMD had kept up the pace and had been truly competitive rather than slipping, would this lawsuit even be taking place. The best case scenario is that AMD will come roaring back to become a true competitor to Intel, something that’s good for everyone. Unfortunately there are lots of questions and no clear answers. Many will offer commentary but the final verdict will be when the judge rules, we just hope for all of us consumers it’s truly done with our best interests at heart… but how often does that happen.