UPDATE 3-Intel hit by NY antitrust suit, kickbacks alleged

Wed Nov 4, 2009 2:27pm EST

* New York's Cuomo alleges pervasive antitrust violations

* NY attorney general accuses Intel of threats, kickbacks

* Intel says will fight charges

* Intel shares up 1.6 pct (Adds comment, details from lawsuit, byline)

By Jonathan Stempel

NEW YORK, Nov 4 (Reuters) - Intel Corp was sued by New York Attorney General Andrew Cuomo, who accused the world's largest chipmaker of threatening computer makers and paying billions of dollars in kickbacks to maintain its market dominance.

The lawsuit accuses Intel (INTC.O) of violating state and federal antitrust law through a "systematic worldwide campaign" of bullying and coercion to monopolize the market for personal computer chips, at the expense of rival Advanced Micro Devices Inc (AMD.N).

Intel's microprocessors power more than 80 percent of the world's PCs. Wednesday's lawsuit comes on the heels of several antitrust probes throughout the world into the Santa Clara, California-based company's business practices.

Cuomo said Intel for several years bribed or coerced computer makers such as Dell Inc DELL.O, Hewlett-Packard Co (HPQ.N) and International Business Machines Corp (IBM.N) to use its microprocessors or stop using those of rivals.

The alleged wrongdoing included kickbacks in the form of "rebates" and threats of retaliation for using rival chips.

Top officers including Intel Chief Executive Paul Otellini were aware of some of the activity, according to emails cited in the lawsuit filed in federal court in Wilmington, Delaware.

In a conference call with reporters, Cuomo said Intel's "my way or the highway" has corroded competition, while forcing consumers and businesses to overpay for chips.

"We intend to stop them," he said.

The 83-page lawsuit seeks to stop Intel's anti-competitive conduct, and also seeks triple damages and other remedies.

"Consumers have paid more for slower computers and competition has been dampened," said David Balto, a former Federal Trade Commission official who became a senior fellow at the Center for American Progress, a think tank.

INTEL TO DEFEND ITSELF

Intel spokesman Chuck Mulloy said the company would defend itself against Cuomo's charges. "Neither customers who have benefited from lower prices and increased innovation nor justice are being served by the decision to file a case now," he said.

In afternoon trading, Intel shares were up 30 cents, or 1.6 percent, at $18.66 on the Nasdaq.

"I have a hard time thinking it's not within people's expectations," said Doug Freedman, a technology analyst at Broadpoint AmTech in San Francisco, referring to the lawsuit.

"If we look at antitrust cases in the past, you really only need to go look at Microsoft (MSFT.O) and you say, did it really have an investable impact?" Freedman said. "I think the answer is no."

Other regulators worldwide have also examined possible antitrust violations by Intel.

In July, the company appealed a 1.06 billion euro ($1.57 billion) fine by the European Union two months earlier.

The Federal Trade Commission, meanwhile, opened a formal inquiry into Intel in June 2008, and at least three of four commissioners have backed the filing of a complaint, people familiar with the review have said.

An FTC representative declined to comment on Wednesday. Cuomo's office said it is cooperating with the FTC inquiry.

AMD has its own four-year-old lawsuit against Intel, which is scheduled to go to trial in March, court records show.

A spokesman for AMD, Tom McCoy, said stopping Intel's wrongdoing "will serve the settled purpose of the American antitrust laws: ensuring that innovation is unconstrained and competition is free to serve consumers."

"JIHAD"

Wednesday's complaint includes several emails that Cuomo said demonstrate Intel's illegal activities.

According to the complaint, Dell founder Michael Dell wrote a Nov. 10, 2005, email to Otellini where he complained about losing competitive ground.

Otellini replied that Intel was transferring more than $1 billion annually to Dell, an amount "judged by your team to be more than sufficient to compensate for the competitive issues," the lawsuit said.

In another instance cited in the complaint, a Dell executive expressed worry in 2004 that if Dell were to use some AMD chips, Otellini and then-chief executive Craig Barrett were "prepared for jihad."

Eric Corngold, a deputy New York attorney general, on the conference call said top executives' involvement shows "this isn't the story of a few rogue employees going too far."

IBM spokesman Michael Fay and Hewlett-Packard spokeswoman Christina Schneider declined to comment. Dell did not return a call seeking comment.

Cuomo has pursued many high-profile lawsuits and probes as New York's top legal officer. The Democrat is expected to run for the state's governorship in 2010.

The case is New York v. Intel Corp, U.S. District Court, District of Delaware. (1 euro = US$1.484) (Reporting by Jonathan Stempel; Additional reporting by Diane Bartz in Washington, and Gabriel Madway and Ian Sherr in San Francisco; Editing by Derek Caney and John Wallace, Gary Hill)