An Antitrust Lawyer Dissects New York AG's Decision to Investigate Intel
European efforts against Intel have a better chance than American ones
On 10 January, New York attorney general Andrew M. Cuomo began an investigation into whether Intel had violated state and federal antitrust laws by coercing customers to exclude its main rival, Advanced Micro Devices (AMD), from the worldwide market for x86 microprocessors. New York's action follows government investigations in Japan, Korea, and the European Union and an ongoing civil suit in the United States. IEEE Spectrum senior associate editor Samuel K. Moore talked to John C. Peirce, an experienced antitrust lawyer and partner in the Washington, D.C., firm Bryan Cave LLP, about Cuomo's chances for success.
Spectrum: So what does Cuomo have to prove?
Peirce: He hasn't filed a complaint yet. But assuming that he is looking at the same issues as the European Union, he's got to prove predatory pricing and exclusive dealing.
You can describe exclusive dealing in several different ways, but basically it's locking up customers through what AMD and the EU believe is unfair means.
It's easier for a European government agency to win on a theory of exclusive dealing being anticompetitive than it is for a U.S. government agency. That's because when the EU was founded back in the 1950s, one of their missions was to integrate those economies, and exclusive dealing and exclusive territories were one of the things that they targeted under their competition laws. You'd have sellers that had an exclusive vendor in France and an exclusive vendor in Germany. And the price of their product would be 20 percent more in Germany than it was in France. The EU wanted to break all that down. So they are much more aggressive at going after exclusive dealing.
In the United States, exclusive agreements, contracts, requirements, they're everywhere. Those are not normally a problem except when you get close to a monopoly situation--when someone is locking up all the available customers. Of course, AMD and Cuomo probably think that's happening, but as a consumer I can walk into a Best Buy and see vendors that are willing to sell both an AMD flavor and an Intel flavor of their computers.
Spectrum: Is there a technical definition of where a normal market ends and a monopoly starts?
Peirce: There's not a magic number, but it is usually such a large market share that it looks as though the small company is being excluded from the market and that the big company can raise prices because the competition is going away.
It looks to me as though Cuomo's office is looking at this predatory pricing, too. It's another way to prove monopolization, but the fact that Intel is low-pricing also suggests that it is responding to competition and that AMD is not going to be going away anytime soon.
The problem with these cases is that you have to come up with the evidence. It's easy to have a theory, but you have to prove it.
Spectrum: What do you need for evidence?
Peirce: Presumably you'd have an economic expert who would say that the foreseeable consequences of what's going on in the marketplace is the systematic exclusion of AMD. And presumably Intel will have an expert say there's nothing of the sort happening.
It's not really a conspiracy type of case. In exclusive dealing, the contracts are readily available. Exclusive arrangements aren't unusual in the United States. What is unusual is that a company with such a large market share still feels that it needs to use them. Why is it cutting the price so low when it has so much of the market? There are two possible answers to that: One of them is that it wants to drive AMD out of business. The other is that AMD is such a strong competitor that Intel doesn't want to have a reversal.
Spectrum: What is Cuomo's next step?
Peirce: I think he's going to investigate. I think he's going to get cooperation from the Europeans. They are getting better and better at transatlantic information sharing with U.S. law-enforcement agencies. Cuomo has subpoena powers. He can subpoena Intel's documents; he can certainly subpoena documents from any computer maker in New York who is buying Intel chips. I don't think he'll have to go to customers outside of New York because a copy of the contract will exist with Intel. He will do a lot of interviews, and he may subpoena people to testify as he sees fit.
Spectrum: Is there any limit to what he can do because he's a state attorney general and not a federal investigator?
Peirce: In this context, not really. It may be harder to compel witnesses to testify out of state, but there is an extensive cooperation among the attorneys general within the United States through the National Association of Attorneys General (NAAG). I don't think his information-gathering ability is much less than that of the federal government. His budget is probably less.
Spectrum: Will the federal government get involved in this?
Peirce: I don't think it will. The Federal Trade Commission can't say what it is or isn't investigating, but it seems pretty clear it doesn't have an active investigation of Intel right now. It has certainly been asked to start one by a member of Congress, and the result was not to open a new investigation.
Spectrum: Will other states join in?
Peirce: If Cuomo has success, yes. One advantage of NAAG is it can have one attorney general bring a case, and if it looks successful, then others can join. You saw that happen in the tobacco and Microsoft cases.
Spectrum: What's the state of the EU's action?
Peirce: The EU investigation has been going on for six years, and they think they've found something in the exclusive-dealing and predatory-pricing areas. They have filed a statement of objections-- the equivalent of a complaint--to which Intel has recently given a very detailed formal response.
On the European side, the enforcers think that they have something. The thing I'd say is that their standards are less favorable to Intel and companies like Intel than the U.S. legal standards are for the historical reasons I mentioned.
Spectrum: Is anyone going to jail over this?
Peirce: No. Not a chance. Monopolization cases are never criminal. Based on everything we know, this is not a conspiracy case. It's more of an injunction case. If Intel were to lose, it's likely it would be ordered to change its business practices and pay a fine. But in the greater scheme of things, the relief that would be most important to AMD and most important to Cuomo is to have Intel back off of some of its exclusive arrangements and back off of some of its aggressive pricing.
Spectrum: Is there anything else about Cuomo's action you want to say?
Peirce: No. I hate to be a wet blanket, but this is probably less than meets the eye.