Originally published November 24, 2009
Keywords: Intel, AMD, antitrust, illegal pricing, illegal rebate practices, pricing strategies, retroactive discounting, bid bucketing, end-user discounting, loyalty discount rebate
On November 12, 2009, computer microprocessor maker Intel Corp. (Intel) announced an agreement to pay competitor Advanced Micro Devices (AMD) $1.25 billion to settle all pending litigation between the two. These cases include an antitrust case in Delaware federal court scheduled for trial in March 2010, two lawsuits proceeding in Japan and several regulatory complaints filed around the world. All of the actions brought by AMD claimed that Intel, which controls approximately 80 percent of the microprocessor market, violated antitrust laws by engaging in illegal pricing, discounting and rebate practices designed to maintain a monopoly position. Intel and AMD also agreed to a five-year cross-license agreement that gives the companies broad access to each other's technologies, and Intel agreed to certain modifications in its business practices.
As part of the settlement, and without admitting any wrongdoing, Intel agreed that it would not participate in a list of business practices, including offering computer makers financial incentives to refrain from promoting AMD product launches and the offering of "loyalty rebates" in exchange for agreements by computer manufacturers and end customers to deal exclusively with Intel, or to limit dealings with AMD. However, certain pricing practices challenged by AMD were excluded from that list and are not precluded by the settlement:
- Retroactive Discounting: AMD had alleged that Intel illegally conditioned discounts or rebates on a customer's purchase of a certain volume of microprocessors, then, once the required threshold was met, "retroactively" applied the discount or rebate to purchases below the qualifying volume level.
- Bid Bucketing: AMD had alleged that Intel illegally provided favored computer manufacturers with funds designed to defray those customers' low-ball bids for large-scale server computing projects.
- End-User Discounting: AMD had alleged that Intel illegally discounted microprocessors to a degree that, when combined with other discounts, allowed end customers to purchase the microprocessors at prices below cost.
These same practices are at the core of other private and regulatory actions proceeding against Intel in the European Union and the United States. Based on AMD's complaints, in May 2009, the European Commission levied a $1.45 billion fine against Intel for allegedly anticompetitive conduct — Intel has appealed that decision. (For more information, see our May 19, 2009, Client Update, " Rebates: What Can Companies Learn from the Intel Decision?") On November 4, 2009, the New York Attorney General filed an antitrust lawsuit against Intel in federal court that reiterated many of the European Commission's findings. Intel's pricing practices also are the focus of an ongoing investigation by the Federal Trade Commission and the subject of a federal consumer class action lawsuit.
Interestingly, in its settlement with AMD, Intel agreed not to challenge the prohibition of retroactive discounting, bid bucketing or end-user discounting in any future settlements with the European Commission, the New York Attorney General or the FTC. The settlement therefore may ease the path to out-of-court resolutions of those actions and investigations.
The settlement, and Intel's concessions, highlight the challenges that companies face in developing and implementing loyalty discounts, rebates, bundled discounts and other pricing strategies. Depending on the nuances of the market structure in which a company operates, these practices may raise significant antitrust issues.
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