New York's Cuomo goes after Intel in a major antitrust suit

New York State Attorney General Andrew M. Cuomo filed a massive antitrust lawsuit Wednesday against Intel (INTC), accusing the giant chipmaker of violating state and federal laws by using "bribery and coercion" as well as "illegal threats and collusion" to hurt rivals. In particular, the lawsuit accuses Intel of using its market power to hurt rival AMD (AMD), which has long played in Intel's huge shadow.

Cuomo has accused Intel, whose chips power roughly 80 percent of the PCs and server computers sold every year, of paying IBM (IBM) $130 million to bribe Big Blue to put the brakes on AMD's Opteron chip, as well as threatening to scuttle joint projects with IBM if the computer giant used AMD's chips. Intel could face hundreds of millions in penalties.

In a statement, Cuomo highlighted e-mail messages that allegedly show how Intel intimidated companies like Hewlett-Packard (HPQ), Dell (DELL) and IBM.

"The question is, can we afford to accept the wrath of Intel...?" an unnamed IBM executive wrote in a 2005 e-mail, provided by Cuomo's office. Another e-mail from an unnamed HP exec reveals how Intel plotted to "punish" the company for selling products that used AMD's chips.

Intel quickly sought to deny Cuomo's charge. "We disagree with the New York Attorney General," a company spokesperson told CNBC. "The market works, prices are going down and consumers are benefiting."

Cuomo isn't buying it.

"Rather than compete fairly, Intel used bribery and coercion to maintain a stranglehold on the market," Cuomo said in a statement. "Intel's actions not only unfairly restricted potential competitors, but also hurt average consumers who were robbed of better products and lower prices."

Inconsistent with Washington Policy?

An internal Intel source questioned the timing of the lawsuit, given that the company faces a four-year-old antitrust lawsuit that AMD filed in Delaware and is scheduled to go to trial in March. The source asserted to CNBC's Jim Goldman that Cuomo is trying to "pile on" the chip giant. It is well known that Cuomo, son of legendary New York Governor Mario Cuomo, harbors greater political ambitions.

Glenn Manishin, a former antitrust counsel and trial attorney at the Justice Department's Antitrust Division, says the lawsuit appears at odds with administration antitrust efforts -- which have centered around the Justice department.

"Cuomo's aggressive state antitrust enforcement action seems, at least on first impression, inconsistent with the announced policy of the Obama administration," Manishin says, "Especially as state AGs and the federal DOJ have worked cooperatively in the antitrust realm for well more than a decade."

The FTC May Now Follow

However, the New York AG's move increases the chances that the Federal Trade Commission will take action against Intel, according to a person who is familiar with the state's investigation but is not authorized to discuss it. Cuomo's staff, this person says, regularly communicates and cooperates with the commission's staff.

"These are separate investigations, but it would be very surprising for New York State to go off on its own without being fairly confident the FTC would pursue Intel as well," a source close to the investigation toldThe New York Times.

Intel's stock price dropped on Tuesday after a Morgan Stanley analyst downgraded it, as well as the chip sector at large, saying that the rise in ship share prices is in its "final innings." Morgan Stanley's Mark Lipacis downgraded the chip sector from "attractive" to "cautious," writing, "We expect continued underperformance and are sellers on rallies."

Intel shares rebounded in midday trading on Wednesday, but the company could soon find itself in a distracting battle with Cuomo.

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