Papers are flying in legal offices around the world as a result of Advanced Micro Devices's (AMD) antitrust lawsuit against Intel, filed earlier this year. The case is not expected to come to trial until next year -- assuming it isn't settled by then -- but lawyers for both sides are formulating their arguments as documents and data start to flow from the almost 40 hardware industry companies subpoenaed by AMD.
AMD believes that Intel unfairly uses its heft as the primary supplier of PC and server processors to exclude AMD from lucrative accounts such as Dell Inc. Intel denies that it forces its customers to buy chips solely from Intel, and contends that AMD's inability to break into these accounts has more to do with manufacturing capacity than exclusive deals.
Thomas McCoy, AMD's executive vice president for legal affairs and chief administrative officer, is directing the company's legal strategy against Intel. He recently sat down with IDG News Service to outline the basic nature of the case against Intel, and provided an early glimpse of the strategy AMD intends to employ against Intel at trial. An edited transcript of that conversation follows below.
Intel's legal team was given a similar opportunity to sit down and discuss the case, but a company spokesman declined the offer. At this time, Intel doesn't want to elaborate on the antitrust case beyond the arguments the company presented in its official answer to AMD's complaint, filed in September, the spokesman said.
IDGNS: Where is the line between illegal behavior and fair competition? When do you cross from fair, tough legal competition to illegal behavior?
McCoy: Well, it's illegal if you are a monopoly, to use your monopoly power to maintain your monopoly. The question typically comes down to what is the benefit to competition structure and consumer welfare that this behavior alters. Is it pro-competition, is it pro-consumer, or is this the behavior of a monopoly to maintain monopoly share and monopoly margins.
The initial foundational question is, does Intel hold monopoly power? That's a lay-down hand for AMD. There's no credible argument about Intel monopoly power in a relative market in the eyes of the court.
IDGNS: What is the standard for a monopoly?
McCoy: The power to control price and control the marketplace, beginning by measuring market share. Intel, as a monopoly with a 90 percent dollar share in the x86 market, is one of the largest and most entrenched monopolies of this century.
IDGNS: Does the question come down to consumer harm?
McCoy: I think that consumer harm from an economic analysis and policy statement is important in an antitrust case, but that's good for AMD because it's so easy to demonstrate.
IDGNS: Does the notion of harm mean the consumer, the end user, or the customer, the Dells and HPs?
McCoy: Let's take AMD in Japan. We were very successful in the European market with Sony as the OEM (original equipment manufacturer). Sony sells a lot of computers into the European market based on our technology. So there was a choice, in Europe consumers had a choice.
They could buy a Sony computer based on our technology, and Sony computers based on Intel technology. And a very high percentage of consumers, around 40 percent, wanted to buy Sony computers based on our technology.
So what Intel did is they went to Japan and said look, we're going to make you a deal. But the deal includes kicking AMD out, so you can't buy from AMD anymore. As a result of that, our business with Sony went to zero, and consumers around the world no longer had the choice of buying our technology.
AMD's value proposition is because we are the price leader, the OEM can put together a better system at the same market price as an Intel system because they can use the dollars they save from us to put in a better hard drive, to put in more DRAM memory, to upgrade the DVD reader. At any given price point, you get a better fully featured computer with an AMD chip.
IDGNS: Isn't that really a marketing problem? Isn't it your job as a company making a competing product to educate the customer as to the benefits of that product?
McCoy: My point is this is not a marketing problem, this is a market foreclosure problem. We are not allowed, we are not permitted to have Sony sell systems with our technology. We never get to the end users to educate them.
Circuit City is a pretty good example. At Circuit City we were allotted 20 percent of the shelf space and we accounted for 40 percent of their sales. Which tells you something about the high consumer demand for our technology.
What Intel does in the way they fashion their programs is they foreclose those chances so that we don't even get that shelf space. The markets are being choked off. And they are being choked off in a way where Intel is not lowering their price, they are maintaining their price. The way they do it is threatening higher prices to companies in a supply chain where nobody makes any money if they don't play ball with Intel's demands.
IDGNS: Do you believe the [PC and server] industry is doomed without a successful resolution in your favor?
McCoy: There is a reason why there is a global antitrust inquiry. Because I think people have come to realize that there are significant policy issues that are inherent. Let me put it to you this way, there are only two companies in the world who can make x86 microprocessors at the leading edge in volume, that's AMD and Intel.
We know what the world would have looked like without AMD. AMD was the first to bring a 3D instruction set to the platform. AMD was the first to 1GHz. AMD was the first to say it was a dead end to chase megahertz. We were the first to go to true dual-core. We were the first to say that a new proprietary instruction set for 64-bit would be a catastrophe for the industry, and would cost consumers billions and billions of dollars, that's why we need an evolutionary approach to 64-bit computing.
That's the value of competition. AMD has proven that it's very worthy as a competitor to Intel even though we're a much smaller company.
There's no reason why the world can't enjoy the same kinds of benefits from competition in the processor space that it has in all the other ingredients of the system, whether it's in the display, the power supply, the memory, the graphics. We've seen the advantages over time in driving down tremendously system prices, and driving up performance because of competition in all the other essential elements of the platform.