Heartland Institute Experts See Cuomo Grandstanding

Published November 5, 2009

New York State Attorney General Andrew Cuomo on November 4 filed a federal antitrust suit against Intel, the leading manufacturer of microchips. The suit alleges Intel paid “rebates,” which Cuomo calls “bribes,” to computer manufacturers, including Dell, HP, and IBM, in return for exclusive or near-exclusive agreements to purchase microprocessors from Intel. The suit alleges Intel’s motive was to prevent computer manufacturers from purchasing microprocessors from Intel’s competitor, Advanced Micro Devices, Inc.

The suit, filed in federal district court in Delaware, alleges Intel’s practices systematically violated state and federal trade laws. Cuomo seeks monetary penalties and damages for New York state citizens and asks the court to prevent Intel from giving rebates to manufacturers in the future.

James G. Lakely, co-director of the Center on the Digital Economy at The Heartland Institute and managing editor of InfoTech & Telecom News, and attorney Maureen Martin, Heartland’s senior fellow for legal affairs, are critical of Cuomo’s suit. You may quote from this statement or contact them directly. Lakely can be reached at [email protected] or (626) 421-9414, and Martin at [email protected] or (920) 229-6670.

“New Yorkers should see Cuomo’s move for what it is: a cynical act of political grandstanding. Cuomo is simply wrong on the facts.

“Cuomo says Intel’s business practices have ‘robbed’ consumers of ‘better products and lower prices.’ Yet New Yorkers can walk into any consumer electronics store and see with their own eyes that’s bunk. Consumers enjoy the fruits of an ultracompetitive tech sector that has continually produced ever-better products at ever-lower prices.

“Harassing Intel will only harm the company’s ability to innovate and invest as it diverts resources and brainpower to defending itself from Cuomo’s vanity lawsuit. In the end it will be Cuomo, not Intel, who’s harming consumers.”

Jim Lakely
Co-director, Center on the Digital Economy at The Heartland Institute
Managing Editor, InfoTech & Telecom News
(626) 421-9414
[email protected]

“The only conceivable reason for Attorney General Cuomo to bring this lawsuit is to damage Intel financially and competitively, not recover damages from it.

“AMD is already suing Intel, and Intel has previously been sued by regulators in Europe and Asia. The Federal Trade Commission is also investigating Intel. So what’s the point of still another lawsuit?

“Cuomo claims the suit is warranted because New York State public and private consumers were overcharged on consumer purchases and thus damaged. It is unlikely Cuomo can prove this, because the rebates reduce computer manufacturers’ costs and thus reduce consumer prices, not raise them.

“The suit will be extremely costly. Tricky antitrust issues are involved, notably whether the payments by Intel to computer manufacturers are illegal bribes or legal rebates. And is predatory pricing involved? This is illegal, but only if Intel loses money in the short term to undercut AMD’s prices and drive AMD out of the market so Intel can then have the market to itself and then raise prices. These are unsettled questions which may ultimately have to be resolved by the U.S. Supreme Court.

“A core issue in antitrust litigation is how to define the relevant market. Is it New York, the United States, or is it worldwide? Or are there multiple relevant markets, such as the one in which HP sold computers, plus the one in which Dell sold, and so on. ‘Relevant market’ may sound like a simple concept, but it’s in fact a notoriously complicated question, and it is at the heart of this case.

“This litigation will be very expensive for the taxpayers of New York. It will also be very costly to Intel. Complicated questions are involved, and highly educated lawyers and economists cost a lot of money to hire because they spend a decade or more in antitrust training. In all, this suit is a bad idea.”

Maureen Martin
Senior Fellow for Legal Affairs
The Heartland Institute
(920) 229-6670
[email protected]