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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) )

IN RE: INTEL CORP. MICROPROCESSOR ANTITRUST LITIGATION PHIL PAUL, on behalf of himself and all others similarly situated, Plaintiffs, v. INTEL CORPORATION, Defendant.

MDL Docket No. 05-MD-1717-JJF

Civil Action No. 05-485-JJF CONSOLIDATED ACTION

CONSOLIDATED COMPLAINT

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James L. Holzman (DE Bar # 663) David W. Gregory (DE Bar #4408) PRICKETT, JONES & ELLIOTT, P.A. 1310 King Street Wilmington, DE 19801 (302) 888-6500 [email protected] [email protected] Michael D. Hausfeld Daniel A. Small Brent W. Landau Allyson B. Baker COHEN, MILSTEIN, HAUSFELD & TOLL, P.L.L.C. 1100 New York Avenue, NW Suite 500, West Tower Washington, DC 20005 [email protected] [email protected] [email protected] [email protected]

Michael P. Lehmann Thomas P. Dove Alex C. Turan THE FURTH FIRM, LLP 225 Bush Street, 15th Floor San Francisco, CA 94104 [email protected] [email protected] [email protected]
Steve W. Berman Anthony Shapiro Craig R. Spiegel HAGENS BERMAN SOBOL SHAPIRO, LLP 1301 Fifth Avenue Suite 2900 Seattle, WA 98101 [email protected] [email protected] Guido Saveri R. Alexander Saveri SAVERI & SAVERI, INC. 111 Pine Street, Suite 1700 San Francisco, CA 94111 [email protected] [email protected] Co-Lead and Interim Counsel for Plaintiffs

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TABLE OF CONTENTS PAGE I. II. III. IV. V. NATURE OF THE ACTION ..............................................................................................1 JURISDICTION AND VENUE ..........................................................................................3 PARTIES .............................................................................................................................4 CLASS ALLEGATIONS ....................................................................................................6 FACTUAL BACKGROUND A. B. VI. 9

Early History............................................................................................................9 AMD Moves from Second Source to Innovator ....................................................12 14

THE x86 PROCESSOR INDUSTRY A. B.

Competitive Landscape..........................................................................................14 Customers for x86 Microprocessors ......................................................................15 18

VII.

INTEL'S UNLAWFUL PRACTICES 1.

Practices Directed At OEMs......................................................................19 a. b. c. d. e. f. Exclusive and Near-Exclusive Deals .............................................19 Product-Line, Channel or Geographic Restrictions .......................22 Exclusionary Rebates.....................................................................25 Threats of Retaliation.....................................................................30 Interference with AMD Product Launches ....................................31 Product Bundling ...........................................................................33

2. 3. 4.

Practices Directed At Distributors .............................................................34 Practices Directed At Retailers ..................................................................36 Intel's Standard Setting and Other Technical Abuses ...............................39 a. b. c. Intel's Exclusion of AMD from Industry Standards......................39 Intel's Promotion of Industry Standards that Disadvantage AMD .......................................................................41 Intel's Leveraging of Its Other Product Lines to Unfairly Disadvantage AMD in the Marketplace..........................43

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VIII. IX.

EFFECTS OF INTEL'S MISCONDUCT .........................................................................44 CLAIMS FOR RELIEF .....................................................................................................46 FIRST CLAIM FOR RELIEF (Violation of Section 1 of the Sherman Act, 15 U.S.C. § 1) .................................45 SECOND CLAIM FOR RELIEF (Violation of Section 2 of the Sherman Act, 15 U.S.C. § 2) .................................47 THIRD CLAIM FOR RELIEF (Violation of the California Cartwright Act) .........................................................48 FOURTH CLAIM FOR RELIEF (Violation of California's Tort Law Against Monopolization) .............................49 FIFTH CLAIM FOR RELIEF (Violation of the California Unfair Competition Law)..........................................50 SIXTH CLAIM FOR RELIEF (Violations of State Antitrust and Restraint of Trade Laws) .................................52 SEVENTH CLAIM FOR RELIEF (Violations of State Consumer Protection and Unfair Competition Laws) ...........53 EIGHTH CLAIM FOR RELIEF (Unjust Enrichment and Disgorgement of Profits) ................................................54

X. XI.

DEMAND FOR TRIAL BY JURY...................................................................................53 PRAYER FOR RELIEF ....................................................................................................53

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Plaintiffs, by and through their counsel, on behalf of themselves and all others similarly situated, bring this action against Intel Corporation ("Intel") for damages and injunctive relief, and demand trial by jury. In this Consolidated Complaint ("Complaint"), Plaintiffs allege: I. 1. NATURE OF THE ACTION

Intel holds a monopoly in a market critical to our economy: microprocessors that

run the Microsoft Windows and Linux families of operating systems (the "x86 Microprocessor Market"). Intel dominates the x86 Microprocessor Market, with a market share greater than 80 percent measured by unit volume and greater than 90 percent measured by revenue. It has engaged in a series of anticompetitive acts that were designed to, and did, stifle and eliminate competition in, and prevent entry into, the x86 Microprocessor Market. These anticompetitive acts have foreclosed consumer choice and allowed Intel to charge inflated prices for its products. 2. For over a decade Intel has unlawfully maintained its monopoly by engaging in a

relentless, worldwide campaign to coerce customers to refrain from dealing with Intel's major competitor, Advanced Micro Devices, Inc. ("AMD"). Among other things: · · Intel has forced major customers into exclusive or near-exclusive deals. Intel has conditioned rebates, allowances and market development funding on customers' agreement to severely limit or forgo entirely purchases from AMD. · Intel has established a system of discriminatory, retroactive, first-dollar rebates triggered by purchases at such high levels as to have the practical and intended effect of denying customers the freedom to purchase any significant volume of processors from AMD and others. · Intel has threatened retaliation against customers introducing AMD computer platforms, particularly in strategic market segments. · Intel has established and enforced quotas among key retailers effectively requiring them to stock overwhelmingly, if not exclusively, Intel-powered computers, thereby artificially limiting consumer choice.

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·

Intel has forced PC makers and technology partners to boycott AMD product launches and promotions.

·

Intel has abused its market power by forcing on the industry technical standards and products that have as their central purpose the handicapping of AMD and others in the marketplace.

3.

Intel's economic coercion of customers extends to all levels ­ from large

computer-makers like Hewlett-Packard and IBM to small system-builders to wholesale distributors to retailers such as Circuit City. All face the same choice: accept conditions that exclude AMD's products or suffer discriminatory pricing and competitively crippling treatment. In this way, Intel has avoided fair competition and precluded AMD and others of the opportunity to stake their prices and quality against Intel's for every potential microprocessor sale and thus has damaged purchasers of computers by eliminating competition both as to quality and price. 4. Intel's conduct has become increasingly egregious over the past several years as

AMD has achieved technological leadership in critical aspects of microprocessor architecture. In April 2003, AMD introduced its Opteron microprocessor, the first microprocessor to take x86 computing from 32 bits to 64 bits ­ an advance that allows computer applications to address exponentially more memory, thereby increasing performance and enabling features not possible with just 32 bits. Unlike Intel's 64-bit architecture of the time (Itanium), the AMD Opteron and its subsequently-introduced desktop cousin, the AMD Athlon64, offer backward compatibility, allowing PC users to continue using 32-bit software as, over time, they upgrade their hardware. Bested in a technology duel as to which it long claimed leadership, and subject to losing market share and price control, Intel increased exploitation of its market power to pressure customers to refrain from migrating to AMD's superior, lower-cost microprocessors. 5. Intel's conduct has unfairly and artificially capped AMD's market share, and

constrained AMD from expanding to reach the minimum efficient levels of scale necessary to compete with Intel as a predominant supplier to major customers. As a result, computer manufacturers continue to buy most of their requirements from Intel, continue to pay monopoly

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prices, continue to be exposed to Intel's economic coercion, and continue to submit to artificial limits Intel places on their purchases from AMD. With AMD's opportunity to compete thus constrained, the cycle continues, and Intel's monopoly profits continue to flow. 6. Consumers ultimately foot this bill, in the form of inflated PC prices and the loss

of freedom to purchase computer products that best fit their needs. Society is worse off for lack of innovation that only a truly competitive market can drive. The Japanese Government recognized these competitive harms when on March 8, 2005, its Fair Trade Commission (the "JFTC") recommended that Intel be sanctioned for its exclusionary misconduct directed at AMD. Intel chose not to contest the charges. 7. Plaintiffs, on their own behalf and on behalf of the class defined below, seek to

recover for the injuries to their business or property resulting from overpayments for Intel microprocessors. Plaintiffs also seek injunctive relief and costs, including reasonable attorneys' fees. II. 8. JURISDICTION AND VENUE

The Court has subject matter jurisdiction under 28 U.S.C. § 1331 (federal

question) and 28 U.S.C. § 1337 (commerce and antitrust regulation), as this action arises under Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 and 2, and Sections 4 and 16 of the Clayton Act, 15 U.S.C. §§ 15(a) and 26. The Court has supplemental subject matter jurisdiction of the pendent state law claims under 28 U.S.C. § 1367. The Court also has jurisdiction over this matter pursuant to 28 U.S.C. § 1332(d), in that this is a class action in which the matter or controversy exceeds the sum of $5,000,000, exclusive of interest and costs, and in which some members of the proposed class are citizens of a state different from the defendant. 9. Venue is proper because Intel Corporation resides, is found, has agents and

transacts business in this district as provided in 28 U.S.C. § 1391(b) and (c) and in Sections 4 and 12 of the Clayton Act, 15 U.S.C. §§ 15 and 22.

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III. 10.

PARTIES

Within four years preceding June 28, 2005, each plaintiff purchased, in the United

States and not for resale, one or more Intel x86 microprocessors or computers with Intel x86 microprocessors and suffered injury as a result of Intel's illegal conduct described in this Complaint. 11. 12. 13. 14. Wisconsin. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. California. 25. 26. 27. 28. 29. 30. Plaintiff Angel Genese is a resident of the County of Passaic, New Jersey. Plaintiff Cheryl Glick-Salpeter is a resident of Glen Cove, New York. Plaintiff Nir Goldman is a resident of the County of Alameda, California. Plaintiff Steven J. Hamilton is a resident of Sumner, Washington. Plaintiff Patrick J. Hewson is a resident of Carbondale, Illinois. Plaintiff Karol Juskiewicz is a resident of Fairfield, California Plaintiff Michael Brauch is a resident of San Francisco, California. Plaintiff Ludy Chacon is a resident of Pompano Beach Florida. Plaintiff Joseph Samuel Cone is a resident of Greensboro, North Carolina. Plaintiff Carrol Cowan is a resident of the District of Columbia. Plaintiff William F. Cronin is a resident of Dallas, Texas. Plaintiff Paul C. Czysz is a resident of the County of Somerset, New Jersey. Plaintiff Russell Dennis is a resident of Chittenden County, Vermont. Plaintiff Damon DiMarco is a resident of the State of New York. Plaintiff Gideon Elliott is a resident of the County of Santa Fe, New Mexico. Plaintiffs Huston Frazier and Jeanne Cook Frazier are residents of Napa County, Plaintiff Benjamin J. Allanoff is a resident of Topanga, California. Plaintiff Raphael Allison is a resident of Brooklyn, New York. Plaintiff David Arnold is a resident of Coral Gables, Florida. Plaintiff Elizabeth Bruderle Baran is a resident of the County of Milwaukee,

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31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46.

Plaintiff Ronald Konieczka is a resident of Cincinnati, Ohio. Plaintiff Henry Kornegay is a resident of Billings, Montana. Plaintiff Matthew Kravitz is a resident of Wilmington, Delaware. Plaintiff Lawrence Lang is a resident of Tiburon, California. Plaintiff David E. Lipton is a resident of Richmond, California. Plaintiff Leonard Lorenzo is a resident of Hillsborough County, Florida. Plaintiff Andrew Meimes is a resident of New York City, New York. Plaintiff Peter Jon Naigow is a resident of Brown Deer, Wisconsin. Plaintiff Patricia M. Niehaus is a resident of Ft. Mitchell, Kentucky. Plaintiff Phil Paul is a resident of Cherry Hill, New Jersey. Plaintiff Maria I. Prohias is a resident of, Miami, Florida. Plaintiff Paul Ramos is a resident of Miami, Florida. Plaintiff Michael Roach is a resident of Coronado, California. Plaintiff Michael Ruccolo is a resident of Palm Beach Gardens, Florida. Plaintiff Darice Russ is a resident of Milwaukee Wisconsin. Plaintiff Jodi Salpeter is a resident of Whitestone, New York. Jay Salpeter, father

of Jodi, is a resident of Glen Cove, New York, and paid for the laptop computer purchased by Jodi. 47. 48. 49. 50. 51. 52. 53. 54. Plaintiff Nathaniel Schwartz is a resident of Miami, Florida. Plaintiff Michael K. Simon is a resident of Rydal, Pennsylvania. Plaintiff Francis H. Slattery, IV, is a resident of Audobon, New Jersey. Plaintiff Kevin Stoltz is a resident of Mukilteo, Washington. Plaintiff Dana F. Thibedeau is a resident of Middleton, Massachusetts. Plaintiff Ian Walker is a resident of the County of San Francisco, California. Plaintiff Robin S. Weeth is a resident of La Crosse, Wisconsin. Plaintiff Brian Weiner is a resident of New York, New York.

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55.

Plaintiff Bergerson & Associates, Inc. is a Minnesota company with its principal

place of business in Burnsville, Minnesota. 56. Plaintiff Fairmont Orthopedics & Sports Medicine, P.A. has its place of business

in Fairmont, Minnesota. 57. Plaintiff Law Offices of Laurel Stanley is a California business entity located in

Oakland, California. 58. California. 59. Dakota. 60. 61. Plaintiff The Harman Press is a business located in Los Angeles, California. Plaintiff Trotter-Vogel Realty, Inc. dba Prudential California Realty is an Plaintiff Melinda Harr, D.D.S., P.C. has its place of business in Fargo, North Plaintiff Marshall Realty has its principal place of business in San Bruno,

independently owned and operated member of Prudential Real Estate Affiliates, Inc., with its principal place of business in San Bruno, California. IV. 62. CLASS ALLEGATIONS

Plaintiffs bring this action under Federal Rule of Civil Procedure 23(b)(2) and

23(b)(3) on their own behalf and on behalf of the following class (the "Class"): All persons and entities residing in the United States who from June 28, 2001 through the present, purchased a microprocessor that executes the x86 instruction set in the United States, other than for resale, indirectly from the Defendant or any controlled subsidiary or affiliate of Defendant. The Class excludes the Defendant; the officers, directors or employees of the Defendant; and any subsidiary, affiliate or other entity in which Defendant has a controlling interest. The Class also excludes all federal, state or local governmental entities, all judicial officers presiding over this action and their immediate family members and staff, and any juror assigned to this action. 63. In the event California law is not applied to the claims of all Class members for

damages regardless of where they reside, Plaintiffs will seek certification of the following subclass (the "Subclass") under Rule 23(b)(3) for damages, in addition to certification of the Class under rule 23(b)(2) for purposes of injunctive relief:

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All persons and entities residing in the United States who from June 28, 2001 through the present, purchased a microprocessor that executes the x86 instruction set in one of the Included States, other than for resale, indirectly from the Defendant or any controlled subsidiary or affiliate of Defendant. The Class excludes the Defendant; the officers, directors or employees of the Defendant; and any subsidiary, affiliate or other entity in which Defendant has a controlling interest. The Class also excludes all federal, state or local governmental entities, all judicial officers presiding over this action and their immediate family members and staff, and any juror assigned to this action. 64. For purposes of the Subclass, the "Included States" are Alaska, Arizona,

Arkansas, California, the District of Columbia, Florida, Idaho, Iowa, Kansas, Louisiana, Maine, Massachusetts, Michigan, Montana, Minnesota, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Rhode Island, South Dakota, Tennessee, Utah, Vermont, West Virginia, and Wisconsin. 65. Plaintiffs do not know the exact number of Class members because such

information is in the exclusive control of Intel and third parties. However, due to the nature of the trade and commerce involved, Plaintiffs believe that the members of the Class number in the thousands and are geographically diverse so that joinder of all members of the Class is impracticable. Fed. R. Civ. P. 23(a)(1). 66. There are questions of law and fact common to the Class, including but not

limited to the following: a. b. c. d. whether Intel engaged in anticompetitive conduct that renders it liable to the Class under state antitrust and consumer protection laws; whether Intel possessed monopoly power in the relevant market; whether Intel acquired or maintained monopoly power within the relevant market through anticompetitive activity; whether Intel's unlawful conduct has caused legally cognizable injury to Plaintiffs and the Class by enabling Intel to increase, maintain, or stabilize above competitive levels the prices that Plaintiffs and Class members have paid for x86 microprocessors, and if so, the appropriate class-wide measure of damages;

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e.

whether Intel formed and operated a combination or conspiracy to fix, raise, maintain or stabilize the prices of, or allocate the market for, microprocessors; whether the combination or conspiracy caused microprocessor prices to be higher than they would have been in the absence of Intel's conduct; the operative time period of the combination or conspiracy; whether Intel's conduct caused injury to the business or property of Plaintiffs and the members of the Class; the appropriate measure of the amount of damages suffered by the Class; whether Intel violated Section 1 of the Sherman Act; whether Intel violated Section 2 of the Sherman Act; whether Intel violated Sections 16720 and 17200 of the California Business and Professions Code; and whether Intel violated the antitrust, unfair competition, and consumer protection laws of the other states as alleged below.

f. g. h. i. j. k. l. m. 67.

These common questions and others predominate over questions, if any, that

affect only individual members of the Class. Fed. R. Civ. P. 23(a)(2) and 23(b)(3). 68. Plaintiffs' claims are typical of, and not antagonistic to, the claims of the other

Class members. Plaintiffs, by advancing their claims, will also advance the claims of all members of the Class because Intel participated in activity that caused members of the Class to suffer similar injury. Fed. R. Civ. P. 23(a)(3). 69. Plaintiffs and their counsel will fairly and adequately protect the interests of

absent Class members. There are no material conflicts between Plaintiffs' claims and those of absent Class members that would make class certification inappropriate. Counsel for Plaintiffs are experienced in complex class action litigation, including litigation involving antitrust allegations, and will vigorously assert Plaintiffs' claims and those of the members of the Class. Fed. R. Civ. P. 23(a)(4).

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70.

Intel has acted or refused to act on grounds generally applicable to the Class,

thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the class as a whole. Fed. R. Civ. P. 23(b)(2). 71. A class action is superior to other methods for the fair and efficient resolution of

this controversy. The class action device presents fewer management difficulties, and provides the benefit of a single adjudication, economy of scale, and comprehensive supervision by a single court. Fed. R. Civ. P. 23(b)(3). The damages suffered by each Plaintiff and Class member are relatively small, given the expense and burden of individual prosecution of the claims asserted in this litigation. Thus, absent class certification, it would not be feasible for Plaintiffs and Class members to redress the wrongs done to them. Even if Plaintiffs and the Class members could afford individual litigation, which is not the case, the court system could not. Further, individual litigation presents the potential for inconsistent or contradictory judgments and would greatly magnify the delay and expense to all parties and to the court system. Therefore, the class action device presents far fewer case management difficulties and will provide the benefits of unitary adjudication, economy of scale and comprehensive supervision by a single court. V. A. Early History 72. The brain of every computer is a general-purpose microprocessor, an integrated FACTUAL BACKGROUND

circuit capable of executing a menu of instructions and performing requested mathematical computations at very high speed. A microprocessor is defined by its instruction set ­ the repertoire of machine language instructions that a computer can follow. So, too, are computer operating systems, which are software programs that perform the instructions in the set allowing the computer to perform meaningful tasks. The first generation of microprocessors, which were capable of handling 4 bits and later 8 bits of data simultaneously, evolved to provide 16-bit capability (the original DOS processors), then 32-bit capability (allowing the use of advanced graphical interfaces such as later versions of Windows), and now 64-bit capability.

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73.

When IBM defined the original PC standards in the early 1980s, it had available

to it a variety of microprocessors, each with its own instruction set. Among these were microprocessors developed by Motorola, Zilog, National Semiconductor, Fairchild, Intel and AMD. IBM opted for the Intel architecture, which utilized what became known as the x86 instruction set (after Intel's naming convention for its processors, i.e., 8086, 80186, 80286, 80386), and a compatible operating system offered by Microsoft, known as DOS. Unwilling to be consigned to a single source of supply, however, IBM demanded that Intel contract with another integrated circuit company and license it to manufacture x86 chips as a second source. AMD, which had worked with Intel before in supplying microprocessors, agreed to abandon its own, competing architecture, and it undertook to manufacture x86 chips as a second source of supply. Assured that it would not be dependent upon a monopoly supplier of x86 chips, IBM introduced the PC in August 1981 ­ and its sales exploded. 74. Although an arbitrator later found that "AMD's sponsorship helped propel Intel

from the chorus line of semiconductor companies into instant stardom," Intel soon set out to torpedo the 1982 AMD-Intel Technology Exchange Agreement (the "Agreement") by which each would serve as a second source for products developed by the other. For example, Intel was required by the Agreement to send AMD timely updates of its second generation 80286 chip. Instead, in a "deliberate[]" effort "to shackle AMD progress," Intel sent AMD information "deliberately incomplete, deliberately indecipherable and deliberately unusable by AMD engineers." The conduct was, in the arbitrator's words, "inexcusable and unworthy." And it was not isolated. Intel elsewhere tried to "sabotage" AMD products, engaged in "corporate extortion" and demonstrated a near-malevolent determination "to use all of its economic force and power on a smaller competitor to have its way." 75. In another underhanded effort to stifle AMD's business, Intel decided in 1984 that

it would become the sole source for the promising 80386 chip, notwithstanding the Agreement. To fully realize its objective, Intel engaged in an elaborate and insidious scheme to mislead AMD (and the public) into erroneously believing that AMD would be a second source, thereby

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keeping AMD in the Intel "competitive camp" for years. This duplicitous strategy served a broader purpose than simply preventing AMD from competing with Intel. Customers' perception that AMD would continue to serve as Intel's authorized second source was essential to Intel's aim of entrenching the x86 family of microprocessors as the industry standard (as it had been essential to IBM's original introduction of the PC). Intel was well aware that if computer manufacturers knew Intel intended to sole source its 32-bit product, they would be motivated to select alternative products produced by companies offering second sources. Intel could not preserve the appearance that AMD would second source the 386 if it terminated the Agreement or otherwise disclosed its intent. Thus, Intel stalled negotiations over product exchanges, while at the same time allowing AMD to believe that it could ultimately obtain the 386. This injured competition by deterring and impeding serious competitive challenges to Intel and directly injured AMD by depriving it of the revenues and profits it would have earned from such a challenge. 76. Intel implemented this secret plan for the purpose of acquiring and maintaining an

illegal monopoly in the x86 line of microprocessors, which it did by at least 1987. As was its plan, Intel's conduct drained AMD's resources, delayed AMD's ability to reverse-engineer or otherwise develop and manufacture competitive products, and deterred AMD from pursuing relationships with other firms. In so doing, Intel wrongfully secured the benefit of AMD's marketing skills and talent in support of the x86 line of microprocessors and related peripherals and secured the benefit of substantial competitively sensitive AMD information regarding its product development plans. When AMD petitioned to compel arbitration in 1987 for Intel's breach and bad faith, the arbitrator took notice of Intel's anticompetitive design: "In fact, it is no fantasy that Intel wanted to blunt AMD's effectiveness in the microprocessor marketplace, to effectively remove AMD as a competitor." 77. In 1992, after five years of litigation, the arbitrator awarded AMD more than $10

million plus prejudgment interest and a permanent, nonexclusive and royalty-free license to any Intel intellectual property embodied in AMD's own 386 microprocessor, including the x86

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instruction set. Confirmation of the award was upheld by the California Supreme Court two years later. In bringing the litigation to a close, the arbitrator hoped that by his decision, "the competition sure to follow will be beneficial to the parties through an expanded market with appropriate profit margins and to the consumer worldwide through lower prices." Not for the first time, and certainly not for the last, Intel's anticompetitive zeal was woefully underestimated. B. AMD Moves from Second Source to Innovator 78. Shortly after confirmation of the award, AMD settled its outstanding disputes

with Intel in a 1995 agreement that gave AMD a shared interest in the x86 instruction set but required it to develop its own architecture to implement those instructions. The settlement had the unintended benefit of forcing AMD to reinvent itself. Beginning in the late 1990s, AMD committed its resources to innovating, not just to be different, but rather to deliver solutions of greatest benefit to its customers. Going its own way proved beneficial: AMD's first x86 chip without Intel pin-compatibility, the Athlon microprocessor delivered in 1999, marked the first (but not last) time AMD was to leapfrog Intel technologically and beat it to market with a new generation Windows microprocessor (and break the 1GHz speed barrier to boot). 79. But AMD's biggest breakthrough came four years later when it introduced an

extension of x86 architecture that took Windows processors into the realm of 64-bit computing. Unlike Intel, which invested billions in its Itanium microprocessor and a new, uniquely 64-bit proprietary instruction set (which, because it was proprietary, would have been a game-ending development for AMD had it become the industry standard), AMD undertook to supplement the x86 instructions to accommodate 64-bit processing while allowing 32-bit software to be run as well. AMD's efforts culminated when, in April 2003, it brought to market its Opteron microprocessor for servers (the workhorse computers used by businesses to run corporate networks, e-commerce websites and other high-end, computationally-intense applications). Opteron was the industry's first x86 backward-compatible, 64-bit chip. Six months later, AMD launched the Athlon64, a backward-compatible, 64-bit microprocessor for desktops and mobile computers.

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80.

The computing industry hailed AMD's introduction of 64-bit computing as an

engineering triumph. Said Infoworld in its August 27, 2004, issue: You just gotta love a Cinderella story. . . . AMD's rapid rise from startup to $5 billion semiconductor powerhouse is, as Humphrey Bogart's English teacher once said, the stuff of which dreams are made. . . . In the process, AMD has become known as the company that kept Intel honest, the Linux of the semiconductor world. . . . After decades of aping Intel architectures, the AMD64 architecture, rooted in Opteron and Athlon 64 processors, has actually been imitated by Intel in the form of Nocona, Intel's 64-bit version of Xeon. In a stunning reversal of fortune, Intel was forced to build that chip because Opteron was invading a server market that the Intel Itanium was supposed to dominate. In what represented a paradigm shift in the microprocessor world, Microsoft endorsed AMD's 64-bit instruction set and announced that Windows would support it. As noted by Infoworld, Intel then copied AMD's technology for its own 64-bit offerings ­ an event that poignantly marked AMD's technological emergence. Intel has yet to catch up. 81. AMD has since extended its AMD64 technology to the balance of AMD's

microprocessor lineup (which now includes AMD Athlon 64, AMD Athlon 64 FX, Mobile AMD Athlon 64, AMD Sempron, and AMD Turion 64 products). Owing also to AMD's pioneering developments in dual-core processors and its introduction of an improved architecture that speeds up microprocessor communications with memory and input/output devices, AMD has seized technological leadership in the microprocessor industry. Its innovation has won for it over 70 technology leadership and industry awards and, in April 2005, the achievement of being named "Processor Company of 2005" at, to Intel's embarrassment, an Intel-sponsored industry awards show. 82. Tellingly, AMD's market share has not kept pace with its technical leadership.

Intel's misconduct is the reason. Intel has unlawfully maintained the monopoly IBM bestowed on it and systematically excluded AMD from any meaningful opportunity to compete for market share by: preventing the companies that buy chips and build computers from freely deploying AMD processors; relegating AMD to the low-end of the market; preventing AMD from achieving the minimum scale necessary to become a full-fledged, competitive alternative to

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Intel; and erecting impediments to AMD's ability to increase its productive capacity for the next generation of AMD's state of the art microprocessors. Intel's exclusionary acts and the resulting impact on members of the proposed Class are the subject of the balance of this Complaint. VI. A. THE X86 PROCESSOR INDUSTRY

Competitive Landscape 83. The x86 versions of Windows and Linux, the two operating systems that

dominate the business and consumer computer worlds, have spawned a huge installed base of Windows- and Linux-compatible application programs that can only run the x86 instruction set. This has given Intel effective ownership of personal computing. Although other microprocessors are offered for sale, the non-x86 microprocessors are not reasonably interchangeable with x86 microprocessors because none can run the x86 Windows or Linux operating systems or the application software written for them. 84. The relevant product market is x86 microprocessors because a putative

monopolist in this market would be able to raise the prices of x86 microprocessors above a competitive level without losing so many customers to other microprocessors as to make this increase unprofitable. While existing end-users can theoretically shift to other operating system platforms, high switching costs associated with replacing existing hardware and software make this impractical. Further, the number of new, first-time users who could choose a different operating-system platform is too small to prevent an x86 microprocessor monopolist from imposing a meaningful price increase for a non-transitory period of time. Computer manufacturers would also encounter high switching costs in moving from x86 processors to other architectures, and no major computer maker has ever done it. In short, demand is not cross-elastic between x86 microprocessors and other microprocessors at the competitive level. 85. The relevant geographic market for x86 microprocessors is worldwide. Intel and

AMD compete globally; PC platform architecture is the same from country to country; microprocessors can be easily and inexpensively shipped around the world, and frequently are; and the potential for arbitrage prevents chipmakers from pricing processors differently in one

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country than another. Indeed, in its July 1998 answer to a complaint by the Federal Trade Commission, Intel admitted that the relevant geographic market is the world. 86. Intel dominates the worldwide x86 Microprocessor Market. According to

published reports, over the past several years it has consistently achieved more than a 90% market share as measured by revenue, while AMD's revenue share has remained at approximately 9%, with all other microprocessor manufacturers relegated to less than 1%. Intel has captured at least 80% of x86 microprocessor unit sales in seven of the last eight years. Since 1999, AMD's worldwide volume share has hovered at 15%, only once penetrating barely the 20% level. The following chart is illustrative: 1997 Intel AMD Others 87. 85.0% 7.3% 7.5% x86 Worldwide CPU Unit Market Share 1998 1999 2000 2001 2002 80.3% 11.9% 7.9% 82.2% 82.2% 13.6% 16.7% 4.2% 1.1% 78.7% 20.2% 1.1% 83.6% 14.9% 1.4% 2003 82.8% 15.5% 1.7% 2004 82.5% 15.8% 1.7%

Intel's x86 family of microprocessors no longer faces any meaningful competition

other than from AMD. National Semiconductor acquired Cyrix in 1997 but shuttered it less than two years later. At the beginning of this year only two other x86 chip makers remained, Via Technologies, Inc. and Transmeta Corporation, which together account for less than 2% of the market. Transmeta has since announced its intention to cease selling x86 microprocessors, and Via faces dim prospects of growing its market share to a sustaining level. 88. Intel is shielded from new competition by huge barriers to entry. A chip fabrica-

tion plant capable of efficiently mass-producing x86 microprocessors carries a price tag of at least $2.5 to $3.0 billion. In addition, a new entrant needs the financial wherewithal to underwrite billions more in research and development costs to design a competing x86 microprocessor and overcome almost insurmountable intellectual property and knowledge barriers. B. Customers for x86 Microprocessors 89. Annual worldwide consumption of x86 microprocessors currently stands at just

over 200 million units per year and is expected to grow fifty percent by the end of the decade. - 15 -

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Relatively few microprocessors are sold for server and workstation applications (8.75 million in 2004), but these command the highest prices. Most x86 microprocessors are used in desktop PCs and mobile PCs, with desktops currently outnumbering mobile PCs by a margin of three to one. Of the total worldwide production of computers powered by x86 microprocessors, 32% are sold to U.S. consumers. U.S. sales of AMD-powered computers account for 29% of AMD's production. 90. The majority of x86 microprocessors are sold to a handful of large OEMs

(original equipment manufacturers), highly visible companies recognized throughout the world as the leading computer makers. Regarded by the industry as "Tier One" OEMs over most product categories are: Hewlett-Packard ("HP"), which now owns Compaq Computer; Dell, Inc.; IBM, which as of May 1, 2005, sold its PC (but not server) business to Lenovo; Gateway/eMachines; and Fujitsu/Fujitsu Siemens, a Europe-based joint venture. Toshiba, Acer, NEC and Sony are also commonly viewed as Tier One OEMs in the mobile PC segment of the PC market. HP and Dell are the dominant players, collectively accounting for over 30% of worldwide desktop and mobile PC sales, and almost 60% of worldwide server sales. Both are U.S.-based companies, as are IBM and Gateway/eMachines, and all but Gateway have U.S. manufacturing operations (as does Sony, which operates a North American production facility in San Diego). 91. Worldwide, Tier One OEMs account for almost 80% of servers and workstations

(specialty high-powered desktops), more than 40% of worldwide desktop PCs, and over 80% of worldwide mobile PCs. According to industry publications, unit market share in 2004 among the Tier One OEMs were as follows: Company Hewlett-Packard IBM/Lenovo Fujitsu/Siemens Acer OEM Market Shares ­ 2004 Server/WS Desktop 29.86% 28.34% 3.70% 0.81% .69% 16.18% 2.83% 1.85% Mobile .23% 17.27% 6.88% 8.53%

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Toshiba NEC Sony Gateway/eMachines Total 92.

0.31% 2.06% -- 0.16% 79.70%

0.05% 2.02% 0.76% 2.48% 43.55%

12.73% 4.50% 4.23% 1.45% 81.02%

The balance of x86 production is sold to smaller system builders and independent

distributors. The latter, sell to smaller OEMs, regional computer assemblers, value-added resellers and other, smaller distributors. Currently, distributors account for over half of AMD's sales. 93. OEMs have adopted a variety of business models, including sales directly to

customers through web-based e-commerce, sales through company-employed sales staffs (who target IT professionals and Fortune 1000 companies) and sales through a network of independent distributors (who focus on smaller business customers). With the exception of Dell, which markets to consumers only directly (mostly over the internet), most OEMs also sell through retail chains. Intel and AMD compete not only to have OEMs incorporate their microprocessors into their retail platforms but also to convince retailers to allocate shelf-space so that the platforms containing their respective microprocessors can be purchased in the retailers' stores. 94. Through its economic muscle and relentless marketing ­ principally its "Intel

Inside" and "Centrino" programs, which financially reward OEMs for branding their PCs as Intel machines ­ Intel has transformed the OEM world. Once innovative companies themselves, the OEMs have largely become undifferentiated distributors of the Intel platform, offering "Intel Inside" and "Centrino" computers largely indistinguishable from those of their rivals. As their products have become commoditized, the Tier One OEMs operate on small or negative margins, and, as shown in the following chart, the overwhelming portion of PC profit flows to Intel.

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Operating Margins 2001-04 ­ Intel vs. OEMs

95.

This profit drain has left OEMs and others in the distribution chain in a quarter-to-

quarter struggle to eke out even a modest return on their assets, thereby making them continually susceptible to Intel's economic coercion, which is described next. VII. 96. INTEL'S UNLAWFUL PRACTICES

Intel has maintained its x86 microprocessor monopoly by deploying a host of

financial and other exclusionary business strategies that in effect limit its customers' ability and/or incentive to deal with AMD. Although differing from customer to customer and segment to segment, the Intel arsenal includes direct payments in return for exclusivity and nearexclusivity; discriminatory rebates, discounts and subsidies conditioned on customer "loyalty" that have the practical and intended effect of creating exclusive or near-exclusive dealing arrangements; threats of economic retaliation against those who give, or even contemplate giving, too much of their business to AMD, or who refuse to limit their AMD business to Intelapproved models, brands, lines and/or sectors, or who cooperate too closely with AMD's promotion of its competitive processors; and misuse of industry standards-setting processes so as to disadvantage AMD products in the marketplace. 97. Intel's misconduct is global. It has targeted both U.S. and offshore customers at

all levels to prevent AMD from building market share anywhere, with the goal of keeping AMD small and keeping Intel's customers dependent on Intel for very substantial amounts of product.

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In this way, OEMs remain vulnerable to continual threats of Intel retaliation, AMD remains capacity-constrained, the OEMs remain Intel-dependent, and Intel thereby perpetuates its economic hold over them, allowing it to continue to demand that customers curtail their dealings with AMD. And the cycle repeats itself: by unlawfully exploiting its existing market share, Intel is impeding competitive growth of AMD, thereby laying the foundation for the next round of foreclosing actions with the effect that AMD's ability to benefit from its current technological advances is curtailed to the harm of potential customers and consumers. 98. The following is not intended as an exhaustive catalog of Intel's misconduct, or a

complete list of its unlawful acts, but only as examples of the types of improper exclusionary practices that Intel has employed. 1. Practices Directed At OEMs a. 99. Exclusive and Near-Exclusive Deals

Dell. In its history, Dell has not purchased a single AMD x86 microprocessor

despite acknowledging Intel shortcomings and customer clamor for AMD solutions, principally in the server sector. As Dell's President and CEO, Kevin Rollins, said publicly last February: Whenever one of our partners slips on either the economics or technology, that causes us great concern. . . . For a while, Intel admittedly slipped technologically and AMD had made a step forward. We were seeing that in customer response and requests. 100. Nonetheless, Dell has been and remains Intel-exclusive. According to industry

reports, Intel has bought Dell's exclusivity with outright payments and favorable discriminatory pricing and service. In discussions about buying from AMD, Dell executives have frankly conceded that they must financially account for Intel retribution in negotiating pricing from AMD. 101. Sony. With the introduction of its Athlon microprocessor in 1999, AMD began to

make notable inroads into Intel's sales to major Japanese OEMs, which export PCs internationally, including into the U.S. By the end of 2002, AMD had achieved an overall Japanese unit market share of approximately 22%. To reverse the erosion of its business, in 2003 Intel paid

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Sony multimillion dollar sums, disguised as discounts and promotional support, in exchange for absolute microprocessor exclusivity. Sony abruptly cancelled an AMD Mobile Athlon notebook model. Soon thereafter, it cancelled plans to release AMD Athlon desktop and mobile PCs. As a result, AMD's share of Sony's business dropped from 23% in 2002 to 8% in 2003, and then to 0%, where it remains today. In proceedings brought by the JFTC, Intel has accepted the JFTC charges of misconduct with respect to Sony. 102. Toshiba. Like Sony, Toshiba was once a significant AMD customer, but also

like Sony, Toshiba received a very substantial payment from Intel in 2001 not to use AMD processors. Toshiba thereupon dropped AMD. Its executives agreed that Intel's financial inducements amounted to "cocaine," but said they were hooked because reengaging with AMD would jeopardize Intel market development funds estimated to be worth $25-30 million per quarter. Toshiba made clear to AMD that the tens of millions of dollars of additional marketing support was provided by Intel on the explicit condition that Toshiba could not use AMD microprocessors. In proceedings brought by the JFTC, Intel has accepted the JFTC charges of misconduct with respect to Toshiba. 103. NEC. AMD also enjoyed early success with NEC, capturing nearly 40% of its

microprocessor purchases for desktop and mobile PCs in the first quarter of 2002. In May 2002, Intel agreed to pay NEC more than 300 million yen per quarter in exchange for caps on NEC's purchases from AMD. The caps assured Intel at least 90% of NEC's business in Japan, and they established an overall worldwide quota on NEC's AMD dealings. The impact was immediate. While AMD had maintained an 84% share of NEC's Japanese consumer desktop business in the third quarter of 2002, AMD's share quickly plummeted after the payments to virtually zero in the first quarter of 2003. NEC has made clear to AMD that AMD's Japanese share must stay in the single digits pursuant to NEC's agreement with Intel. Worldwide, AMD's share dipped from nearly 40% to around 15%, where it stands today. In proceedings brought by the JFTC, Intel has accepted the JFTC charges of misconduct with respect to NEC.

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104.

Fujitsu. In the summer of 2002, Fujitsu informed AMD that Intel had pressured

Fujitsu to remove Fujitsu's AMD-powered desktop models from Fujitsu's website. Fujitsu complied by making any potential AMD-buyer click past Intel products to get to the AMD offerings. Then, in early 2003, Intel moved to lock up an even greater share of Fujitsu's business. Intel offered an undisclosed package of financial incentives in return for Fujitsu's agreement to restrict its dealings with AMD. Fujitsu's catalog currently limits AMD to a single notebook product. In proceedings brought by the JFTC, Intel has accepted the JFTC charges of misconduct with respect to Fujitsu. 105. Hitachi. According to the JFTC, Intel has also purchased an exclusive-dealing

arrangement with Hitachi, which had been a substantial AMD customer. The agreement caused AMD's Hitachi business to fall precipitously. For example, during the first part of 2002, AMD was shipping 50,000 Athlon microprocessors to Hitachi per quarter. But by the middle of the year, AMD sold no microprocessors to Hitachi at all. In proceedings brought by the JFTC, Intel has accepted the JFTC charges of misconduct with respect to Hitachi. 106. Gateway/eMachines. From 2001 to 2004, Gateway was exclusively Intel. In

2001 former Gateway CEO, Ted Waitt, explained to an AMD executive that Intel offered him large sums not to deal with AMD, which he could not refuse: "I have to find a way back to profitability. If by dropping you, I become profitable, that is what I will do." Shortly thereafter, Gateway stopped purchasing from AMD and issued a press release announcing its Intel exclusivity. The announcement came within weeks of similar public announcements of Intel exclusivity by both IBM and Micron. 107. Supermicro. Intel's exclusive dealing also extends to small, specialty OEMs of

which Supermicro is a good example. Supermicro, the preeminent system assembler for servers and other high-end computers, historically has followed the Dell strategy of never buying from AMD. This arrangement foreclosed AMD from a large part of the approximately one fifth of the server sector not controlled by the Tier One OEMs. Following two years of negotiation, Supermicro finally agreed last year to begin developing an Opteron-powered server, but it so

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feared Intel retaliation that it secretly moved the AMD development to quarters behind its main manufacturing facility. Further, it forbade AMD from publicizing the product or beginning any marketing prior to its actual release. When Supermicro finally broke away from years of Intel exclusivity in April 2005, it restricted distribution of its newly-released Opteron-powered product to only sixty of its customers and promoted it with a glossy, upscale brochure devoid of its name and labeled "secret and confidential". b. 108. Product-Line, Channel or Geographic Restrictions

Intel has also bought more exclusivity from OEMs in order to exclude AMD from

the most profitable lines or from channels of distribution best tailored to take advantage of AMD's price/performance advantage over Intel. For example, in exchange for discriminatory discounts, subsidies or payments, Intel has largely foreclosed AMD from the lucrative commercial desktop sector. Intel has focused on the major OEMs because when IT executives from Fortune 1000 companies purchase desktop computers, they look for a strong brand on the box ­ Dell, IBM or HP. Knowing this, Intel has relentlessly fought to block the introduction of an AMD-powered commercial desktop by the major OEMs that have not ceded total exclusivity to Intel. What follows are only representative examples of Intel misconduct. 109. HP. In 2002, when AMD set out to earn a place in HP's commercial desktop

product roadmap, HP demanded a $25 million quarterly fund to compensate it for Intel's expected retaliation. Eager to break into the commercial market and to earn a place in HP's successful "Evo" product line, AMD agreed instead to provide HP with the first million microprocessors for free in an effort to overcome Intel's financial hold over HP. On the eve of the launch, HP disclosed its plan to Intel, which told HP it considered AMD's entry into HP's commercial line a "Richter 10" event. Intel immediately pressured HP into (1) withdrawing the AMD offering from its premier "Evo" brand and (2) withholding the AMD-powered computer from HP's network of independent value-added resellers, HP's principal point of access to small business users for whom the PC was designed in the first place. Intel went so far as to pressure HP's senior management to consider firing the HP executive who spearheaded the AMD

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commercial desktop proposal. As a result of Intel's coercion, the HP-AMD desktop offering was dead on arrival. HP ended up taking only 160,000 of the million microprocessors AMD offered for free. As of today, HP's AMD-equipped commercial desktops remain channel-restricted, and AMD's share of this business remains insignificant. 110. Intel also purchased HP's exclusivity for its most popular notebook line. HP

captured 15% of the U.S. retail market last Christmas with an Intel-powered 14.1-inch display notebook (the DV 1000) with a popular power saving feature called Quick Play. When AMD sought to convince HP to carry a similar AMD-powered notebook, HP declined. It explained that Intel had paid between $3 and $4 million to lock up this product line for at least one year. 111. Gateway. After Gateway's 2004 merger with eMachines, AMD attempted to

revive the relationship it had enjoyed with Gateway until 2001 but experienced extremely limited success. While Gateway built one AMD-powered desktop model at the request of Circuit City, AMD remains locked out entirely of Gateway's direct internet sales, its commercial offerings and its server line. According to Gateway executives, Gateway has paid a high price for even its limited AMD dealings. They claim that Intel has beaten them into "guacamole" in retaliation. 112. IBM. AMD and IBM began negotiations in August 2000 over a proposed

commercial PC business partnership. After seven months and with a deal nearing completion, Intel approached IBM with an incentive-based program under which Intel would become IBM's "preferred supplier" for processors in commercial products. "Preferred" meant exclusive. IBM accepted Intel's proposal and terminated discussions with AMD. In return for that exclusivity, according to IBM executive Ed Thum, Intel paid IBM "millions of dollars in market development funds." 113. Intel also acted to thwart AMD efforts to partner with IBM on servers. Although

IBM joined AMD as a launch partner when it introduced its Opteron 64-bit server chip in April 2003 ­ signaling to the industry and IT professionals its confidence in the product ­ Intel soon dissuaded IBM from aggressively marketing Opteron servers. After investing heavily in its design, IBM consigned its one Opteron computer model to a single target market segment (High

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Performance and Technical Computing). This was done, according to an industry report that was confirmed by an IBM executive, because Intel paid IBM to shelve any further Opteron development. IBM also took Intel money in 2004 to scrap plans for a multiple-microprocessor Opteron server it had already designed and previewed with customers. 114. Intel has also purchased IBM exclusivity in its "ThinkCentre" line of commercial

desktops. When AMD pressed IBM to add an Athlon 64 model to its "ThinkCentre" roadmap, IBM executives explained that the move would cost them important Intel subsidies, and they declined. 115. Fujitsu. In 2002, Fujitsu and AMD formed an alliance to develop a low-power

commercial notebook (FMV Lifebook MG Series) scheduled to go to market in the first quarter of 2003, on which AMD spent over 20 million yen designing. Shortly before the launch, Fujitsu told AMD that Intel would not allow it to launch an AMD-powered commercial notebook, and the project died. To this day, AMD remains locked out of Fujitsu's commercial notebook lines. Intel's exclusionary conduct with Fujitsu extends beyond commercial notebooks. In the consumer space, for example, Intel purchased total exclusivity for Fujitsu's FM-Biblo NB consumer notebook line. When AMD tried to break Intel's lock on Fujitsu notebooks by offering to match any Intel discount, Fujitsu made clear that there was no price AMD could pay because Intel simply would not allow it. To this day, AMD remains locked out of Fujitsu's Biblo line. 116. Fujitsu-Siemens. Fujitsu-Siemens, a European joint-venture, was once a

mainstay for AMD's desktop business, with AMD chips powering over 30% of Fujitsu-Siemens' offerings in the consumer sector. In early 2003, Intel offered Fujitsu-Siemens a "special discount" on Celeron processors which Fujitsu-Siemens accepted in exchange for hiding its AMD computers on its website and removing all references to commercial AMD-powered products in the company's retail catalog. 117. Intel has also succeeded in convincing Fujitsu-Siemens to impose market

restrictions on its AMD-powered PCs. Its parent, Fujitsu, sells an AMD-equipped Lifebook

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S2010, a commercial notebook, but only in the U.S. and Japan. Fujitsu-Siemens has declined AMD's plea to offer the machine in the European market as well. Similarly, Fujitsu- Siemens designed the FMC Lifebook MG Series notebook for the European market, but it refused to offer that computer in Asia or North America. Finally, although Fujitsu-Siemens produces an AMDequipped commercial desktop, the Scenico, it refuses to advertise it on its website, offering it instead only as a build-to-order product. Having invested significantly to bring these computers to market, Fujitsu-Siemens has offered no explanation for its refusal to exploit them worldwide. AMD's unit share of Fujitsu-Siemens' business recently fell below 30% for the first time in four years. 118. NEC. Intel was forced to relax its hold on NEC's business when long-time NEC

customer, Honda Motor Company, demanded that NEC supply it with servers powered by AMD's Opteron microprocessors. After underwriting the considerable expense of designing and manufacturing an Opteron server for Honda, NEC then inexplicably refused to market the product to any of its other customers. 119. There is no reason, other than Intel's chokehold on the OEMs, for AMD's

inability to exploit its products in important sectors, particularly commercial desktops. These computers, which large corporate customers buy in the tens of thousands at a time, represent a lucrative opportunity for the supplier. Yet, the microprocessors that power them are identical to microprocessors in consumer computers, a sector in which AMD has won both praise and market share. The only material difference between the consumer and commercial segments is that many more system builders supply desktops to consumers, making it more difficult for Intel to control their microprocessor choice. c. 120. Exclusionary Rebates

Intel has also imposed on OEMs a system of first-dollar rebates that have the

practical and intended effect of creating exclusive or near-exclusive dealing arrangements and artificially foreclosing AMD from competing for a meaningful share of the market. In general, the rebate schemes operate as follows: quarterly, Intel unilaterally establishes for each of its

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customers a target level of purchases of Intel microprocessors. If the customer achieves the target, it is entitled to a rebate on all of the quarter's purchases of all microprocessors ­ back to the very first one ­ generally in the neighborhood of 8-10% of the price paid. Intel provides the rebate in cash at the quarter's close. OEMs operate on razor-thin margins, so qualifying for an Intel rebate frequently means the difference between reporting a profit or a loss in the coming ­ and closely watched ­ quarterly earnings. 121. In contrast to "volume discounts" that sellers offer on a graduated and

nondiscriminatory basis to reflect cost efficiencies that accrue when dealing in larger quantities, Intel's is a system of "penetration" or "loyalty" rebates designed to exclude AMD from a substantial portion of the market. Intel intentionally sets a rebate trigger at a level of purchases it knows to constitute a dominant percentage of a customer's needs. It is able to develop discriminatory, customer-by-customer unit or dollar targets that lock that percentage (without ever referencing it) because industry publications accurately forecast and track anticipated sales and because OEM market shares ­ which industry publications also report weekly, monthly and quarterly ­ do not change significantly quarter to quarter. 122. Intel's retroactive discounts can operate to price microprocessors so low that

AMD is put at a competitive disadvantage it cannot overcome. Consider an OEM which anticipates purchasing 100 microprocessors that both Intel and AMD sell for $100 each. Intel knows that because of its prior model introductions, the customer will have to buy 60 from Intel. The customer considers buying its expected balance for its new models from AMD, but Intel offers it a rebate that will entitle it to a 10% retroactive discount if, but only if, it purchases 90 units or more. If the customer buys 30 of the 40 additional units from Intel to qualify for the rebate, its incremental cost for the 30 will be $3,000 (30 units at $100/unit) less the 10% rebate going back to the first unit it purchased, which amounts to $900 (90 units at $10/unit), for a total of $2,100. 123. AMD can only capture the 30 units if it offers a price that makes the customer

indifferent between getting the Intel rebate and getting an overall equivalent deal on AMD

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microprocessors. Thus, for the 30 units that are up for grabs, AMD would have to lower its price to $70 per unit (because 30 units at $70/unit equals the $2,100 net cost for buying from Intel). In effect, the rebate forces AMD to charge $20 less than the $90 discounted Intel price if it attempts to get any business from the customer at all. That is because it is selling the customer only 30 units, over which it has to spread a $900 discount while Intel can spread it out over 90. At the end of the day, this creates a serious competitive disadvantage for AMD. As shown in the example, AMD is forced to discount its price three times as much as Intel just to match the Intel discount, not because its processors are inferior ­ far from it ­ but because Intel has assured for itself, by its past predatory practices, a significant base of assured demand that enables Intel to inexpensively spread its first-dollar discount. Importantly, this new base of demand ­ driven by the OEM's purchasing ­ will enable Intel to repeat its exclusionary practice when the next line of models is unveiled. 124. At least in the short run, most if not all of the major OEMs must engage

significantly with Intel: (1) because AMD is too small to service all their needs while continuing to satisfy other customer demand; (2) because to meet customer expectations, OEMs must assure commercial computer buyers that specifications, including the microprocessor, will remain unchanged during the product's lifecycle; and (3) because Intel has encouraged end-users to specify that processor