Antitrust battle will go on despite AMD-Intel settlement

The antitrust battle between Intel and Advanced Micro Devices isn't necessarily over, despite a settlement agreement announced by the microprocessor companies.

Last week, the companies agreed to set aside their disagreements and drop several lawsuits, including antitrust lawsuits brought by AMD and a legal argument over whether the terms of a previous cross-licensing agreement permitted AMD manufacturing spin-off GlobalFoundries to manufacture x86 processors for AMD. In return, Intel agreed to fork over US$1.25 billion to AMD.

“While the relationship between the two companies has been difficult in the past, this agreement ends the legal disputes and enables the companies to focus all of our efforts on product innovation and development,” they said in a joint statement.

However, the settlement agreement, a copy of which was filed with the U.S. Securities and Exchange Commission, leaves unresolved key disagreements over Intel's alleged business practices that AMD argues are illegal.

These alleged practices — retroactive discounts, bid buckets, and end-user discounts — relate to antitrust lawsuits brought by the European Commission and the New York Attorney General's Office, as well as an antitrust investigation being carried out by the U.S. Federal Trade Commission.

Retroactive discounts are discounts allegedly offered to computer makers that are based on the volume of chips purchased from Intel. When a company meets a “qualifying threshold,” Intel lowers the prices of its chips and the same discount is retroactively applied to earlier purchases.

Bid buckets and end-user discounts are practices allegedly used by Intel to subsidize sales of its chips, charging less for them than the variable cost of producing them. Variable costs refer to the marginal cost of producing a chip, excluding capital investments and other fixed costs. In the case of bid buckets, Intel allegedly drew on a fund set aside to defray the cost of its products for customers bidding for business. End-user discounts allegedly functioned in a similar way, giving a discount on the cost of Intel's chips to an end-user that bought systems based on the company's chips.

These practices will remain a source of friction between the two companies. “Intel understands that AMD will contend to the European Commission, the New York Attorney General and to the U.S. Federal Trade Commission that any Intel Retroactive Discounts, Accused Bid Buckets or Accused End-User Discounts are anti-competitive and unlawful and that they should be prohibited,” the settlement said.

Among the other terms of the settlement agreements is a clause that would terminate the deal if Intel's share of the microprocessor market falls below 65 percent for four consecutive quarters, as measured by analyst firm Mercury Research.

That's unlikely to happen soon. According to Mercury, Intel held 81.5 percent of the microprocessor market during the third quarter of this year.