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JULY 14, 2005
By Andy Reinhardt Why Intel Faces an Uphill Slog [Page 2 of 2] POTENTIAL VULNERABILITY. This latter point has big implications for the Intel-AMD situation because AMD alleges that Intel's discounts and rebates were tied to volume targets, not to Intel's economies of scale. As proof, AMD notes that Intel offers higher rebates retroactively if certain sales targets are met. That implies very little connection between cost and price, since the previously-purchased microprocessors -- regardless of what it cost Intel to make them -- get discounted only after more are bought. But legal eagles have criticized the BA case on a number of grounds. First, the court found that BA's commission had a "fidelity-building" effect, and were thus unacceptable without acknowledging the fact that any economic incentive is likely to increase loyalty. Its failure to delineate this point more clearly is a potential vulnerability in future applications of the precedent or high court challenges. Second, the court demurred on the question of whether the commission had to demonstrate a "concrete" impact from BA's behavior, rather than the easier test of "tending" to restrict competition. The problem here is that despite BA's commission program, it lost market share during the period in question. Had the court applied more rigorous economic analysis, it might have been forced to admit that while the behavior looked monopolistic and exclusionary, it clearly hadn't worked. DOUBLE-BARREL CHARGES. This issue may not matter in the Intel case because the company has gained market share at AMD's expense, so its rebates seem to have had the desired effect. Clearly, there are many other legal issues that will play out in any EC case against Intel. But it's no surprise why AMD is pinning more hopes on European justice than on action by U.S. antitrust authorities. Cleary Gottlieb notes that U.S. courts have generally held that absent predatory pricing or exclusive dealing requirements, there are no grounds for treating loyalty rebates as monopolization cases. To make their case, AMD and the EC will rely on proving that Intel used both predatory pricing and exclusive dealing. For the time being, the bar to prove that in Europe is lower. But if the Michelin and BA cases are overturned or clarified, it's a whole new ballgame.
 Reinhardt is a correspondent in BusinessWeek's Paris bureau
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