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Wright on Apple Case: Total Competitive Package Counts

A claim by Advanced Micro Devices (AMD) that Intel and Apple cut a deal in 2005 allowing the exclusive supply of processors to Apple does not necessarily constitute a legal argument, says Professor Joshua Wright.

"Under Section 2 of the Sherman Act, a plaintiff must show that the exclusive dealing arrangement harmed competition in the form of higher prices, lower output, or reduced innovation," Wright says.

Wright explains that in granting some level of exclusivity to Intel, "Apple and others are able to play Intel and AMD off each other to get higher rebates. These rebates are ultimately passed on to consumers in the form of lower prices. That's a critical part of the equation here. In other words, when Apple makes a decision whether or not to accept Intel's offer of higher rebates plus exclusivity versus whatever it is that AMD offers, it weighs these different aspects of competition (quality, price, rebate, exclusivity). It is making a decision on the merits of the total competitive package."

AMD's accusation comes on the heels of a European Union decision last week to levy a $1.45 billion fine against Apple for violating antitrust legislation by illegally denying processor business to AMD.

AMD says Intel-only deal struck at Apple in 2005, cnet news, Nanotech: The Circuits Blog, May 22, 2009. By Brook Crothers.

Excerpt:
"McCoy said that a deal was struck when Apple moved from the PowerPC (IBM-Motorola) chip architecture to the x86 (Intel-AMD) architecture. The transition was announced by Steve Jobs at the Worldwide Developers Conference in 2005.

"'They made a deal when they were porting over from PowerPC to x86 as to how much Intel was willing to pay for that port. My guess is that Intel asked for and won exclusivity in return for the help that they gave Apple to port,' McCoy said.

"McCoy continued: 'That deal will not be exclusive forever and when that exclusivity is over, I'm sure they (Apple) will choose on the merits. We'll have a chance to compete for Apple's business when Apple is ready,' he said. Intel denies this allegation.

"Though McCoy did not make any direct charge of illegal activity regarding such a deal, the assertion is not that far removed from charges made in the July 2005 AMD complaint against Intel. AMD, in that filing, cited Dell, among other examples of exclusive Intel deals with PC makers. '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...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.' (Note: Dell, in 2005, offered no AMD-based products, though it does today.)"

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