Nov. 4 (Bloomberg) -- Intel Corp. was sued by New York Attorney General Andrew Cuomo and accused of threatening computer manufacturers and making billions of dollars in illegal payments to pressure them to use its chips.

Intel, the world’s largest chipmaker, violated federal antitrust laws, the state said today in a complaint in U.S. District Court in Wilmington, Delaware. The company got computer makers to agree to use its chips in exchange for the payments, disguised as “rebates,” and threatened and punished manufacturers that worked with Intel’s rivals, Cuomo said.

Intel earlier lost judgments in Europe and Asia, where regulators claimed it used unfair business practices to maintain its dominance in the personal-computer market. The New York lawsuit puts “tremendous pressure” on the Federal Trade Commission to bring a similar or parallel case, said Robert Burka, an antitrust lawyer at Foley & Lardner LLP in Washington.

The action “will put them over the fence and into litigation” if the FTC is close to suing, said Burka, who’s not involved in the case.

Intel said in June 2008 that the FTC was investigating potential antitrust violations relating to the microprocessor market. A spokesman for the agency, Mitchell Katz, declined to comment today on the New York suit.

“Rather than compete fairly, Intel used bribery and coercion to maintain a stranglehold on the market,” Cuomo said in a statement. “Intel’s actions not only unfairly restricted potential competitors, but also hurt average consumers who were robbed of better products and lower prices.”

Intel to Fight

Intel will fight the suit, said Chuck Mulloy, a company spokesman. E-mails cited as evidence by the attorney general were taken out of context, Mulloy said.

“Neither consumers who have consistently benefited from lower prices and innovation nor justice are being served by the decision to file a case now,” Mulloy said. “The market is competitive, the market works, prices are falling.”

European Union regulators levied a record 1.06 billion-euro ($1.57 billion) antitrust fine against Intel in May following an eight-year investigation. The European Commission in Brussels ordered Intel to stop giving unlawful discounts to computer makers that buy all or almost all their chips from Intel.

Intel, based in Santa Clara, California, appealed the EU decision. The antitrust fine was the biggest in the 27-nation EU’s history, more than double the 497 million-euro penalty against Microsoft Corp. in 2004.

AMD’s Lawsuit

Intel rose 23 cents to $18.59 at 4 p.m. New York time in Nasdaq Stock Market trading. AMD gained 5 cents to $4.69 in New York Stock Exchange composite trading. Advanced Micro Devices Inc. originally filed the antitrust complaint with the EU. AMD, based in Sunnyvale, California, sued Intel in Delaware in 2005 alleging it controls the market for microprocessors, in part by providing discounts to customers that avoid AMD’s products.

Intel was fined about $25 million in 2008 by South Korea’s antitrust regulator for allegedly offering discounts to prevent customers from buying AMD products.

Cuomo claims Intel retaliated against computer makers that worked with its rivals by threatening to cut off payments, fund their competitors and end joint ventures. The illegal actions involved computer makers Dell Inc., Hewlett-Packard Co. and International Business Machines Corp., Cuomo said.

Intel paid Dell almost $2 billion in so-called rebates in 2006; in two quarters of 2006, the rebate payments exceeded Dell’s reported net income, Cuomo said.

From 2001 to 2006, Dell got a “privileged position” from Intel in return for agreeing not to market any AMD products, the statement said. Intel and Dell also got together to market products at prices below cost at times to stop AMD, Cuomo said.

Dell E-Mail

Cuomo’s statement cited an internal Dell e-mail in February 2004 about possibly ending its exclusive relationship with Intel.

Intel Chief Executive Officer Paul Otellini and then- chairman Craig Barrett, the message says, “are prepared for jihad if Dell joins the AMD exodus.” The e-mail says the company would get “zero” rebates for at least a quarter.

Round Rock, Texas-based Dell declined to comment, said a spokesman, David Frink.

Intel also paid Hewlett-Packard hundreds of millions of dollars in rebates in exchange for the company’s capping sales of AMD-based products, Cuomo said. The company also threatened to derail development of a server important to Hewlett-Packard if it promoted AMD products, and had an agreement for HP to be paid $925 million to increase Intel’s share of HP’s sales.

Punishing HP

In one internal e-mail cited, an HP executive said Intel said in June 2004, after HP defied the company and launched an AMD product, that the chipmaker planned “to ‘punish’ HP.”

Palo Alto, California-based Hewlett-Packard declined to comment, said a spokeswoman, Christina Schneider.

Intel also paid IBM $130 million not to launch an AMD-based server product, Cuomo said, and threatened to take away funding for joint projects if IBM marketed AMD-based server products.

“The question is, can we afford to accept the wrath of Intel?” an IBM executive wrote in one e-mail cited by Cuomo.

Armonk, New York-based IBM didn’t immediately respond to a call for comment. 31 “There is nothing new here that has not already surfaced in the AMD case,” Intel’s Mulloy said. “We have not changed our position as a result of this.”

Tom McCoy, an AMD spokesman, said the state’s complaint “details explicit evidence of Intel’s harm to U.S. consumers and computer manufacturers.”

AMD Statement

“Stopping that illegal harm will serve the settled purpose of the American antitrust laws: ensuring that innovation is unconstrained and competition is free to serve consumers,” McCoy said in a statement.

Intel had an 82 percent share of the market for personal computer processors at the end of the third quarter, according to Mercury Research, based in Cave Creek, Arizona. AMD had 18 percent; Taiwan’s Via Technologies Inc., less than 1 percent.

Globalfoundries Inc., an AMD spinoff, said in July it began building a $4.2 billion plant in New York’s Saratoga County that is scheduled to begin production in 2012.

Cuomo subpoenaed Intel to determine whether it improperly used its monopoly power in January 2008.

The suit seeks to stop the anti-competitive behavior, restore competition, and to recover damages suffered by New York government agencies and consumers, as well as penalties.

The case is, New York v. Intel Corp., 09-cv-00827, U.S. District Court, District of Delaware (Wilmington).

To contact the reporters on this story: Karen Freifeld in New York at kfreifeld@bloomberg.net; Ian King in San Francisco at ianking@bloomberg.net.

Last Updated: November 4, 2009 16:25 EST