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Intel takes out $1.25bn insurance policy

'We did nothing wrong and we won't do it again'

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Intel's take on today's settlement of its multiple legal entanglements with rival AMD is simple: we didn't do anything wrong, we're not going to change, and we think $1.25bn is a reasonable amount to spend to avoid trial - and, possibly, to guard against even more-serious legal challenges.

Or, as Intel executive vice president and chief operating officer Andy Bryant told reporters during a Thursday-morning conference call: "The risk/reward relationship said that this was better than taking [our] chances in front of a jury."

Intel chief executive Paul Otellini agreed with Bryant's assessment. In his prepared statement he noted: "The vast majority of antitrust cases are settled out of court, not because the company being sued believes it acted wrongly, but because antitrust lawsuits are massively complex, and because under US law, damages triple. These cases can be extremely expensive, and the risk is very high."

And the AMD legal imbroglio has certainly been, in Otellini's assessment, "massive." He noted that up to today the suit has involved 200 million pages of documents, 2,200 hours of depositions, and what he referred to as "thousands of pages" of expert reports filed with the court.

But despite the fact that Otellini insists: "We have competed fairly and legally," he argues that a $1.25bn payout is better than going to trial.

"Antitrust cases are incredibly complex," he told a reporter. "And it's a jury trial, which has its own vagaries. And the damages out of a jury trial in antitrust are trebled. And so while it pains me to write a check at any time, in this case I think it made a practical settlement, and it was a good compromise between the two companies and in may ways it was a small multiple of the potential damages that could be awarded in a jury trial."

Not that Intel did anything wrong, mind you. As Otellini explains it: "For some number of years now, AMD has been arguing that Intel's behavior in the marketplace violated a number of laws and regulations around the world. Intel, on the other side, has argued that we have not - and we continue to believe that we have not - violated any laws in these areas, or regulations."

But whether or not Intel might be found to have broken a law or skirted a regulation, Otellini believes: "It makes a lot of sense, I think, for us to stipulate that we won't do things that we both agree are wrong - and we did so in this agreement."

In other words, from Intel's point of view, the company is agreeing not to do something it hasn't done. "We won't do those things, we haven't done those things, and therefore there's no difference carrying forward," as Otellini put it.

When Bryant was asked what changes the agreement will bring to Intel's business practices, he quickly responded, "No changes at all." But just as quickly he softened that assertion by saying: "I don't want to say that there's absolutely no change in what we're doing - we have met with the EU, we have changed some business practices because of that," and, in the understatement of the day, he added, "there are issues around pricing that we think that the regulators may want to talk with us about."

Then, in a marvelous logical pirouette, Bryant insisted: "The things that AMD were concerned about in the contract are things that we don't do and we readily agree to not do because we don't."

Putting aside this "we'll stop doing what we're not doing" line of reasoning, Bryant also skirted the nuts-and-bolts issue of how the agreement might affect PC pricing. "There are no changes to pricing practices as a result of this contract," he said.

Which is more than reasonable, seeing as how Bryant readily admitted that: "It's against US law for the two of us to come to any - or even have discussions about - how to price products."

But he did leave the door ajar a bit when discussing how government input might affect pricing, noting: "If regulators want to talk to us about pricing, we will certainly engage with the regulators about what they believe is and is not appropriate pricing practices."

However the pricing questions play out, one thing is for certain: Intel will be careful not to price AMD out of the market. Without a healthy competitor, Intel could open itself up to charges of monopolistic practices, and possibly face a court-ordered break-up of its current monolithic research, design, manufacturing, sales, and support self into its constituent parts.

Intel is smarter than that. It knows that the $1.25bn it agreed to pay today for insurance against the possibility of facing a jury out for corporate blood is not only a fair bet against that eventuality, but also an investment in the health of AMD, a company whose continued existence will keep even bigger legal problems at bay. ®

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