Shareholder Sues Intel Over Anti-Trust Woes

Shareholder Sues Intel Over Anti-Trust Woes

Apparently, at least one Intel shareholder is upset with the chipmaker's alleged anti-competitive behavior around the globe. Martin Smilow earlier this week filed a Verified Shareholder Derivative Complaint against Intel's board of directors and senior officers for alleged actions that "systematically and intentionally violated Federal and international laws and regulations."

The peculiar mechanism of shareholder derivative complaints means that Smilow is suing on behalf of Intel against the "nominal defendant" Intel, in addition to the board and senior officers.

The complaint further narrows the alleged actions by the board and senior officers to "unlawfully engaging in monopolistic conduct in the microprocessor market by threatening, coercing, and bribing customers to refrain from dealing with Intel's major competitor, Advanced Micro Devices, or with any other actual or potential competitors."

Smilow is the only plaintiff named in the complaint, filed Tuesday in the United States District Court for the District of Delaware, where Sunnyvale, Calif.-basedAMD also has its own anti-trust suit against Santa Clara, Calif.-based Intel pending. A pending class-action suit (PDF) against Intel, also in Delaware, names 105 plaintiffs seeking damages from Intel for alleged monopolistic practices and "economic coercion of customers" such as Hewlett-Packard, IBM, Circuit City, wholesale distributors and small system builders.

Smilow is named as a resident of the state of New York "who has owned shares of Intel at all times relevant" to the complaint. Craig Barrett, chairman of Intel's board of directors, and CEO Paul Otellini are named as defendants, along with 10 Intel board directors.

Smilow's complaint was regarded by one source close to the case as "not a big deal" on its own. But the source added that it was "surprising" that a shareholder derivative complaint "hadn't happened sooner," raising the possibility that other shareholders might file complaints or join Smilow.

Shareholder derivative complaints are generally filed by shareholders who feel that some harm has been done to a corporation but that the board of directors has not pursued proper legal action against the parties responsible, according to legal sources. The American Bar Association's Model Business Corporation Act (MBCA), adopted by many states, requires that a number of steps be taken by a shareholder before moving forward with a shareholder derivative lawsuit. These include filing a demand for action with the corporation itself and giving the board time to appoint a special litigation committee to determine a course of action on the demand.

Inquiries as to whether Smilow had met MBCA requirements before filing suit had not been answered at press time by the plaintiff's attorneys named in the complaint.

The appearance of a shareholder derivative complaint in an anti-trust case was unusual, according to anti-trust legal expert Robert Lande, a director of the American Antitrust Institute and professor of law at the University of Baltimore. Lande, who said he had closely followed anti-trust cases for "more than 25 years," wondered what the plaintiff might hope to show the court before decisions had been rendered in AMD's U.S. suit and the class-action complaint.

"For [Smilow and his attorneys] to succeed in this suit, first they would have to prove that Intel violated the anti-trust laws. For any one mortal to prove that Intel violated the anti-trust laws, I just don't know how many millions of dollars that would take. Five million, 10 million?" he said.

"I personally believe that Intel has probably violated the law. But there's a difference between suspecting it, thinking it, and proving it," Lande added.

Intel would "defend ourselves in this matter, as we will defend ourselves in all the other anti-trust matters currently pending," said Chuck Molloy, Intel's spokesperson for legal affairs.

Meanwhile, Intel also saw a flurry of activity surrounding anti-trust proceedings in Europe this past week.

European Commission authorities on Tuesday conducted raids on Intel's offices in Germany in conjunction with last July's formal charges by the EC that Intel had engaged in anti-competitive practices in the microprocessor market. The commission also paid unannounced visits to several major European electronics retailers. Retailers which have confirmed being raided include Germany-based MediaMarkt, U.K.-based DSG and France's PPR.

Intel is scheduled to defend itself against the EC charges, called a Statement of Objections, in a March 11-12 closed-door hearing in Brussels.

AMD's and presumably Intel's attorneys in the U.S. suit are closely watching what happens with Intel's anti-trust charges in Europe, because a judge in the U.S. case has allowed the introduction of foreign-gathered evidence (PDF) of Intel's activities outside the United States, an AMD spokesperson noted.