Is AMD an American company?
On September 26, there was a surprising, potentially important ruling in the antitrust case Advanced Micro Devices has filed against Intel in federal court in Delaware. That's the case in which AMD alleges that Intel, through varying types of exclusionary or predatory conduct all over the world, has been illegally trying to preserve its alleged monopoly on the market for x86 microprocessors, which are the silicon brains running most personal computers. (Click here for a feature story about that case.)
The ruling was that the U.S. court had no subject matter jurisdiction over portions of AMD's complaint, because those allegations involved "foreign commerce." U.S. District Judge Joseph J. Farnan, Jr., was interpreting the Foreign Trade Antitrust Improvements Act of 1982, which dictates that the Sherman Antitrust Act "shall not apply to conduct involving trade or commerce ... with foreign nations unless ... such conduct has a direct, substantial, and reasonably foreseeable effect ... on import trade ... or ... on export trade." (To read Judge Farnan's ruling, click here.)
At one level the ruling might sound dumbfounding, while at another it makes perfect sense. Those who drop their teeth when they read it look at the dispute this way: AMD and Intel are each unambiguously American companies whose headquarters are about a mile-and-a-half away from one another in Silicon Valley. (AMD's exit off U.S. 101 is called Sunnyvale, while Intel's is called Santa Clara.) They are each incorporated in Delaware, where AMD sued. (It sued there because of federal appellate precedents there which its lawyers find encouraging.)
Each company competes with the other globally; i.e., they sell a large number of microprocessors to customers here in the United States, and they export the rest to foreign customers. So if Intel were, as AMD alleges, illegally leveraging its monopoly power in, say, Japanese, Chinese, German and U.K. markets -- allegedly bribing and threatening customers into filling 90 percent to 100 percent of their chip needs with Intel products -- and if it were doing so in an effort to preserve its monopoly on the global x86 market, why wouldn't a U.S. court have jurisdiction over the whole conspiracy?
In fact, Intel acknowledges that a U.S. court unambiguously would have had jurisdiction over all aspects of AMD's beefs with Intel until 2002. But in that year AMD finally phased out the last of its silicon fabrication plants on U.S. soil, and began relying exclusively on fabs set up in Dresden, Germany. So Intel argues that AMD can no longer claim to be exporting American chips around the world. Instead, it is now engaged largely in foreign commerce: Its chips are made in Germany, tested and assembled in Malaysia, Singapore and China, and then sold to customers who are, more than 70 percent of the time, according to Intel, also outside the U.S.
Accordingly, argues Intel, the U.S. court now has antitrust jurisdiction only over those portions of the case that involve chips returning to this country -- either because they are sold to computer makers here (e.g., Dell, HP, or an American subsidiary of Sony), or to retail consumers here (e.g., someone entering a Circuit City in Peoria and emerging with, say, an AMD-powered Hitachi notebook).
AMD protested, among other things, that it actually was still in the business of "exporting" chips, in that it continues to design its chips in this country, though it has set up its manufacturing facilities abroad. (AMD is not outsourcing its chip manufacture; AMD's German fabs are owned by a wholly-owned AMD subsidiary.)
"We live in a world economy," AMD's lead outside counsel Chuck Diamond argues to me in an interview, "where the U.S. is very much involved in the export business although [actual] encasing its intellectual property in physical manifestations may be the last, and a small part, of the value-added stream. To say AMD is not an exporter of American made product because the silicon packing occurs abroad is like saying Warner Bros. is not in the business of exporting motion pictures for home viewing because its DVDs are stamped in Mexico." (Diamond is with O'Melveny & Myers in Los Angeles.)
Nevertheless, in applying the 1982 Act, Judge Farnan agreed with Intel, and struck more than 20 meaty paragraphs from AMD's complaint. The parties don't yet know how important, in practice, the ruling will be. At one extreme, the ruling could mean that the foreign commerce allegations that have been stricken from the complaint have been knocked completely out of the case and that AMD cannot, therefore, even seek discovery about those acts in order to show a jury the role they allegedly played in harming AMD in this country. In that case, AMD may not be able to prove its case at all.
Alternatively, a very narrow interpretation of the ruling would allow AMD to still prove all aspects of its case, while simply limiting its damages recovery if it were ultimately to win its case many years down the road. In that event, for instance, AMD might be limited to recovering damages relating to lost sales in the United States--which could still be a very big number, especially when trebled as antitrust damages awards can be. Moreover, AMD would still be able to pursue its foreign damages in foreign forums.
At a hearing on September 27, Intel's outside counsel Peter Moll, of the D.C. office of the Howrey law firm, said that Judge Farnan's ruling should "dramatically narrow" the scope of discovery, though he did not get into specifics. Only after a special master rules on the crucial discovery impact of the ruling will we really know what Judge Farnan's ruling means, and only then will AMD decide whether to seek to appeal it. (Judge Farnan has set an "immovable" trial date for April 27, 2009.)
What do people think of this 1982 Act, and Judge Farnan's interpretation of it so far? When Congress passed the act, it evidently wanted federal courts and enforcement authorities to show deference to the competition authorities of our foreign trading partners. There's little question that AMD's case against Intel implicates many of the precise concerns Congress had at that time. In addition to the Delaware case, AMD has brought two civil cases against Intel in Tokyo, and has voiced grievances about Intel's practices to government regulators with the European Commission's Directorate-General Competition, the German Federal Cartel Office, the Japanese Fair Trade Commission, the Korean Fair Trade Commission, and maybe others. (The WSJ also reported on October 4 that the EC is now vetting a draft of formal charges investigators would like to bring against Intel before an internal "devil's advocate" panel of legal experts. These proposed charges are apparently the culmination of an on-again, off-again probe that EC investigators have pressed for more than five years. Click here for that story.)
Obviously, there does need to be some mechanism to prevent double recoveries and the like. But is the 1982 Act the right solution? Did Judge Farnan correctly interpret it? What should the special master do? What do people think?
Posted by Roger Parloff 9:02 AM 8 Comments | Add a Comment
At least there are some penalties for choosing to export jobs overseas. A company cannot have all of its manufacturing activity abroad and still expect to be treated as an American corporation.
Do individual American tax payers get to have their cake and eat it too? Part of being a global company should mean you lose certain rights, privileges and tax breaks/incentives if your job creation is off shore. Sorry but companies shouldn't get to have it both ways.
It's pretty clear AMD is pursuing a broadly-based international legal strategy to stop what it believes to be anti-competitive acts by Intel. However, in a very few other cases (Tokyo I believe is the only other) has AMD actually pusued damages, and I am not certain but perhaps the Tokyo case is related to a specific instance. AMD is pursuing damages for unlawful acts performed by Intel internationally. Similarly to the situation with a major Hotel chain hosting a meeting of American business and Cuban government officials in Mexico, an American company is subject to US regulations everywhere - this is what keeps Nike from having political dissidents sew soccer balls with their teeth in China. This ruling, while perhaps in line with the letter of federal law (though even this is debateable) ultimately weakens the power of US anti-trust laws - to anyone speaking with industry interests (from big Tier 1 OEM PC Manufacturers like HP and Dell to component suppliers in Taiwan) it was pretty clear that Intel was at the very least using questionable business tactics at at the worst outright ignorinig laws designed to create a fair competitive environment, and doing it without regard for US law in this country and across the world. I think the judge has a good purpose in mind - but at the end of the day he is being asked to decide whether Intel's behaviour is legal or illegal, not whether AMD was damaged in the US or out of it.
Actually Intel produces and manufactures more chips out of the US than AMD does. Intel itself has many foreign locations of manufacture, which together outnumber AMD's assets. Intel would not hesitate to claim damages under American laws, simply based on the small number of assets it still maintains in the US.
Guess it pays to keep that legacy flash foundry running then!
Let's not forget that all of AMD's chips are designed in the U.S. and in the modern economy its really where the intellectual property is housed - not where th factory is. But if you do want to go the factory route, let's not forget that AMD signed a deal with New York State to build a new factory there.
Also, the vast majority of AMD's employee base is located in the U.S.
This post has been removed by a blog administrator.
As part of a wider project in which the American Antitrust Institute (AAI) is studying the future of U.S.
anti-monopolization law, I am following the AMD v. Intel litigation for what the case may ultimately
signify for antitrust policy. Unfortunately, as often happens when the news media report on such arcane
matters the public can get the wrong message. In this instance there seems to be some confusion over
the significance of Judge Farnan's September 26 ruling.
No one at this early stage of the AMD v. Intel litigation before discovery or the presentation of any
evidence can draw any conclusions about the merits of AMD's case against Intel. As the blog entry
correctly points out, the judge's ruling means only that the "U.S. court [in Delaware] ha[s] no subject
matter jurisdiction over portions of AMD's complaint." Where the news media have gone wrong, in my
view, is by reporting this ruling as reflecting poorly on the merits of AMD's case, or at least a
substantial portion of it.
For example, Reuters reported that the judge had dismissed "a large portion" of AMD's case. FT.com
called the ruling a "significant setback." The AP said the judge dismissed a "key component" of AMD's
case. And, while your blog entry is for the most part quite accurate you nonetheless raise the specter
that because of this ruling "AMD may not even be able to prove its case at all."
It is possible for a single preliminary procedural ruling to sink a lawsuit, but that is clearly not the case
here. The court's recent ruling has little to do with the merits of AMD's claims against Intel, anything
that AMD "failed to prove," or even AMD's country of residence, as the titular question of your post
suggests ("Is AMD an American company?"). Raising the prospect of a faltering case on the basis of
this interim ruling is not justified.
Federal district courts are not empowered to hear antitrust claims based on harm to competition in a
foreign market which does not also directly harm competition in U.S. import, export, or domestic
markets. Congress said so when it passed the Foreign Trade Antitrust Improvements Act of 1982. The
law was meant to make sure that U.S. trial courts were not in the business of adjudicating independent
foreign antitrust claims which arise in foreign markets and which foreign courts and enforcement
authorities could and should adjudicate for themselves.
Judge Farnan found that the FTAIA deprived the court of jurisdiction over certain of AMD's
independent, stand-alone foreign antitrust claims. Doing so does not disparage any of AMD's antitrust
claims, foreign or domestic. The statute, which the Supreme Court recently interpreted in F. Hoffman-
La Roche Ltd. v. Empagran, S.A., excludes only "independent" foreign antitrust claims from
consideration by U.S. courts. Thus, if anything, the ruling suggests that certain of AMD's allegations
could support separate suits against Intel in a foreign court (which AMD has already initiated in some
jurisdictions). The important bottom line is that AMD's allegations of harm to competition in U.S.
domestic markets and to U.S. imports or exports are as intact now as they were before the ruling.
In light of this, two further issues arise, both of which are mentioned the entry. The first is whether,
when the relevant market definition for antitrust purposes is global, the judge's interpretation of the
FTAIA is correct. Tension can arise when the market that is defined for the antitrust analysis differs
from the jurisdictionally-based market definitions contemplated by the statute. There was in the early-
1980's significantly less interconnectedness than in the years since that have witnessed tremendous
globalization. While there can be little doubt that enlightened antitrust and foreign policy encourages the
development of capable antitrust regimes in non-U.S. jurisdictions, it is not at all clear how the
international legal regime should handle the issues of duplication and overlap that arise when the relevant
antitrust market exceeds jurisdictional and political boundaries. There are no facile answers to the
international coordination and comity questions that can arise. An appellate court may have the
occasion to confront some of these questions if and when AMD seeks review of this ruling after the
case has been concluded.
The second issue apparently is being raised by Intel, which argues that the court's FTAIA ruling means
that AMD will not be able to avail itself of foreign discovery. In my view, the court is unlikely to so
constrain AMD. If the domestic claims not affected by the ruling require international discovery, the
FTAIA ruling provides no legal basis for denying it, provided the requested discovery satisfies the
ordinary requirements of federal practice. When and if AMD seeks discovery abroad it would be up to
Intel to object. Whether the judge will overrule Intel's objections is a discovery issue that should be
unrelated to the court's FTAIA ruling.
CNNMoney.com Comment Policy: CNNMoney.com encourages you to add a comment to this discussion. You may not post any unlawful, threatening, libelous, defamatory, obscene, pornographic or other material that would violate the law. Please note that CNNMoney.com makes reasonable efforts to review all comments prior to posting and CNNMoney.com may edit comments for clarity or to keep out questionable or off-topic material. All comments should be relevant to the post and remain respectful of other authors and commenters. By submitting your comment, you hereby give CNNMoney.com the right, but not the obligation, to post, air, edit, exhibit, telecast, cablecast, webcast, re-use, publish, reproduce, use, license, print, distribute or otherwise use your comment(s) and accompanying personal identifying information via all forms of media now known or hereafter devised, worldwide, in perpetuity. CNNMoney.com Privacy Statement.