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Attorney General Lockyer to File Price-Fixing Lawsuit Against Seven Computer Memory Chip Manufacturers
(SAN FRANCISCO) – Attorney General Bill Lockyer on Friday will file a lawsuit against seven computer memory chip manufacturers alleging the firms violated antitrust laws, and harmed consumers and governmental agencies, by conspiring to fix prices they charged for widely used dynamic random access memory (DRAM) chips.
“Price fixing strikes at the heart of free competition and fair play which underpin our economic system and protect the interests of businesses and consumers alike,” said Lockyer. “The defendants in this case conspired to rig the U.S. market for this essential computer product, working together to keep prices artificially high. In the process, they victimized individual consumers, governmental agencies, schools and taxpayers. This lawsuit seeks compensation for those victims and to ensure the defendants never again violate fundamental tenets that make our economy work properly.”
Lockyer, joined by 33 other state Attorneys General, will file the antitrust complaint in U.S. District Court for the Northern District of California. The complaint alleges the defendants violated state and federal antitrust laws through a four-year conspiracy (from 1998 through June 2002) to fix DRAM chip prices, artificially restrain supply, allocate among themselves the production of DRAM chips and markets for the chips, and rig bids for DRAM chip contracts.
The defendants include the following parent companies: Infineon Technologies AG; Hynix Semiconductor, Inc.; Micron Technology, Inc.; Mosel Vitelic, Inc.; Nanya Technology Corp.; Elpida Memory, Inc.; and NEC Electronics America, Inc. The companies’ subsidiaries that sold and distributed DRAM chips in the United States also are defendants. Infineon, Hynix, Micron, along with Samsung, control roughly 70 percent of the U.S. market. In 2003, the United States was home to about $5 billion of the $17 billion in worldwide sales.
Lockyer is one of the leaders of the multi-state effort, and he noted a substantial amount of the illegal conduct occurred in California. Published reports have placed the total nationwide damages at hundreds of millions of dollars in overcharges. Lockyer said that means the damages suffered by California consumers and governmental entities easily could total in the tens of millions of dollars. As permitted under antitrust laws, the complaint asks the court to order the defendants to pay three times the amount of damages for which the court finds them liable.
The lawsuit grows out of a criminal antitrust case brought by the U.S. Department of Justice (DOJ) against what officials called “one of the largest cartels ever discovered.” Afer DOJ launched its investigation in June 2002, Micron agreed to cooperate with investigators in exchange for amnesty from federal criminal charges. Subsequently, Samsung, Hynix, Infineon, Elpida, along with 12 individuals, pled guilty to criminal price-fixing and collectively paid more than $730 million in fines.
DRAM chips are semiconductors that hold temporary instructions and data, making it available for quick access when computers, or other electronic devices such as servers or workstations, are in use. The industry has been marked by rapid innovation and consolidation since the 1980s. But from 1998 through June 2002, the complaint alleges, the U.S. market also was marked by a widespread antitrust conspiracy. The unlawful, concerted action unjustly enriched the defendants at the expense of the computer manufacturers that bought DRAM chips, and the schools, governmental entities and individual consumers who purchased computers, according to the complaint.
As described in the complaint, the defendants started discussing and coordinating the prices they charged to large computer manufacturers in 1998, at a time when the DRAM market had excess supply. The computer manufacturers included Apple Computer, Inc., Compaq Computer Corp., Dell, Inc., Gateway, Inc., Hewlett-Packard Co., and IBM.
“The manufacturers did not limit this pricing coordination to isolated or occasional conversations,” the complaint alleges. “On the contrary, during a roughly four-year period, there were frequent pricing communications among the conspiring manufacturers, exchanges that intensified in the days immediately preceding the dates on which they submitted bids to supply DRAM to the (computer makers), their largest and most important customers.
In 2001, according to the complaint, the defendants “agreed to reduce supply in order to artificially raise prices.” The complaint cites a Fall 2001 meeting of DRAM manufacturers during which a Mosel Vitelic executive said “a basis for understanding had been reached ... to “trim some production starting in September.”
The defendants’ unlawful conduct, the complaint alleges, harmed computer makers and buyers of computers because they were unable to purchase DRAM or DRAM-containing products at competitive prices and paid more for such products than they would have paid “in a free and open competitive market.”
In the case, Lockyer is representing California state governmental entities and individual consumers who purchased computers affected by the alleged DRAM chip price-fixing conspiracy. As part of the complaint, he also is bringing class action claims on behalf of local governments and school districts.