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Intel Agrees to Pay on the First Day of Trial

SAN FRANCISCO — A decade of heated litigation. Five judges, one appeal, dozens of briefs and 3 million pages of internal documents.

In the end, it all came down to the last seconds before trial.

In a proposed settlement made public Tuesday night, Intel Corp. agreed to pay $15 each to potentially millions of consumers who bought computers equipped with Pentium 4 processors between 2000 and 2002. In exchange, plaintiffs attorneys Geoffrey Munroe of Girard Gibbs and Michael Danko of Danko Meredith will release Intel from claims it manipulated performance scores to make the processors appear better than they were.


"It has taken more than 19,000 hours of attorney and paralegal time, and more than $2.4 million in out-of-pocket costs, but by building a robust record of Intel's benchmarking activities and employing novel legal theories, plaintiffs have achieved their primary objectives," the motion for settlement approval states.


Attorneys on both sides of Skold v. Intel, 05-3923, had arrived in Santa Clara County Superior Court in late June ready to give opening statements in a bench trial before Judge Peter Kirwan. They set up their equipment and lugged stacks of paperwork up to the second-floor courtroom. But Kirwan ordered one more last-minute round of mediation, and after a full day of tense negotiations, they reached a preliminary agreement that could finally lay the 10-year-old case to rest.


The class is estimated at up to 4.7 million members. Danko said he hopes at least half make claims, which would put Intel on the hook for roughly $35 million. The settlement pool is not capped and claimants do not need receipts of purchase to participate, though they must attest under penalty of perjury that they made the purchase based on their best recollection.


That low hurdle was a key concession sought by plaintiffs attorneys. "[M]ost class members replaced their Pentium 4 computers long ago and have no physical evidence of their thirteen-year-old computer purchase," the motion states. "While plaintiffs could have sought a monetary judgment for a greater sum if they prevailed at trial, they would still face the problem of getting the money into the hands" of class members.


Intel also has agreed to donate computers worth $4 million to Teach for America and to pay up to $16.45 million in attorney fees.

Munger Tolles & Olson partners Gregory Stone and Daniel Levin led Intel's team from Los Angeles, along with Miriam Kim in the firm's San Francisco office.


Plaintiffs attorneys claim internal Intel emails, PowerPoint presentations and performance reviews paint a clear picture of how Intel executives designed new benchmark tests and tweaked existing third-party tests to boost the new chip's performance, hiding their involvement to make the tests seem unbiased.


But plaintiffs attorneys had a hard time showing how the padded benchmarks translated to consumers paying more for Intel computers. They estimated the benchmarks led to an average price inflation of $65, but Intel argued the connection was too tenuous.


"The reason we fought the litigation for as long as we did, is we don't think anybody was harmed or misled as a result of those benchmarks," Intel spokesman Chuck Mulloy said. "[The processors] operated as we said they would, and they operated as we advertised them to."


Most consumers never saw the benchmark reviews, Intel attorneys argued, scoffing at plaintiffs' theory that industry experts and publications that relied on the reviews passed the information to consumers. In the settlement motion, plaintiffs attorneys admitted their theory of consumer price inflation is "unique," and already has been rejected by judges outside California.


Kirwan decided to let the sides fight it out at trial, denying a motion for summary judgment on the subject in April.


But plaintiffs attorneys remained concerned about the challenge of finding and compensating class members, Danko said. Intel, which spent six months trying to locate and depose class members, identified only 15,000, some of whom were ultimately determined not to have a valid claim.


Danko called the permissive claims process a huge win for plaintiffs. "It is a very easy procedure that we developed, so they can basically do it over the Internet," he said.


What the proposed settlement does not provide for is a court order that would prevent Intel from using misleading benchmarks for future products. Girard Gibbs partner Munroe said in April that his team had uncovered evidence the practice extended beyond the Pentium 4.


Under pressure, Intel agreed in 2010 to a disclaimer that its performance tests may have been optimized for Intel processors. Third-party company Business Applications Performance Corp. (BAPCo) also has added 26 new checkpoints to ensure benchmarks are uncorrupted.

The new processes address plaintiffs' allegations," according to the settlement document, "significantly diminishing the necessity of a risky and expensive trial to address any ongoing conduct."

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