The U.S. government accused Intel Corp of illegally using its market dominance to stifle competition, in a lawsuit that seeks to stop the marketing practices that have helped maintain Intel's status as the world's biggest chip maker.

The suit, filed on Wednesday, pushed Intel shares down 2 percent and boosted the stocks of competitors Advanced Micro Devices Inc and Nvidia Corp, which have accused the chip giant of anti-competitive

behavior.

The U.S. Federal Trade Commission said Intel has been trying to shut out competitors in maneuvers that date back to 1999 -- the same year the agency settled a previous antitrust fight against the company.

Intel has engaged in a deliberate campaign to hamstring competitive threats to its monopoly, said Richard Feinstein, director of the FTC's Bureau of Competition. The agency opened a formal probe of Intel in mid-2008.

Intel, which makes 80 percent of the world's central processing units, the brains of personal computers, faces similar accusations in Asia, Europe, in private lawsuits and in a suit filed by the New York attorney general. Intel agreed in November to pay AMD $1.25 billion to settle their litigation.

Intel called the FTC suit misguided and General Counsel Douglas Melamed said the company would aggressively defend itself. Intel has not violated the law, he said.

Melamed said the case should have been settled.

Settlement talks had progressed very far but stalled when the FTC insisted on unprecedented remedies -- including the restrictions on lawful price competition and enforcement of intellectual property rights set forth in the complaint -- that would make it impossible for Intel to conduct business, he said.

Feinstein disagreed with Intel's characterization of the remedies as unprecedented. Intel would not face financial penalties but the remedies would require a shift in its pricing structure, he said.

The FTC's complaint said Intel punished PC makers that bought chips from AMD or Via Technologies Inc and changed software to hurt the performance of competing CPUs, or central processing units.

Intel threatened OEMs (computer makers) that considered purchasing non-Intel CPUs with, among other things, increased prices on other Intel purchases, the loss of Intel's technical support, and/or the termination of joint development projects, the FTC said in its complaint.

BOOST FOR AMD, NVIDIA SHARES

While AMD has settled its dispute against Intel, graphics chip maker Nvidia has continued its fight, calling for scrutiny of Intel's graphics processing units (GPUs), often used in mobile phones, personal computers and game consoles.

We are particularly pleased to see scrutiny being placed on Intel's behavior toward GPUs, which have become an increasingly important part of the PC industry, Nvidia said in a statement.

ThinkEquity analyst Vijay Rakesh said the FTC suit was a distraction for Intel, but not much more.

I don't think it will take away from their focus on products. ... I don't think it necessarily changes the landscape much, he said. It's more a headline positive for Nvidia.

Shares of Nvidia jumped 8.5 percent and AMD rose nearly 4 percent.

A trial before an FTC administrative judge could begin in September, Feinstein said. If Intel loses at that level, it can appeal to the full commission. The FTC said the suit could take two years to resolve, though many analysts expect a settlement.

The strategic implications are quite significant given that what the FTC is really saying is that Intel better watch how it competes in graphics going forward, Hans Mosesmann of Raymond James Global Research wrote in a research note.

A wide range of antitrust enforcers have gone up against Intel for its controversial pricing incentives.

Last month, New York Attorney General Andrew Cuomo accused Intel of threatening computer makers and paying billions of dollars of kickbacks to maintain market supremacy.

The European Commission fined Intel $1.2 billion in May 2009 and ordered it to change certain business practices.

In June 2008, South Korea fined Intel some $26 million, finding it offered rebates to PC makers in return for not buying microprocessors made by AMD.

Shares of Intel were down 2 percent at $19.39 in afternoon trading on the Nasdaq.

The case is before the FTC. It is In the Matter of Intel Corporation, docket number 9341.

(Additional reporting by Gabriel Madway and Alexei Oreskovic; Editing by Ted Kerr, Tiffany Wu and Matthew Lewis)

Electronics FTC Intel