The complaint also alleges that Dell received likely illegal payments from Intel for agreeing not to do business with Intel rival Advanced Micro Devices Inc, a claim that may or may not bolster AMD’s separate lawsuit against Intel.

The suit may well help AMD’s own suit against Intel, accusing it of illegally coercing customers away from AMD. Then again, it may turn out to be yet another case of the US litigation system gone awry.

The plaintiff lawyer in the suit against Dell and Intel, William Lerach of Lerach Coughlin Stoia Geller Rudman & Robbins LLP in San Diego, is notorious for antagonizing Silicon Valley tech firms with numerous shareholder lawsuits.

Lerach is known as a corporate harasser … he likes to harass companies that are on the ropes for one reason or another, said Roger Kay, a chip-industry observer for more than 30 years and president of Endpoint Technologies Associates Inc.

This guy goes after corporations because he can, not because his suits have any merit, Kay said. It’s the kind of thing that gives ammunition to the conservative Republicans’ view that the litigation business is way out of control in this country.

Lerach previously has represented Enron and WorldCom shareholders. Indeed, he has represented shareholders for scores of high-profile tech companies. The lawfirm already had a separate shareholder suit filed against Dell on part of its shareholders, following the launch of a federal investigation into the computer makers accounting practices last year.

The latest Dell shareholder suit was filed late last Wednesday, the same day that former Dell chief executive Kevin Rollins was replaced by the company’s founder Michael Dell. It was also the same day Dell reported its poor quarterly earnings, which missed Wall Street’s targets.

Last year, Rollin’s helped steer the company into losing the number one market spot, missing financial targets and a Federal investigation into its accounting practices, which is ongoing. Both Dell and Rollins are among 16 executives named in the shareholder suit.

However, Computer Business Review knew of industry rumors before Wednesday that Dell was planning to replace Rollins with Dell, so the timing of the lawsuit may indeed have been coincidental.

Lerach did not return calls for comment. An AMD spokesperson declined to comment on the suit, because on the company’s lawyers had not yet fully reviewed the 254-page document. Dell also declined to comment, citing company policy regarding active litigation.

Kay said he was not alleging innocence or guilt by any of the parties involved. But the shades of grey are a lot less distinct than people might think, he said.

Lerach’s suit filed on behalf of Dell shareholders alleges that by failing to disclose marketing and other kick-backs worth as much as $1bn from its main chip supplier Intel it defrauding shareholders and inflated Dell’s share price.

Dell, Intel and their accountant PricewaterhouseCoopers LLC are accused of making false financial statements and scheming to deceive Dell’s shareholders with misconduct involves one of the largest insider trading ‘pump-and-dumps’ in history, according to the suit.

Intel has been accused, mostly by AMD, for giving secret rebates to its customers if they promised to buy chips only from Intel. The Dell shareholder suit noted that in March 2005, Japanese antitrust authorities investigated allegations that Intel had been illegally paying hundreds of millions of dollars in these kinds of rebates to Dell and others. Intel has not been found of any wrongdoing to date.

The Dell shareholder suit also makes prolific reference to AMD’s antitrust suit against Intel.

Intel spokesperson Chuck Mulloy said the company had conducted a preliminary review of the complaint. At first glance, it appears that some of the allegations with respect to Intel appear to have been completely made up, he said. While the plaintiff rehashes antitrust regulations from another case, there is no antitrust claim in this lawsuit.

The shareholder suit also alleges that Intel had been contacted by the US federal authorities, including the Department of Justice, which is investigating some of Dell’s accounting methods, about Dell, a claim Mulloy denied.

At the heart of the shareholder suit’s allegations is a common practice in the semiconductor industry known as market development funds, or MDFs, which are back-end payments made in relation to marketing expenditures that the OEMs make on behalf of their suppliers.

Intel became a household name because of these types of arrangements, with its logo and corporate tune being featured at the end of TV and other advertisements from PC makers like Dell.

MDFs are paid as a percentage rebate of an OEM’s chip orders. In other words, a percentage of the dollar value of chips that you order with Intel is to be considered usable as marketing dollars, and you are offered a discount accordingly.

This is a common discount practiced used throughout the semiconductor industry, by both Intel and AMD, Kay said. The reason being is that chip factors are enormously expensive to built, or about $3bn, and must be running at close to full capacity in order for chipmakers to recoup their investment. They are highly motivated to commit to volumes, Kay said.

While OEMs may commit up front to buying say a year’s worth of chips, they only receive this discount once they begin actually hitting volume targets.

For instance, in the first quarter of a year-long deal, the OEM may order only a small number of units, say 1 million, and because it’s a small order would not be eligible for a discount from the chipmaker. But by the next quarter, as the OEM starts building more PCs, it may order 8 million chips, and be eligible for a volume discount that means it will be charged just 60% of the order, for example.

The kicker is that these discounts are not recorded on the order invoice from the chipmaker. Rather, they are received as rebate checks. So, in the above scenario, the OEM would be involved for 100% of both quarters’ orders, but receive a 40% rebate check for its second-quarter order.

Now, because OEMs often find their backs to the walls at certain moments in the PC market, where they may be clearing no more than $1 a unit after costs, often they don’t make any money until the rebate checks from the chipmakers come in, Kay said. A lot of OEMs are pretty well addicted to this stuff, he said And, you know, that’s become the norm in the industry.

However, the shareholders’ and AMD’s complaint against Intel allege that Intel used these agreements to force OEMs to not do business with AMD. Intel has previously said this is not the case.

Of course, Dell was famously an Intel-only shop until recently, when it began selling AMD-based machines. Some pundits have noted that Dell only began shipping AMD systems following AMD filing its lawsuit against Intel last June.

AMD’s suit against Intel involves a huge amount of discovery documentation, unprecedented in US legal history. As such, the case is not expected to go to trial until 2009.

However, Dell is not the only OEM to have a history of buying chips exclusively from Intel, Kay said. Toshiba Corp has long been an Intel-only OEM, and continues to be. But they’re not already bleeding from multiple wounds like Dell, he said.

Kay said Lerach was mostly enriching himself by going after a relatively easy target like Dell. He also noted that many shareholder suits from Lerach are settled out of court, whereby no wrongdoing is admitted. Mostly he’s enriching himself by garnering sizeable legal fees, Kay said.