Anti-trust Concerns: It's Intel's Turn

Earlier this month, the Federal Trade Commission (FTC) charged Intel Corp. with using its monopoly power to attempt to dominate the microprocessor market. The FTC claims that Intel illegally used its dominant position to deny continued access to Intel microprocessor technical information to Digital Equipment Corp., Intergraph Corp. and Compaq Computer Corp. The FTC's position is that Intel took these steps to punish the three companies because the companies refused to license patents that covers their own microprocessor and related technologies on Intel's terms.

"As a monopolist, Intel can compete by producing better, cheaper and more attractive products," states William J. Baer, director of the FTC's bureau of competition, in a related document on the FTC's Web site. "It cannot act to cement its monopoly power by preventing other firms from challenging its dominance."

According to Intel's internal market analyses, sales of Intel microprocessors have accounted for nearly 80 percent of the total dollar sales of general-purpose microprocessors worldwide. Intel has often promoted its microprocessors by providing customers such as Digital, Intergraph and Compaq with advance technical information. The FTC complaint charges that Intel has used its dominance to terminate or threaten to terminate this relationship with the companies.

The FTC claims that Intel's actions were designed to injure the customer companies until those companies surrendered the patent licenses that Intel desired. This has hurt the sales and profitability of the targeted companies, says the FTC, and threatens to have a long-term impact on their business.

July 10 is the posted date for a hearing. The FTC is seeking a notice of contemplated relief, which would prevent Intel from using future threats of discontinued access to Intel technical information to force customers to license their intellectual property to Intel.

This action by the FTC is a "complaint," which the commission issues when it has "reason to believe" that the law has been or is being violated and that a proceeding is in the public interest. In its official complaint, found on its Web site at http://www.ftc.gov/os/9806/intelfin.cmp.htm, the FTC spells out specific concerns about Intel's conduct toward Digital and its Alpha processor, Intergraph and its Clipper microprocessor technology, and Compaq and its intellectual property suit against Packard Bell Electronics Inc. The complaint states that Intel has engaged in "exclusionary conduct."

Earlier this spring, in an examination of Intel's acquisition of Digital's microprocessor assets, the FTC proposed an agreement that would ensure alternative sources of supply of Digital's Alpha chip in order to avoid anti-trust violations.

In a statement on its Web site, Intel says it believes the FTC's complaint is "based upon a mistaken interpretation of the law and the facts." Intel argues that the FTC is changing its laws and insisting that a company with market dominance "cannot use its intellectual property rights even against a company that threatens its core business, and even when there is no harm to competition." Intel says that it plans to work through the complaint process and will appeal to federal court if it feels that is necessary.

The FTC complaint states that "Intel's conduct had a significant adverse effect on the ability of the targeted customer to develop and bring to market in a timely manner computer systems based on Intel microprocessors."

Because of the Federal Trade Commission Act, which prohibits unfair methods of competition, the FTC has jurisdiction over filing this complaint, as opposed to the Department of Justice, which is filing its complaint against Microsoft Corp. on the basis of the Sherman Antitrust Act. According to William E. Kovacic, professor of law and teacher of anti-trust law at George Mason School of Law (Arlington, Va.), the FTC Act covers any behavior prohibited by any other anti-trust laws. In addition, the FTC can go beyond existing anti-trust laws and create new principles of law, says Kovacic.

Kovacic observes that although the FTC has a reasonable case, it does not seem likely to succeed. The FTC has three basic challenges, he says: It must show that Intel is monopolistic, that Intel's behavior damaged competition, and that Intel did not have legitimate justification to act as it did toward Digital, Intergraph and Compaq by withholding technical information. "If Intel punches factual holes in any of these three arguments, it wins," says Kovacic.

"The FTC has an uphill climb," agrees Hillard Sterling of Gordon & Glickson (Chicago), a litigator focusing on IT cases and specializing in the anti-trust area. "Unlike the DOJ's case against Microsoft, there are significant hurdles [in the FTC-Intel complaint] that the FTC seems unlikely to clear." To prove anti-competitive behavior, explains Sterling, the FTC must prove that Intel has the power to control pricing or exclude competition, as well as provide evidence that Digital, Intergraph and Compaq were unable to produce competitive microprocessors because of Intel's actions.

Sterling points out that he was surprised at the apparent weakness of the FTC's argument. In the complaint, the FTC describes what appears to Sterling to be typical competitive behavior. "The FTC has not shown any smoking guns," he says.