The Federal Trade Commission on Monday charged Intel Corp., the world’s largest maker of the microchips vital to personal computers, with abusing its monopoly power to punish companies that refused to license their inventions to the high-tech giant.
In a 3-1 vote, FTC commissioners decided to file an administrative complaint against the Santa Clara, Calif.-based chipmaker for alleged anti-competitive behavior toward three corporate customers: Digital Equipment Corp., based in Maynard, Mass.; Compaq Computer Corp., in Houston; and Intergraph Co. in Huntsville, Ala.
William Baer, director of the FTC’s Bureau of Competition, said Intel sought permission from the three companies to use their microchip technology that competed with its own. When the customers declined, the FTC charged, Intel responded by withholding what amounted to the “how-to manual” on Intel’s latest microprocessors. That technical information was essential for businesses trying to design products that could be most efficiently used with Intel’s chips, Baer said.
“Our complaint alleges that Intel terminated this relationship, it withdrew the how-to manual from three of its customers in a very selected and targeted fashion simply to retaliate. . .,” Baer said. “Intel deliberately sought to injure these companies in order to secure their technology.
“This is a powerful club Intel wields, because it’s a monopolist,” Baer said. “These customers of Intel have no other alternative for the Intel microprocessors they use in their leading-edge equipment. Industry analysts estimate that Intel has about 85 percent of the world market for microprocessors.
“If firms cannot protect their patented innovations from Intel, then they won’t want to innovate in the first place,” Baer continued. “And the competition that led to the successful computer industry we have today will dry up. That’s why the commission is bringing this case.”
Intel, in a statement, said its activities were in “full compliance with existing law.”
The FTC complaint placed Intel in a legal entanglement similar to that facing its large technology partner, Microsoft Corp., of Redmond, Wash.
The Justice Department has sued the software giant in federal court, alleging anti-competitive practices related to its Internet browser software. Microsoft bundles that software with its Windows operating system, which runs on more than 90 percent of personal computers.
The FTC action is not a lawsuit but rather an administrative proceeding that will be heard before an FTC administrative law judge. If Intel loses before the judge, it can appeal to the full commission and, if it loses there, to a federal appeals court.
The action was brought under the Federal Trade Commission Act that covers behavior that would not necessarily violate the Sherman Act, which gives the Justice Department its power in antitrust matters.
Under the Sherman Act, the Justice Department can seek triple damages, divestiture and even criminal penalties, said Stephen Axinn, an antitrust expert with the New York City law firm of Axinn, Veltrop & Harkrider. If the FTC wins, it could stop Intel from the disputed practice.
Many legal experts and industry analysts said they thought the FTC might have trouble winning its case because existing case law seems to support Intel.
“The issue here which makes lawyers think it’s flawed is we’ve got some very well-known precedents in this country which say, essentially, that even a monopolist does not have to predisclose his inventions to other people,” said Axinn. “Intel will certainly defend itself by saying, `The reason people want Pentium chips is because they’re better, and we’re entitled to control who gets them.’ They’re going to fight like hell over this, I’m sure.”
“I can see the antitrust angle here,” said Luke Froeb, an associate professor at Vanderbilt University’s Owen Graduate School of Management and a former economist in the Justice Department’s antitrust division. “There’s an old (saying), `It’s OK to be a monopolist. It’s just not OK to behave like one.’ If you use your market power to leverage unrelated areas, you’re probably going to run afoul of the law.”
“The commission’s decision today signals that they want to change the very laws upon which we’ve based our policies,” said F. Thomas Dunlap, Intel vice president and general counsel, in a statement released by the company. “For years Intel has shared its intellectual property and early samples of its products with a number of key customers. . . . For more than 10 years, Intel has taken unprecedented steps to ensure that all of our activities and policies are in full compliance with existing law.”
The Intel statement continued: “By its administrative complaint, the commission apparently questions whether Intel has the legal right to assert its intellectual property rights as a defense to an attack on its core microprocessor business. . . .”
The case is not Intel’s only problem: Industry analysts said they were more concerned with the sluggish personal computer market, price cuts, pressures on profits and some losses in Intel’s dominant market share.
“This company has gone from being in absolute control 18 months ago to what appears to be a free-for-all in the microprocessor market right now,” said Drew Peck, a Cowen & Co. analyst. “Intel is really facing increased competition, and that competition is not likely to abate in the next couple of years. . . . This is the least of their concerns right now.”
