U.S. FTC files antitrust suit against Intel

The U.S. Federal Trade Commission has filed an antitrust-related lawsuit against Intel Corp., charging the world’s largest computer chip maker with illegally using its dominant market position to stifle competition and strengthen its monopoly for a decade.


The FTC alleged that Intel has waged a “systematic campaign” to cut off rivals’ access to the marketplace. Intel deprived consumers of choice and innovation in the microchip industry, the FTC alleged.


The FTC’s complaint is an effort to create “new rules for regulating and micro-managing business conduct,” Intel senior vice president and general counsel Doug Melamed said during a press conference.


Instead of filing a traditional antitrust complaint, the FTC alleged that Intel has violated Section 5 of the FTC Act prohibiting unfair methods of competition. The decision to file an FTC Act complaint, which covers more ground than an antitrust complaint, ignores decades of established antitrust guidance, Melamed said.


“Put simply, Intel has not violated the law,” he added. “We have been sued today because we were not willing to agree to demands that would have been bad for our company, bad for the computer industry, and bad for consumers.”


The FTC’s decision to move forward with a case against Intel comes just a month after Intel settled antitrust and patent disputes with rival Advanced Micro Devices. Intel agreed to pay AMD US$1.25 billion in the settlement.


Intel’s tactics were designed to “put the brakes” on superior products from competitors, the FTC said. Intel’s efforts have denied microchip customers access to potentially superior products and lower prices, the FTC’s complaint said.


“Intel has engaged in a deliberate campaign to hamstring competitive threats to its monopoly,” Richard Feinstein, director of the FTC’s Bureau of Competition, said in a statement. “It’s been running roughshod over the principles of fair play and the laws protecting competition on the merits. The commission’s action today seeks to remedy the damage that Intel has done to competition, innovation, and, ultimately, the American consumer.”


Intel, in a statement, disputed the FTC’s allegations. “Intel has competed fairly and lawfully,” the statement said. “Its actions have benefitted consumers. The highly competitive microprocessor industry, of which Intel is a key part, has kept innovation robust and prices declining at a faster rate than any other industry.”


Intel called the FTC case “misguided,” and said the complaint was based largely on claims the FTC added “at the last minute.” The complaint is “explicitly not based on existing law but is instead intended to make new rules for regulating business conduct,” Intel said. “These new rules would harm consumers by reducing innovation and raising prices.”


The case should have been settled, and settlement talks had progressed “very far but stalled when the FTC insisted on unprecedented remedies,” Melamed, said in a statement.


Parts of the FTC complaint weren’t brought to Intel’s attention until Dec. 8, and were not fully investigated by the agency, Melamed said. “It is obvious from the complaint that the FTC does not understand important aspects of the computer industry,” he added. “The FTC asks for remedies that would have made it impossible for Intel to conduct its legitimate business.”


The FTC will not seek monetary penalties in the case, but instead will push for changes in Intel’s competitive conduct, the FTC’s Feinstein said during a press conference. Possible remedies include changes in how Intel prices its products, limitations on bundling products, and possibly sharing intellectual property, he said.


Monetary damages weren’t a top priority because the European Union has brought a case against Intel seeking monetary damages, and New York state Attorney General Andrew Cuomo’s investigation of Intel, launched in early 2008, could include monetary damages, Feinstein said. The AMD settlement also included a “substantial payment,” he said.


“I don’t think it was essential that the FTC seek additional monetary relief,” Feinstein said. “We are really more focused on addressing the conduct and restoring robust competition.”


AMD cheered the decision. “The FTC’s action against Intel is good news for consumers. It is yet another example of regulators around the globe acting to protect consumers by enforcing competition laws,” AMD said in a statement.


The FTC complaint comes after “a multiyear investigation, extensive discussions within the commission and multiple meetings with Intel” and other interested parties, Commissioners Jon Leibowitz and J. Thomas Rosch said in a joint statement.


“Broadly speaking, the complaint alleges that Intel fell behind in the race for technological superiority in a number of markets and resorted to a wide range of anticompetitive conduct, including deception and coercion, to stall competitors until it could catch up,” the joint statement said. “If the allegations in the complaint are true, Intel’s actions over a period of years and continuing up until today have diminished competition and harmed consumers.”


The FTC’s complaint, tentatively scheduled to be heard by an FTC administrative judge on Sept. 8 next year, alleges that Intel used threats and rewards with the world’s largest computer makers, including Dell, Hewlett-Packard and IBM, in an effort to “coerce” them not to buy rival CPU chips.


Intel used several tactics to keep computer makers from using rival CPUs, the FTC complaint said. The company threatened to increase prices, end technology collaborations, shut off supply and reduce marketing support to manufacturers that purchased too many products from Intel’s competitors, the complaint said.


Manufacturers that purchased nearly all their CPUs from Intel received guarantees of supply during shortages, indemnification from intellectual property lawsuits and extra money to be used in bids against vendors offering non-Intel products, the complaint said.


Intel also offered volume discounts selectively to manufacturers, and it redesigned its compiler and library software in about 2003 to reduce the performance of computing CPUs, the FTC said.


Intel also paid or otherwise induced suppliers of complementary software and hardware products to eliminate or limit their support of non-Intel CPU products, and the company “misled ” the public about the effects of its redesigned compiler on rival’s CPUs and on industry benchmarks reflecting the performance of its CPUs compared to those of rivals, the FTC said.


Intel, now faced with falling behind the competition in the graphics processing unit, or GPU market, has recently tried to smother potential competition from GPU chips made by Nvidia, the FTC complaint said.


The FTC has charged Intel with violating Section 5 of the FTC Act, which is broader than the antitrust laws and prohibits unfair methods of competition, and deceptive acts and practices in commerce. The complaint also alleges that Intel engaged in illegal monopolization, attempted monopolization and monopoly maintenance, also in violation of Section 5 of the FTC Act.


The FTC is seeking an order that would prevent Intel from using threats, bundled prices, or other offers to encourage exclusive deals, hamper competition, or unfairly manipulate the prices of its CPU or GPU chips.


The agency also wants to prohibit Intel from “manufacturing or distributing computer software, hardware, or other products that impair the performance, or apparent performance, of non-Intel microprocessors or GPUs,” according to the complaint.


Intel objected to that language. “What that says, as I understand, is that we can’t invent a better product if it somehow harms a competitor,” Melamed said.

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