Intel now faces long awaited legal action from the US antitrust authority, the Federal Trade Commission - but many observers believe its market dominance is more likely to be cut back by healthy competition than by the authorities.
The suit hinges on allegations that, when Intel finds itself on the receiving end of legal action from a customer, it effectively cuts off the oxygen - by denying the litigant access to vital technical information for future product development, and sample chips.
The current FTC action centres on such alleged retaliation by Intel against Compaq, Digital and Intergraph, all of whom refused to license their technology to Intel.
The FTC has a professional staff of lawyers and economists split between the Bureau of Competition and the Bureau of Economics. They develop a case that then goes to the five politically appointed FTC commissioners for a decision as to whether the case should proceed.
Before launching the case, the FTC staff sifted through 250,000 Intel documents, and issued subpoenas against the three companies to compel them to give evidence. The vote on Intel was a 3:1 majority to proceed (there is one vacancy). Orson Swindle, the dissenting commissioner, said he found no reason to believe that Intel had broken the law, and suggested more research first. Commissioner Robert Pitofsky appears to have been the flag bearer against Intel.
Intel visited the FTC the week before it took action: apparently there would have been an opportunity to sign a consent decree, but Intel refused.
William Baer, director of the competition bureau, explained: "As a monopolist, Intel can compete by producing better, cheaper and more attractive products. It cannot act to cement its monopoly power by preventing other firms from challenging its dominance. Intel has acted illegally. It has used its monopoly power to impede innovation and stifle competition."
Baer also said that the only reasonable explanation for Intel's behaviour was "a desire to destroy its rivals".
Had Intel had less than 70 per cent of the market, defined by the FTC as general purpose microprocessors, it would not be a legally defined monopoly. With 80 per cent of that market, and 90 per cent of the narrower PC processor market, there is no legal doubt that Intel is a monopolist. The FTC says Intel abuses its dominant position in the current market, and intends to do the same in the future, as a result of its exclusionary conduct.
In 1994, Compaq sued Packard Bell for using Compaq patented technology in motherboards supplied by Intel. Intel intervened in the case, on Packard Bell's side, claiming it had a duty to protect its customer. As a consequence, Intel is accused of stopping the flow of technical information and chip samples to Compaq, sparking the PC maker to file an intellectual property case against Intel in 1995. Only when Compaq agreed to cross-license its patents did Intel agree to restore technical information and chip samples.
Digital filed a case against Intel in May last year. Intel had declared a "strategic emergency" when Digital's Alpha processor continued to outperform Intel's offerings. The case was settled out of court when Digital sold of its semiconductor business to Intel, a deal approved by the FTC in April. Although there was no legal judgement, the FTC says in its complaint that "Intel was using Digital microprocessor technology" in Pentium Pros.
Intergraph pioneered workstations using Intel processors with Windows NT. In 1987, it purchased Fairchild Industries' microprocessor division - best known for its Clipper processors. In 1996, Intel demanded a royalty free licence to the Clipper technology, which Intergraph refused. In November, Intergraph claims it found some of its patented technology inside Pentium processors and started a legal action against Intel. Intel then stopped providing the workstation maker with technical information and sample chips, with the result - according to Jim Meadlock, Intergraph's CEO - that "we went from number one to number three" in the Intel based workstation market.
Intel did not tell Intergraph about a bug in one of its chips, with the result that "Intergraph had to redesign, refabricate and retest an entire motherboard" (in the words of the FTC), resulting in a serious delay.
In April, Intergraph obtained a preliminary injunction from Judge Edwin Nelson in a federal court in Alabama, requiring Intel to restart the flow of technical information and chip samples. In an important section of the 80-page document, the judge cited "essential facilities" law.
The notion of an essential facility is best known from a case in St Louis in 1912, when 20 railway companies wanted access to the St Louis terminal via the same bridge across the River Mississippi. Some 15 companies bought the bridge, but denied access to the other companies. The court ruled that the bridge was an essential facility and that the owners could not deny access to the other companies. The owner of an essential facility is not allowed to use the monopoly for harming competitors that must rely on the essential facility.
Essential facilities arguments are now being actively discussed in legal circles with reference to the Microsoft antitrust case - the thought is that Windows should be declared to be an essential facility. Something similar could happen with Intel's processors.
The day after the FTC action, Intel filed an appeal in the federal court in Washington (a court that Microsoft has found sympathetic to its various appeals) against the preliminary injunction. Previously, Intel had unsuccessfully tried to get the case moved from Alabama to California. On 17 June, Intel filed a motion in the Alabama court asking for a summary judgement (a ruling by the judge, without trial), claiming "there is no genuine issue as to any material fact".
This is not the first time that the FTC has investigated Intel. From 1991 to 1993, allegations that Intel was squashing competition were investigated, but no charges resulted. The current FTC investigation started last September. Graphics chipmakers are also concerned at encroachment by Intel, and S3 is believed to have given information to the FTC.
Intel claimed the FTC complaint was "based on a mistaken interpretation of the law and the facts". Intel's legal argument, advanced by general counsel Thomas Dunlap, is that the FTC has moved into new waters and is unable to show Intel has caused harm to competitors, as distinct from customers. Dunlap claims that the FTC is arguing that Intel may not assert its intellectual property rights as a defence to an attack on its core microprocessor business.
Intel admitted that it was aware that the FTC is preparing a broader case against it. Baer indicated that it would probably take between four months and a year to resolve the present case.
The chip giant has until the end of June to respond, followed on 10 July by a hearing by an administrative law judge. The judge is actually an FTC employee. If the FTC wins, the proposed cease and desist order that the FTC wants is modest in its demands. The FTC can order no civil or criminal penalties for past actions, nor award damages, although if the FTC wins, any injured parties could start legal actions with a strengthened private case.
Should Intel at some future stage break a term of any order, the maximum fine is a paltry $5,000 per day - although the damage to Intel's image would be considerably more serious. If Intel loses, it could appeal first to the FTC commissioners, and then to a federal appeals court. Intel has indicated it would do this if necessary.
Intel has certainly proved that it can be a persistent litigant. In 1988, it started an action against HP because HP started to manufacture chips for ULSI. Intel won, then lost the appeal in the federal court, but the supreme court refused Intel's request to hear the case.
Nonetheless, Intel may settle the FTC case to remove the limelight. Craig Barrett, the new Intel CEO, has taken a less combative approach than his predecessor Andy Grove. Intel is no Microsoft, where a machismo attitude to antitrust is the order of the day. The chipmaker has made a point of ensuring that staff who interface with other companies are given a background in antitrust law.
The legal problem for the FTC is to prove that Intel tried to exclude competitors by hindering competitive efforts and discouraging their R&D. In this case, the competitors are all customers of Intel as well. Christine Varney, a former FTC commissioner, cautioned that characterising relationships as 'competitor' or 'customer' was too simplistic, and that there are undetermined legal issues.
Intel's real problems concern the evolving marketplace, delays to its Merced processor and doubts as to whether it will be able to dominate the graphics market with its new processors - rather than the FTC action. The demand for PCs is slowing, and there is a shift towards the lower end where Intel faces stronger competition - and lower prices - from AMD and Cyrix/National Semiconductor. This is already having the effect of stopping Intel's financial growth.
There is much less talk of Wintel today. The top PC makers - except Dell - are mostly using lower cost chips from Intel's rivals in some PCs. Internet access, and not which processor is used, has become paramount for most users, making 'Intel inside' yesterday's campaign.
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