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FTC brings more accusations against Intel

March 3, 1999
Web posted at: 8:22 a.m. EST (1322 GMT)

by James Niccolai

(IDG) -- In court filings made public, the U.S. Federal Trade Commission enlarged its antitrust complaint against Intel by charging that the chip maker stifled PC makers' attempts to differentiate their products.

The new allegation doesn't broadly expand the FTC's case, as speculation had suggested, but it is one more point the commission can offer to the administrative law judge who is overseeing the case. The judge will decide whether Intel's actions harmed competition.

The government made the new allegation in a pretrial brief filed with the court last week. But Intel's pretrial brief, also released Monday, claimed that even the FTC's own expert economic witness found no evidence that Intel reduced competition or harmed innovation in the microprocessor market.

The trial is scheduled to begin March 9.

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In its original complaint, the FTC said Intel harmed competition when it stopped providing samples of upcoming processors to three companies that rely on them to build Intel-based systems: Compaq, Digital Equipment (acquired by Compaq last year) and Intergraph.

The FTC claims Intel denied the companies the samples in order to force them to license some of their own microprocessor patents on terms favorable to Intel. This harmed competition because companies were less likely to develop new microprocessor technologies for fear they, too, would be coerced into cross-licensing deals with Intel, the FTC contends.

In another incident, Intel persuaded Compaq to drop a patent infringement claim against Packard Bell by threatening to cut off the supply of Intel chips Compaq needed to build PCs, the FTC alleges.

The FTC's 50-page brief also elaborates in its argument that Intel is a monopoly.

Key questions

Experts say that the hardball tactics of which the FTC accuses Intel -- most of which even Intel does not contest -- are not illegal if used by a smaller company. The FTC must show that Intel is a monopoly and thus its behavior is subject to stricter antitrust standards.

Intel's brief cites testimony from the FTC's own economics expert, Frederic Scherer, who acknowledged under attorneys' questioning that he found "no direct evidence" that Intel's actions harmed innovation or price competition in the PC chip business.

Intel offers statements from senior staff at IBM, Compaq, Motorola, Sun Microsystems, Hewlett-Packard, and others saying they did not curtail their research and development of new PC chip technologies because of Intel.

The accusation that Intel prevented OEMs from differentiating their products was first raised by archrival Advanced Micro Devices in a 1997 government regulatory filing, Intel's brief notes. Intel rejected the "AMD-manufactured claim" as a "bizarre theory" that can be discredited by evidence.

If the FTC can't prove Intel harmed competition, its complaint comes down to "subjective notions of 'fairness,'" Intel said in its brief.