FTC Suit Challenges Intel's Domination of Chip Market

The Federal Trade Commission filed suit today against Intel Corp., charging the chip maker with using its dominant market position to illegally stifle competition.

It's the latest antitrust blow to Intel, which has already shelled out $2.7 billion this year in connection with cases brought by European regulators and Advanced Micro Devices. The company also faces an antitrust suit brought by the attorney general of New York.

At a press conference, FTC Bureau of Competition Director Richard Feinstein said Intel's anticompetitive conduct stretches back 10 years. "At each stage when Intel's dominance has been threatened, they have responded not by simply competing aggressively on the merits, but with conduct that is exclusionary and detrimental to competition and consumers.”

In its administrative complaint, the FTC charges Intel with violating Section 5 of the Federal Trade Commission Act. The agency alleges that Intel used illegal threats and rewards to coerce the world’s biggest computer makers not to buy chips made by rivals, and secretly redesigned key software, known as a compiler, in a way that deliberately stunted the performance of competitors’ CPU chips.

The FTC complaint also focuses on the market for graphics processing units, or GPUs. The complaint alleges that Intel’s unfair methods of competition could allow it to extend its monopoly to this market – allegations that have not been raised in other antitrust suits against Intel, said Feinstein.

In May, the European Commission fined Intel a record $1.45 billion for anticompetitive behavior. And last month, Intel paid rival AMD $1.25 billion to settle long-running antitrust and patent suits.

The FTC is not seeking monetary penalties or divestitures. Instead, it wants to force Intel to change its conduct, with remedies ranging from how its products are priced to limits on the company’s ability to bundle products to requiring corrections of deceptive statements it has made in the past.

Intel’s new general counsel, A. Douglas Melamed, who was a partner at Wilmer Cutler Pickering Hale and Dorr until last month, said in a statement, “This case could have, and should have, been settled. Settlement talks had progressed very far but stalled when the FTC insisted on unprecedented remedies -- including the restrictions on lawful price competition and enforcement of intellectual property rights set forth in the complaint -- that would make it impossible for Intel to conduct business."

Feinstein said he expects the FTC case to go to trial before an administrative law judge in September, and that an initial decision could come as soon as a year from now.

Intel’s Melamed knows first hand what the company is in for. In private practice, he represented chip designed Rambus Inc. in a comparable FTC case – one that illustrates the pitfalls of administrative litigation where agency commissioners can overrule the trial judge.

In Rambus’s case, FTC administrative law judge Stephen McGuire in 2004 issued a 334 page decision that found the company did not illegally monopolize crucial chip technologies. But the FTC commissioners rejected the judge’s findings and ruled the company did. Rambus appealed to the U.S. Court of Appeals for the D.C. Circuit, and in 2008- after six years of litigation with the FTC - the court overturned the commissioners’ decision.

Intel’s lead outside counsel for antitrust cases has been Robert Cooper, a partner in the Los Angeles office of Gibson, Dunn & Crutcher. He could not be immediately reached for comment.

The FTC commissioners voted 3-0 to bring the case, with Commissioner William Kovacic recused, and Commissioner Thomas Rosch issuing a separate statement dissenting in part.

Comments

[Poker-chip-cases]

I want to thank the blogger very a good deal not only for this post but also for his all preceding hard work. ...

[Medline Scrubs]

A classic case of tall poppy syndrome if I ever saw one. Intel is a market leader for good reason, superior r & d, superior technology and superior marketing.

Plus, I guess the fact that they are cashed up makes them an easy target. Much like another company that always seems to be caught up in anti-trust suits.

When did capitalism become socialism? What happened to 'survival of the fittest' and 'may the best man win' or dare I say it...'outwit, outplay and outlast'?

[Dr. Gene Nelson]

Computer prices would likely fall faster if Intel did not engage in predatory practices that have also led to the failure of many innovative semiconductor firms.

As a computer consultant, I make a point of recommending competing processor families because Intel is so greedy. A former Intel employee, Ken Hamadi created a website that helps to document how Intel treats its workforce like "disposable workers." http://faceintel.com/

One of the big problems is Intel's abuse of the controversial H-1B Visa program to systematically exclude most experienced American citizen technical professionals from working for them. http://www.myvisajobs.com/Search_Visa_Sponsor.aspx?N=Intel%20Corporation shows that Intel applied for an astonishing 6,311 H-1B Visas between 2000 and 2009. H-1B Visas give employers like Intel access to "fresh young (inexpensive, indentured, and imported) blood" - to boost their profits.

[RJMartone]

I distinctly remember Intel practicing what some called "predatory" practices as far back as the late 70's when Texas Instruments introduced what was then an industry leading (16 bit!) microprocessor which blew away the 8 bit products from Intel, RCA or Zilog. Intel quietly twisted arms by "packaging" peripheral chips and crushed TI's chances for capturing designs. Anybody seen a TI microprocessor in a PC lately?
BTW, PC's are cheap because of advances in semiconductor design (from other semi manufacturers, not just Intel) and efficiencies of scale in production driving prices lower. Intel has laughed all the way to the bank with the lion's share of the processor market. I'm not a socialist, I just have a good memory, sir.

[Murray Scheck]

I fail to see thje validity of this FTC charge, except to realize we have a Socialistic Government.
20 years I bought a PC for $8,000.
Every Computer i bought since then has been less expensive but with more features and efficiency.
I am now looking at a new computer from Dell or HP. At $1,600 it's the state of the art.and both companies will let me choose the CPU, ( AMD or Intel ) of my choice.
THE FTC IS AN ARM OF THE SOCIALISTS, NOT A CONSUMER PROTECTIVE ORGANIZATION !