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Intel hit with antitrust suit
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June 8, 1998: 6:47 p.m. ET
FTC says chip giant abused monopoly power by withholding information
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NEW YORK (CNNfn) - The Federal Trade Commission Monday voted to file an antitrust suit against Intel Corp., accusing the semiconductor giant of abusing its monopoly power in the microprocessor market by withholding key information from certain customers and competitors.
In a widely expected move, the FTC commissioners voted 3-1 in a closed session to file the complaint.
William Baer, director of the FTC's bureau of competition, said the complaint seeks to stop Intel from using its dominance in the microprocessor market to withhold key information from companies that have legal disputes with Intel. [141K WAV] or [141K AIFF]
The FTC's complaint cites three companies in particular it claims Intel sought to harm: Digital Equipment Corp., Compaq Computer Corp., and Intergraph Corp.
"This is a powerful club Intel wields because it is a monopolist," Baer said. "These customers have no other alternative (than) the Intel microprocessors they use in their leading-edge systems."
Intel contended it is within its legal rights when it withholds technical information from other companies.
"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," Intel said in a statement.
Intel says suit won't affect business
Prior to news of the lawsuit, Intel President and Chief Executive Officer Craig Barrett said he did not think a lawsuit would hurt Intel's business.
"I don't think it will impact Intel's day to day business in any particular fashion," Barrett told CNNfn. "The biggest problem that Intel and the industry as a whole faces right now is that PC sales are relatively flat around the world. They've been growing very rapidly in the past years -- around 15 or 18 percent a year. But this year it's growing very slowly. I think that's the biggest problem Intel faces."
Barrett also said he did not believe the FTC would attempt to hinder Intel's ability to innovate its products. [227K WAV] or [227K AIFF]
But Spencer Waller, a professor at Brooklyn Law School, told CNNfn the commission could eventually file broader charges against the company. [316K WAV] or [316K AIFF]
Narrow focus
Indeed, the FTC's case is much narrower in scope than the antitrust suit filed by the Justice Department and 20 states against Microsoft Corp. Rather than condemning Intel's general business practices, the complaint cites actions against only three companies.
"(Intel) withdrew the how-to manual from three of its customers in a very selective, targeted fashion, simply to retaliate against these three companies because they refused to license their patents for rival technologies to Intel," Baer said.
"Intel deliberately sought to injure these companies in order to secure their technology."
Baer said the companies Intel sought to harm were developing products that could possibly compete with Intel's.
He specifically cited Digital's high-end Alpha chip, which Baer said is "widely regarded as one of the most high-performing microprocessors available, outperforming many of Intel's products."
Last year, Digital (DEC) sued Intel, claiming the company's Pentium, Pentium Pro and Pentium II chips infringed on certain patents related to Digital's Alpha chip.
"Intel responded not just by defending itself in court, but by cutting off technical information that Digital needed to design computers that use the Intel chips," Baer said. "(Intel) also demanded return of microprocessor prototypes and it refused to supply additional prototypes."
Last November, Intergraph filed a federal suit against Intel, claiming the chip giant tried to end the companies' multiyear relationship when it attempted to acquire the rights to Intergraph microprocessor patents at no cost.
Intergraph claimed Intel used "coercive tactics," including withholding vital information and technical support and delaying shipment of various Intergraph products, to obtain these patent rights.
In April, a federal judge granted Intergraph (INGR) a preliminary injunction against Intel, requiring the company to provide the necessary technical information.
The FTC's complaint also states Intel cut off information from Compaq (CPQ) after the computer maker refused to share its intellectual property rights for motherboards, the main circuit board of a computer.
The commission said Intel restored Compaq's access to technical information only after the company agreed to cross-license its patents with Intel.
Dominant player
The FTC said Intel's behavior warrants legal action because its chips run about 90 percent of the world's personal computers. The company boasts an 80 percent market share in worldwide chip sales, according to market research firm Dataquest.
"Intel became a success by competing its way to the top," Baer said. "Once there, it cannot change the rules of the game so that no one else has a shot."
Waller, who was an attorney with the Justice Department's antitrust division, said the FTC's case strength lies within Intel's dominant market position.
"When you have a firm that has the kind of share and power that Intel has, the way they behave changes competition in a way a smaller, less powerful firm wouldn't," he said.
Ironically, the FTC suit comes at a time when Intel is facing increasing competition from such companies as Advanced Micro Devices Inc. and National Semiconductor Inc., which make chips used in sub-$1,000 PCs.
"Today's decision by the FTC to file an administrative complaint is an attempt to assert a new legal theory under antitrust law," Intel said in its statement. "Although the key legal requirement of an antitrust claim is harm to competition, the FTC is unable to show harm to competition in any market."
The initial FTC lawsuit will be heard by an administrative law judge who, while independent, is an FTC employee.
A decision by the administrative law judge could be appealed to the full commission and then to a U.S. Court of Appeals. Intel has vowed that it will appeal all the way to the U.S. Supreme Court if necessary.
Baer needed three out of four commission members to approve his recommendation for antitrust charges.
Mary Azcuenaga, one of the FTC's five commissioners, left her post last Wednesday.
Commissioner Orson Swindle was the lone dissenting vote.
Shares of Intel (INTC) closed at 69-5/16, down 1/2. 
-- by staff writer John Frederick Moore
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