WASHINGTON -- The federal government today sued Intel Corp. (INTC) to stop the dominant chipmaker from bullying computer manufacturers and beating down competition and innovation.
The Federal Trade Commission's top litigator, William Baer, said Intel withheld key technical information from Digital Equipment Corp. (DEC), Intergraph Corp. (INGR), and Compaq Computer Corp. (CPQ). He said Intel forced the leading computer-makers to share valuable patents they held that could otherwise have led to the development of competing microprocessors.
"If Intel can use its monopoly position in the market for microprocessors to prevent other firms from enforcing their own patents, other firms will have little incentive to invent new features to challenge Intel's dominance," Baer said.
Baer told a news conference that he wanted an order preventing Intel "from repeating this conduct in the future."
Concluding an eight-month investigation, the FTC determined that Intel's dominant market share -- the company's microprocessors can be found inside about 90 percent of personal computers -- constituted a monopoly and subjected the company's conduct to heightened scrutiny under US antitrust laws.
In response, Intel said the FTC's complaint is based upon a mistaken interpretation of the law and the facts, and contends that the suit is an attempt to assert a new legal theory under antitrust law.
"For years Intel has shared its intellectual property and early samples of its products with a number of key customers," Intel's vice president and general counsel, F. Thomas Dunlap, said in a statement. "At the same time, for more than 10 years, Intel has taken unprecedented steps to ensure that all of our activities and policies are in full compliance with existing law. The commission's decision today signals that they want to change the very laws upon which we've based our policies."
Intergraph applauded the suit.
"It is reassuring that FTC investigators apparently believe our concerns reflect a broad threat to the computer industry," the company said in a statement. "However, our lawsuit stands on its own and is the first time, as far as we know, that Intel has been accused of abusive behavior, antitrust violations, and patent infringement all in one suit. We expect to win our case, either through trial or settlement, regardless of the FTC's actions."
The complaint is an internal FTC action which goes first to an FTC administrative law judge for trial. It could take a year or more for the case to be heard. The hearing could be followed by an appeal to the five-member commission, and from there to a federal appeals court.
Intel said it would appeal.
The lawsuit comes at a time when Intel is going through one of its toughest times in more than a decade. The company's profit margins are under pressure from tumbling PC prices and it has been forced to cut prices more often in a cutthroat PC market. It has announced plans to eliminate 3,000 jobs through attrition and layoffs, its biggest job cut in more than a decade.
The chipmaker has also been pressured by smaller competitors. Dark-horse rival Advanced Micro Devices (AMD) is now powering PCs made by Compaq and IBM (IBM). And Packard Bell NEC, the world's fourth-largest computer-maker, recently introduced new PCs using chips made by National Semiconductor's (NSM) Cyrix unit.
In preparing its case, FTC staff has looked at the company's relationship with Intergraph, and its sometimes convoluted relations with other computer-makers.
In March, a federal judge ruled that Intel used life-and-death market power to block information and enabling technology that Intergraph needed to stay in business.
"We didn't have advance information to design before the [Intel] product was released, and they would find various excuses for late delivery," Intergraph CEO Jim Meadlock recently told Dow Jones. Without the chips, he said, Intergraph couldn't effectively compete against other PC workstation manufacturers. And chips made by Intel's competitors weren't powerful enough to run Intergraph machines.
The judge issued a preliminary injunction ordering Intel to provide the same kind of service to Intergraph it provides to other customers. Intel followed the order but appealed. The FTC weighed that decision and Intel's similar action against computer-equipment maker Digital Equipment Corp. and decided to proceed.
Intel officials have previously acknowledged in other cases that the company has refused to share product information but argued that such practices are perfectly legal. The company's success and size, they contend, doesn't strip it of its intellectual property rights.
Intel has argued it has a right to stop giving advance proprietary information to customers on its latest products if they refuse to share their intellectual property in return.
The government has now moved against both halves of the Wintel combination. Last month, the Justice Department and 20 states filed a major antitrust action against Microsoft, whose Windows operating system, along with Intel's microprocessors, dominate the personal-computer market. The Intel case, however, would appear to be far more cut-and-dried than the Microsoft action.
The broad arguments in the case against Microsoft and Intel are similar. But there are some important differences between the Justice Department and the FTC, the two agencies charged with enforcing the nation's antitrust laws.
The FTC may have a bigger legal club than the Justice Department. The law which created the FTC is subtly more powerful than the Sherman Antitrust Act under which the Justice Department sued Microsoft.
The FTC is also looking at Intel's intervention in a 1995 lawsuit Compaq filed against rival PC-maker Packard Bell. Intel came to the aid of Packard Bell, signaling to Compaq, that if it sues Packard Bell, it was also suing Intel.
