WASHINGTON -- The federal government charges that Intel used its dominance in making computer chips to stifle competitors and new technologies in an antitrust trial scheduled to begin Tuesday.
The case brought by the US Federal Trade Commission is the government's second front in its antitrust war against the companies that dominate the personal computer industry -- the so-called "Wintel" duopoly.
A case brought by the Justice Department and 19 states against Microsoft recessed last month but is to resume again in April or May.
FTC staff lawyers argue that Intel is such a force that it sets the hardware standards everyone else must follow, and the company wants to keep things that way.
Intel forces customers to surrender their intellectual property and rolls the innovations into its Pentium chip to stay far ahead of potential competition, the government alleges. That violates antitrust laws that bar a company from using monopoly power to preserve or extend its monopoly.
Intel disagrees. In its pretrial brief it argues there is "overwhelming evidence that competition is thriving" and that the chip industry is aggressively pursuing new technologies.
FTC Administrative Law Judge James Timony will preside over the trial, expected to last from six to 10 weeks. His decision may be appealed to the four FTC commissioners and then to a federal appeals court.
The FTC staff will argue, as it did in a pretrial brief, that Intel "coerced major, established customers into granting access to their technology on terms favorable to Intel."
Those customers are Intergraph, a maker of high-end computers for graphics, Compaq Computer, the largest maker of personal computers in the world, and Digital Equipment, which owned the high-speed "Alpha" chip that competed with Intel. Digital has since been acquired by Compaq.
Intel is taking a different tack to the government charges from Microsoft. The software giant denied every allegation, only to see its witnesses subjected to withering cross-examinations that opened credibility gaps in their testimony
For example, Microsoft and its witnesses denied the company's Windows operating system software was a monopoly, despite a 90 percent market share. Intel is hedging its bets.
Although Intel's pretrial brief denies the company holds monopoly power, its chief economic witness, Carl Shapiro, is flexible on the question. Shapiro cheerfully says one can concede that Intel holds monopoly power but it makes no difference.
"Where is the problem?" asks Shapiro, a University of California at Berkeley professor who was the top economist for the Justice Department's antitrust division.
Shapiro argues that key Intel competitors, among them Advanced Micro Devices and National Semiconductor's Cyrix, were "wholly unaffected" by Intel's actions.
In fact, a report by PC Data of Reston, Virginia, showed that AMD sold more PC processor units at retail in January than did Intel -- the first time ever -- although Intel remains dominant in the far more profitable high-end market.
But the government is convinced that competition was damaged. Its first witness is James Meadlock, chairman and chief executive officer of Intergraph, of Huntsville, Alabama.
Meadlock will testify that he was wooed by Intel chief Andrew Grove, who wanted to enter the high-end graphics market that was Intergraph's specialty as a computer maker. Meadlock says Grove promised complete support if Intergraph would switch from its costly proprietary chips to Intel. Meadlock agreed.
Things worked fine until early 1996, when it turned out that Intel's newly minted Pentium chip used some of Intergraph's patented technology, Meadlock says.
"They tried to get us to sign away our rights," bristled Meadlock, who just said "no." Intel retaliated.
Compaq and its Digital unit have similar stories about their intellectual property. The stories converge on Intel's form of retaliation: Intel began withholding information.
Intel argues it simply matched the decision of these companies to withhold free use of intellectual property.
But Compaq and Intergraph say the situations are not comparable. They argue that they wanted to protect their intellectual property from poaching, while Intel delayed delivery of instruction manuals and samples the companies needed to prepare their newest computers. In the fast-moving computer industry, information delayed was information denied.
The Intel delays made the companies late to market, killing sales and profits in a business where product cycles are sometimes a scant six months. Meadlock says his company lost millions of dollars as a result.
The FTC staff argues such tactics help preserve Intel's dominance by allowing it to suck up technology advances, so competitors cannot get a toehold. The government says the research and development costs of others end up in the pocket of Intel, discouraging companies from engaging in research that could launch them as competitors.
"Intel illegitimately preserved its monopoly power," argues the government. Not so, says Intel.
"Complaint counsel are still unable to identify any harm to competition," replies the company.
Copyright© 1999 Reuters Limited.
