US FTC says Intel curbed PC differentiation

In court filings made public today, the US Federal Trade Commission enlarged its antitrust complaint against Intel by charging that the chip maker's actions stifled attempts by PC makers to differentiate their products.

While the new allegation doesn't expand the FTC's case to the extent some press reports speculated it would, it provides the commission with one more avenue by which to try and convince the administrative law judge overseeing the case that Intel's actions harmed competition.

The new allegation is spelled out in a pre-trial brief filed with the court last week. But in its own pre-trial brief, also publicly released today, Intel claimed that even the FTC's own expert economic witness can't find evidence that Intel reduced competition or harmed innovation in the microprocessor market.

The trial for the case is scheduled to begin March 9.

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

Intel denied them the samples, according to the FTC, in a bid to force the three firms to license some of their own microprocessor patents on terms favourable to Intel. The result was to harm competition by reducing the incentive for companies to develop new microprocessor technologies for fear that they, too, would be coerced into cross-licensing deals with Intel.

In its pre-trial brief, the FTC added that Compaq sought to differentiate its PCs through its own research and development efforts by making components such as motherboards and chipsets that would add value to its products. If Compaq had succeeded, it may have developed a platform for building PCs that don't run on Intel microprocessors, the FTC said.

In a series of events involving another Intel customer, Packard Bell, 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 support its core business, the FTC alleges.

"The terms imposed by Intel to resolve the conflict impaired Compaq's ability to differentiate its products through chipset innovation and other system-level design efforts," the FTC said.

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

Experts say the hardball tactics described in the FTC's complaint -- most of which even Intel does not contest -- would not be illegal if carried out by a smaller company. What the FTC must show, the experts say, is that Intel is a monopoly and that as such its behaviour is subject to stricter antitrust standards.

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

Intel says other statements from senior staff at IBM, Compaq, Motorola, Sun Microsystems, Hewlett-Packard and others show that those firms did not cut back their research and development of new PC chip technologies because of Intel's actions.

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

In the absence of evidence that Intel harmed competition, the FTC's complaint comes down to "subjective notions of 'fairness,' " Intel said in its brief.

Citing previous case law, Intel asserts that even acts of "pure malice by one business competitor against another" do not by themselves constitute a breach of antitrust law.

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James Niccolai

PC World
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