FTC Sues Intel for Anticompetitive Practices

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U.S. regulatory authorities today filed a lawsuit against Intel, alleging a 10-year history of monopolistic behavior that saw the world’s largest chipmaker use its dominant market power to crowd out cheaper, potentially superior alternatives.

The Federal Trade Commission complaint details a pattern of Intel (NASDAQ: INTC) using a system of threats and rewards to strike exclusive agreements with leading U.S. PC makers like Dell, HP and IBM to include its hardware in their systems.

The agency is seeking an order that would bar Intel from practices deemed anticompetitive and monopolistic, but is not asking for any monetary damages.

“There would be no possible monetary sanctions with respect to the FTC action,” Richard Feinstein, director of the FTC’s competition bureau, told reporters this morning. “We are really more focused on addressing the conduct.”

Specifically, the FTC will ask a judge for an order that would curb threats, bundled pricing and other paths to strike exclusive deals or manipulate pricing.

In addition to squelching competition with AMD in the CPU market, the FTC complaint alleges that Intel is pursuing a similar pattern of market abuse in the burgeoning GPU, or graphics processor unit, market.

The Federal Trade Commission’s move opens another front for Intel in its struggles with global regulators. In May, the European Commission slapped the company with a record fine of 1.06 billion euros ($1.54 billion) for its anticompetitive actions, particularly against upstart rival AMD. Intel is appealing that fine.

Earlier in the decade, the company had been rebuked by regulators in Japan for anticompetitive behavior and forced to change its business practices.

Intel responded today by calling the FTC’s case “misguided,” and argued that the agency rushed to assemble claims without fully investigating.

“The FTC’s rush to file this case will cost taxpayers tens of millions of dollars to litigate issues that the FTC has not fully investigated,” Intel Vice President and General Counsel Doug Melamed said in a statement. “It is the normal practice of antitrust enforcement agencies to investigate the

facts before filing suit. The commission did not do that in this case.”

In response to Intel’s comments, Feinstein said he disagreed.

“The graphics issues, while they may reflect more recent developments in the marketplace … they certainly have been investigated, and Intel certainly had notice some time ago of our concern,” he said.

“Detrimental conduct”

The FTC began its formal investigation of Intel in May 2008. Melamed claimed that the company was in advanced talks with the agency in an effort to reach a settlement, but they broke down when FTC officials insisted on “unprecedented remedies … that would make it impossible for Intel to

conduct business.”

Feinstein declined to comment on the details of the negotiations, saying only, “I don’t really believe what we were asking was unprecedented.”

Last month, Intel reached an agreement with AMD to settle a longstanding legal dispute over Intel’s market practices. In that settlement, Intel agreed to pay its smaller rival $1.25 billion, and the two companies agreed on a set of ground rules for the competitive marketplace.

Feinstein said the FTC’s complaint “extends beyond the conduct alleged by AMD,” detailing a longstanding pattern of anticompetitive behavior that continues in Intel’s activities in the GPU market.

The complaint also charges Intel with redesigning computers’ compiler software in such a way that impaired the performance of competitors’ processors, which the company then used as evidence to promote its own models to vendors and consumers.

“Speaking broadly about the themes of the case, essentially the story is, from our perspective, that over a period going back to 1999 at each stage at which Intel’s dominance in various chip markets has been threatened or they’ve perceive it’s been threatened they have responded … with a course of conduct that has been exclusionary and detrimental to competition and detrimental to consumers,” Feinstein said.

An administrative law judge within the commission is set to begin hearing arguments in the case Sept. 8, 2010.

“It’s going to proceed rapidly,” Feinstein said. “I would confidently predict that the trial will be completed by this time next year.”

The FTC is pursuing its action under Section 5 of the FTC Act, which precludes monetary relief and sets an expedited timetable for the proceeding. After the administrative law judge issues a ruling, defendants can appeal, which would bring the matter before the full commission.

If the commission upheld the judge’s ruling, the defendant could then bring the matter before a federal appeals court.

Feinstein offered an estimate that the matter could be settled within 18 months or two years, once the expected appeals are settled in the courts.