FTC sues Intel over 'anticompetitive tactics'

The Federal Trade Commission announced Wednesday that it is suing Intel, claiming that the chip giant has illegally used its dominance to stymie competition and to strengthen its own monopoly.

In so doing, says the FTC, the company has robbed consumers of both choice and innovation in microprocessors, including those that outshone Intel's own: "Intel's anticompetitive tactics were designed to put the brakes on superior competitive products that threatened its monopoly in the CPU microchip market."

The agency's complaint alleges that Intel used a series of threats and rewards to convince top PC makers such as Dell, Hewlett-Packard, and IBM to not purchase computer chips from the competition. Intel also allegedly prevented computer manufacturers from marketing PCs with non-Intel processors.

In addition, the FTC contends that Intel secretly revamped its compiler to slow the performance of rival chips and simply told its customers that the software performed better on its own chips than on those of the competition.

"Intel has engaged in a deliberate campaign to hamstring competitive threats to its monopoly," said Richard A. Feinstein, director of the FTC's Bureau of Competition, in a statement. "It's been running roughshod over the principles of fair play and the laws protecting competition on the merits. The Commission's action today seeks to remedy the damage that Intel has done to competition, innovation, and, ultimately, the American consumer."

Intel responded Wednesday morning with a vigorous rebuttal, calling the FTC case "misguided" and ill-informed.

Intel has competed fairly and lawfully. Its actions have benefitted consumers. The highly competitive microprocessor industry, of which Intel is a key part, has kept innovation robust and prices declining at a faster rate than any other industry. The FTC's case is misguided. It is based largely on claims that the FTC added at the last minute and has not investigated. In addition, it is explicitly not based on existing law but is instead intended to make new rules for regulating business conduct. These new rules would harm consumers by reducing innovation and raising prices.

The chipmaker added that case should have been settled, not sent into litigation.

"Settlement talks had progressed very far but stalled when the FTC insisted on unprecedented remedies--including the restrictions on lawful price competition and enforcement of intellectual property rights set forth in the complaint--that would make it impossible for Intel to conduct business," Doug Melamed, Intel's newly appointed general counsel, said in a statement.

The FTC is now seeking an order to prevent Intel from using threats, bundled prices, or other offers to strike exclusive deals, shut out competition, or manipulate the prices of its chips. The regulatory agency is also considering an order that would prohibit Intel from stifling the sale of competitive chips or from making products to weaken their performance.

Past cases focused on Intel, Advanced Micro Devices, and central processing units (CPUs), but the FTC case adds a new element--graphical processing units, such as those from chipmaker Nvidia.

"Intel allegedly once again finds itself falling behind the competition--this time in the critical market for graphics processing units, commonly known as GPUs, as well as some other related markets. These products have lessened the need for CPUs, and therefore pose a threat to Intel's monopoly power. Intel has responded to this competitive challenge by embarking on a similar anticompetitive strategy, which aims to preserve its CPU monopoly by smothering potential competition from GPU chips such as those made by Nvidia," the FTC said in its statement. "As part of this latest campaign, Intel misled and deceived potential competitors in order to protect its monopoly. The complaint alleges that there also is a dangerous probability that Intel's unfair methods of competition could allow it to extend its monopoly into the GPU chip markets."

In November, Intel settled its antitrust dispute with AMD, in a deal that includes a $1.25 billion payment to AMD.

Updated at 7:55 a.m. PDT with FTC statement on graphical processing units and with Intel's response to the FTC lawsuit.