FTC casts wide net in Intel probe
Digital, AMD, and Cyrix have all confirmed that the FTC has served them with requests for information.
documents from a wide swath of technology companies as part of its investigation into whether Intel has engaged in unfair, monopolistic
business practices.
Digital, Advanced Micro Devices, and Cyrix have all confirmed that the FTC has served them with requests for information regarding Intel's business practices. The agency has also been in contact with a number of graphics chip vendors, said sources.
"We received a request for information regarding Intel's business practices in the microprocessor market," said Steve Tobak, vice president of marketing at Cyrix. He added, "Cyrix will fully support the FTC's efforts to support a level playing field in the marketplace. We will respond fully and completely."
While many observers believe that any potential case filed by the FTC will likely concentrate on specific questions--such as whether the proposed acquisition of Chips and Technologies could lead to a monopoly in that market--early evidence indicates that the agency is looking into Intel's overall business practices, including the company's practices in its bread-and-butter microprocessor market.
Gary Reback, an antitrust attorney at Wilson, Sonsini, Goodrich and Rosati, who has not yet reviewed the subpoenas in this matter, said that it appears that the investigation will delve into a wide range of activity. "It does appear to be a wide investigation. They cross the threshold of an investigation into a merger. What we don't know is whether they will unearth enough information to take it to the next stage."
"That's surprising," said a source familiar with the investigation. "I'm pretty sure it has more to do with the acquisition of Chips and Technologies. Graphics chipmakers are nervous about Intel getting into their market."
(Intel is an investor in CNET: The Computer Network.)
The FTC served a subpoena on the Santa Clara, California-based chipmaker yesterday. The subpoena requested information from the company to determine whether Intel "has engaged, or is engaging in unfair or deceptive practices?.by acting to monopolize, to attempt to monopolize, or otherwise restrict price or non-price competition in the development or sale of microprocessors or other components or intellectual property."
Intel had been providing information to the agency since July, after Intel announced that it planned to acquire graphics chipmaker Chips and Technologies. The disclosures were made pursuant to the Hart-Scott-Rodino Act. The FTC made a second request for information regarding the acquisition in August.
How long and how active the FTC's investigation into Intel's business practices has been is an open question. One source said the FTC requested information two to three weeks ago, after the FTC had opened its investigation into the proposed Chips and Technology acquisition. Mostly, the agency asked about how the proposed Chips acquisition would affect the graphics market. Yet others hinted that the agency has monitored Intel for a while.
The FTC initiated an investigation into Intel's business practices in 1991, but dropped it in 1993.
Digital also received a subpoena for information from the FTC yesterday, according to Digital spokesman Dan Kaferle. Neither AMD nor Cyrix would confirm when the FTC contacted them. David Frink, an AMD spokesman, said, "We're familiar with the investigation and have been contacted by the FTC."
No case has been filed and it is difficult at the moment to determine what the FTC will do, if anything. Legally, the FTC or the Department of Justice face an arduous task proving monopoly violations or restraint of trade under the current standards of antitrust law, legal experts told NEWS.COM in August.
"You have to show that the monopoly power was obtained through bad acts?exclusionary conduct, predatory pricing, blowing up your competitor," said Charles Rule, an antitrust partner with Covington and Burling and the former head of the Justice Department's Antitrust Division. "If there is nothing beyond not sharing your intellectual property with others, it would be inconsistent with patent law."
There are two general types of complaints the agency could bring, Rule explained. One would look at a company's conduct in its chief market. In that instance, the agency would have to demonstrate the sort of malicious acts spoken of above.
Or, as Reback put it, "In general, a case demonstrates both behavior and economic effect. In the case of a merger, you're not looking at behavior, but economic effect."
Proving violations has become increasingly difficult, according to Ray Hartwell, a partner at Washington's Hunton and Williams. To prove predatory pricing, for instance, the plaintiff or the Justice Department has to show that the company sold goods below cost with the intent of later raising prices to recoup all the losses.
Exclusive supply arrangements with third parties would be another violation, Hartwell added; however, the problem again lays in proving it. Is Intel forcing computer makers to take its chip, or are they adopting Intel chips because they run at higher speeds? "A big market share is not a violation," he said.
Hartwell further added that courts are split on whether the owner of a patent or trade secret can use a "legitimate" monopoly to gain advantage in another market.
Ultimately, the courts could determine that a patent constitutes an "essential facility" like a bridge or highway that must become open for competition to exist, added Rule. That doctrine, however, has never been applied to intellectual property.
The FTC could not be reached for comment.