Intel and the Federal Trade Commission forged a pragmatic deal
that sets new restrictions on the world's largest chipmaker.
The ruling may effect the psychology of some other Silicon Valley companies
but its legal effect will likely be limited mostly to companies selling
general purpose microprocessors.
The ruling may make it
virtually unthinkable for companies to exercise some of the more drastic
options available when asserting patents and other intellectual property
against Intel, said Stephen Calkins, a
professor at Wayne State University and
general counsel at the FTC from 1995 to
1997.
Companies that file patent infringement suits generally have two recourses.
The first is to seek monetary damages from the infringing company. The
second, is to seek an injunction prohibiting the manufacture, sale, or use
of the infringing product. Injunctions are considered much more severe,
because they can prevent a company from selling its flagship product.
"All of the protections the FTC is giving customers apply only if they
forego injunctions," Calkins explained. In signing the agreement, "Intel
has managed to reduce the dollar value of claims against it by, as a
practical matter, removing firms' ability to close [Intel] down."
In a complaint filed last June, the FTC
alleged Intel was a monopolist that
coerced three customers into signing over valuable intellectual property
rights or lose products and data that were crucial to the companies'
business. The agency sought an order preventing Intel from engaging in the
practice.
The consent order made public today provides new ground rules for Intel and
its customers when they wrangle about patents and other intellectual
property. Under the deal, Intel is barred from withholding advanced product
information and samples from those customers as long as they agree not to
seek court orders prohibiting the sale or use of Intel products. The deal,
however, protects Intel's right to use those strong-arm tactics when
customers asserting intellectual property seek such an injunction.
In return for losing one of the more powerful
weapons in their arsenal, companies with intellectual property beefs
against Intel gain the assurance that they will not be cut off from the
products and data they need in order to survive. Under the settlement,
seeking royalties and damages from Intel will become significantly less
risky, a factor some say will foster competition.
"This will make it easier for players like Compaq or DEC or other large
computer companies to potentially engage with companies who are designing
and developing future generation of microprocessors that might compete with
Intel," said an attorney at a large chip company, who asked not to be named.
Outside the market for general purpose microprocessors, however, the
agreement is not likely to have broad consequences, some legal observers
noted.
"This will be seen as a modest accomplishment for the FTC that does not
have far-reaching implications for other firms," said William Kovacic, a
professor of law at George Washington
University. "A litigated case would have yielded a decision on a very
important legal principle that would have had broad significance in this
industry and others. Settlements lack that kind of significance."
The settlement is also too fact-specific to set much of a precedent,
Kovacic and others added. Nonetheless, Wayne State's Calkins said, the
settlement is likely to make large companies think twice as they deal with
smaller customers. "Any firm that has substantial power will have to review
this order carefully before retaliating against a firm that exercises its
intellectual property rights against it," he said.