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FTC votes to sue Intel

The Federal Trade Commission decides to sue Intel for violating antitrust laws.

The Federal Trade Commission voted today to sue Intel, charging the company with using its market dominance to hurt rivals and hinder competition in the computing industry.

The agency listed PC leader Compaq Computer as a company that allegedly was injured by Intel's business practices. It added that the chipmaker had violated antitrust law in dealings with two other computer manufacturers: Digital Equipment, and Intergraph.

William J. Baer, the director of the FTC's bureau of competition, said that in each case Intel withheld critical information when they asserted their own intellectual property rights. (Intel is an investor in CNET: The Computer Network.)

The FTC's case involves Intel's arbitrary termination of See special coverage: Intel in legal vise agreements to provide technological information on forthcoming chips--which, as a result, unfairly benefited Intel or reduced competition. Specifically, the FTC said Intel withdrew nondisclosure agreements from Digital, Intergraph, and Compaq in three instances because the companies attempted to assert intellectual property rights against Intel or an Intel partner.

These intellectual property rights would have presented a challenge to Intel, the agency charged, if the companies had in fact been able to engage in fair competition.

By withholding the information, regulators say these companies were either unable to come out with computers at the same time as their competitors, to their detriment, or were forced to disgorge intellectual property that they otherwise did not want to license to Intel. The chip giant also allegedly pressured third parties not to work with these three companies during the time of trouble.

Digital and Compaq settled their differences with Intel. PC maker Intergraph has a pending lawsuit against the company.

In a statement released today, Intergraph said: "It is reassuring that FTC investigators apparently believe our concerns reflect a broad threat to the computer industry. However, our lawsuit stands on its own and is the first time, as far as we know, that Intel has been accused of abusive behavior, antitrust violations, and patent infringement all in one suit."

Intel was able to force arrangements on these three parties, the FTC argues, because these companies depend on microprocessors and other components made by Intel, including peripheral chips and PC circuit boards.

"It is illegal under the antitrust laws to wield monopoly power to lock others out of the market," Baer said. "Intel used its market power to cut off its own customers who asserted their own patents. Intel deliberately sought to injure these companies in order to protect itself."

In response, Intel countered that the FTC's case is "based upon a mistaken interpretation of the law and the facts."

"For more than ten years, Intel has taken unprecedented steps to ensure that all of our activities and policies are in full compliance with existing law," said F. Thomas Dunlap, Intel vice president and general counsel, in a statement. "The commission's decision today signals that they want to change the very laws upon which we've based our policies.

"Intel has shared its intellectual property and early samples of its products with a number of key customers. These customers work with Intel to develop products for the market on a mutually beneficial basis," Dunlap added.

The suit is fairly specific, according to Baer. Intel can continue to bargain over intellectual property rights. The company, however, cannot leverage its market share in processors on the bargaining table. "Intel can't use the weapon only if it has to secure its monopoly on a going-forward basis," Baer noted. "The suit seeks to prevent Intel from repeating this conduct in the future."

Intel has argued that it has a right to stop giving advance proprietary information to customers on its latest products if they refuse to share their intellectual property in return.

But Intel was unsuccessful in arguing this point before a federal judge in Alabama, who granted Intergraph a preliminary injunction against the chipmaker in April. The judge ruled that Intel must give Intergraph information and enabling technology on the same basis it shared with others. Intel has appealed that ruling.

Sen. Slade Gorton (R-Washington) has written to FTC chairman Robert Pitofsky in defense of Intel, which he called "an American success story."

"This is not the proper role for the federal government," Gorton said, calling a possible suit "another example of the misguided policies of the Clinton administration."

Intel's stock was down half a point at 69.3125 in late trading.

Reuters contributed to this report.