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Intel case in FTC chief's hands

The Federal Trade Commission's investigative staff is recommending that a case be filed, but a few steps remain first.

A Federal Trade Commission decision on whether to file an antitrust case against Intel has moved to the second-to-last phase in the process, making it possible for a case to be filed in the next few weeks.

The FTC investigative staff has sent its recommendations to William J. Baer, the director of the Bureau of Competition for the FTC, sources close to the investigation said.

The staff is recommending that a case be filed against the chipmaking giant for allegedly using its monopoly position in microprocessors to coerce computer vendors and other high-tech companies into courses of conduct beneficial to Intel, according to the sources.

Under agency procedure, the director meets with the parties subject to the suit and then passes his recommendations onto the five commissioners, former FTC attorney Howard Morse said. The commissioners then review the recommendations and meet with the parties again before voting on whether to file a case. The entire process, including the deliberations by the working staff, can take three weeks or more, he said.

In conjunction with this initial investigation, the FTC is apparently looking at a broader case against Intel, examining whether the company's relatively tight control over its intellectual property has anticompetitive effects in the marketplace. That case is progressing and unlikely to be part of any initial lawsuit.

While the final outcome on the immediate action remains in question, at least one observer has said that some sort of legal action is likely. "There is a good chance that the commission will act against Intel," said Steve Newborn, an antitrust attorney and former FTC investigator.

However, a settlement remains possible. Intel is clearly more adverse to litigation than Microsoft, Newborn and others say, but a settlement would carry future restrictions on Intel's behavior. (Intel is an investor in CNET: The Computer Network).

An initial suit would most likely center around Intel's relationship with computer makers Intergraph and Digital Equipment. Both companies have alleged that the chipmaker arbitrarily terminated nondisclosure agreements in an effort to force them to enter into technology cross-licensing pacts. Without the information in the nondisclosure agreements, the companies were hampered from coming out with products based around Intel chips.

Both companies filed suit against Intel in 1997. While Digital settled its suit on terms that many observers thought were beneficial to Digital, the Intergraph suit continues.

The case has served as a window on the chipmaker's alleged sharp business practices. Intergraph executives have testified that Intel executives, identified by name, withdrew nondisclosure agreements because Intergraph refused to license its own processor technology to Intel. Intergraph also said that it had to delay a workstation because Intel canceled promises to deliver microprocessors.

A U.S. District Court in Alabama that is hearing the case has so far ruled that Intel must provide Intergraph with product information and processors during the suit.

The second investigation into Intel's control over its technology appears to reach farther, but experts are divided on whether such a suit could be sustained.

Intel licenses its intellectual property, buy typically only reluctantly, say observers. Until recently, Intel maintained close control over the patents surrounding the Pentium II processors. Rival Cyrix only gained rights to the patents by merging with National Semiconductor.

This tight control could lead to antitrust problems for Intel because it is expanding its focus far beyond microprocessors, Newborn said.

For instance, Intel is planning on coming out with a chipset for its Celeron processor this fall that incorporates graphics and audio functions, several sources have said. This level of feature integration, unprecedented for Intel, subsumes two functions that were previously discrete and offered by independent chip manufacturers. While Intel has said it has licensed technology to make these chipsets to other parties, no manufacturer has yet to announce products based around an Intel license.

If no competitor appears, Intel will not only have a monopoly in the chipset arena, but also effectively be using its dominance in microprocessors and chipsets to force graphics chipmakers out of the market, Newborn theorized.

Still, many others have pointed out that the FTC's case could be tough to win because the technology licenses do in fact exist. Charles Rule, former head of the Justice Department antitrust division and an attorney who is also representing Microsoft in other matters, pointed out that courts are reluctant to force companies to license their intellectual property. The only decision to support such a theory is the injunction decision in the Intergraph case.

The FTC has already wrapped up two other Intel investigations covering very specific matters. One looked into the company's acquisition of graphics chipmaker Chips and Technologies. The agency approved the acquisition earlier this year and terminated the investigation.

A second inquiry followed the legal settlement with Digital. This deal was also approved.

Companies that have received subpoenas and requests for documents during the course of the current investigation include Digital, Intergraph, Cyrix, and Advanced Micro Devices. The agency has also contacted graphics chip maker S3, which had once been a major supplier for chips on Intel motherboards.

A spokesman for Intergraph said recently that the FTC has been contacting the company approximately once a week.