Even the FTC's top economist can't find that Intel harmed innovation in
the microprocessor industry, the chip giant alleged in its pre-trial brief
filed today. Intel's brief, filed in advance of next
week's administrative trial at the Federal
Trade Commission, argues that the admission undermines the agency's
case that Intel is a monopolist that used its intellectual property to
stifle competition among would-be competitors.
Intel noted that Frederic Scherer, the government's economic expert, said
in pretrial testimony that the high level of competition in the industry
makes it virtually impossible for chipmakers to reduce research and
development efforts.
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It "is unthinkable that a company could stand still in this kind of
industry under any circumstances," Intel quotes Scherer as saying. The
economist at
Harvard University's Kennedy School of Government also
said that innovation among chip companies makes the industry "one of the
fastest treadmills I've seen," according to the filing.
What's more, senior executives from virtually every Intel rival agree that
Intel's conduct has not slowed their companies' pace of innovation, Intel
alleged. Even executives from Compaq
Computer and Digital Equipment, which
Intel is accused of illegally bullying, said that innovation has not
suffered as a result the hard-ball tactics, Intel added.
In an action filed last June, the FTC accused Intel of illegally forcing Intergraph, Compaq, and DEC to
license their technology or lose access to crucial Intel products and
product information. The actions threaten both current and future
competition to Intel's 75 percent market share, the government alleged.
Along with a separate pretrial brief filed by the FTC, the two sides
provided the most detailed picture yet of the case they expect to present
during trial, which is expected to call between 40 and 50 witnesses and
last six to 12 weeks.
In its own pretrial brief, the FTC put to rest speculation that it was
expanding the case it would present at trial, scheduled for March 9. The
only new material to come to light was a plan by the FTC to allege that the
Santa
Clara, California, company illegally prevented computer makers, or OEMs,
from differentiating the types of chip sets, mother boards and other
components they put in their machines.
"Intel's conduct adversely affects rival microprocessor suppliers--albeit
indirectly--by reducing the ability of potential OEM customers to rely on
the strength of their own brand identity to sell computers using non-Intel
microprocessors," FTC lawyers asserted. By "precluding OEMs from
differentiating themselves from one another," they argue, Intel "obstructs
distribution opportunities" for rival chipmakers.
Intel noted that the claim was first advanced by rival Advanced Micro Devices in a document filed
two years ago with the Securities and
Exchange Commission. OEMs and other manufacturers of chip technology
could continue making Intel-driven technology "only to the extent that
Intel makes its related proprietary technology available," AMD warned.
In its filing, Intel pounced on the theory as an "AMD-manufactured claim"
that had no merit. The issue of AMD's role in the case is likely to be a
major area of contention as the trial unfolds. At least two of the main
players in the FTC's case--its lead prosecutor Richard Parker and Scherer,
the agency's economic expert--have worked for AMD in the past. Last month,
Intel's bid to remove Parker from the case was rejected.
For its part, the FTC will allege that Intel used its dominance to "coerce"
customers
into licensing their intellectual property, an act that helps cement
Intel's dominant position. "The evidence will show that
the ability of Intel to force licenses to the technology it desires will,
over time, dull the incentive of other firms to innovate," FTC attorneys
wrote.
Meanwhile, Intel will argue that it is not a monopolist because it cannot
control prices or exclude competition in the market for general purpose
microprocessors. It will also present testimony from executives from
virtually all of the major chipmakers--including IBM, Sun
Microsystems, Motorola, National Semiconductor, and Silicon Graphics--saying Intel's
intellectual property conduct has not affected their research and
development activities.
For example, William Strecker, senior vice president at Compaq, said in a
deposition that his company remained "very committed" to the Alpha
microprocessor, while DEC chairman Robert Palmer testified that his company
did not scale back research and development on the chip. Compaq acquired
DEC in 1998. Both companies entered into cross licenses with Intel after
the chip giant threatened to withhold chips and published information.
The lack of evidence, Intel argued, will prove fatal to the FTC's case.
"After more than 18 months of a pre-complaint investigation and pre-trial
discovery in which they obtained over 1,000 boxes of documents, [FTC
investigators] are still unable to identify any harm to competition,"
Intel argues. The chipmaker added that even Scherer "concedes that he has
found no evidence that innovation has been adversely affected."