Tech Industry

No Intel smoking gun--yet

Unlike the Microsoft case, the FTC's claim has few unexpected surprises.

In sharp contrast to a separate antitrust action filed last month against another PC industry giant, the Federal Trade Commission's complaint against Intel contains few dramatic revelations or previously unknown allegations.

In its lawsuit against Microsoft, the Justice Department included numerous "smoking guns" that provided specific details of alleged anticompetitive behavior. In one internal memorandum, for example, a Microsoft executive suggested the company should try to "kill cross-platform Java by grow[ing] the polluted Java market," an exhibit that helps bolster the government's case that Microsoft engaged in a pattern of illegal behavior.

The FTC's complaint, however, contains few specific allegations and nothing that wasn't previously reported. At its core, the action takes aim at Intel's alleged pattern of cutting off crucial technical information and supplies to customers "as a means of coercing those customers into licensing" valuable patent rights to Intel.

"Because patent rights are an important means of promoting innovation, Intel's coercive tactics to See special coverage: Intel in a vise force customers to license away such rights diminishes the incentives of any firm dependent on Intel to develop microprocessor-related technologies," the complaint states. "The natural and probable effect of Intel's conduct is to diminish the incentives of the industry to develop new and improved microprocessor and related technologies."

The complaint goes on to allege that Intel "willfully maintained its monopoly power in the general-purpose microprocessor market" and also had the "specific intent to attempt to monopolize" new markets.

For support, FTC lawyers rely on three highly profiled occasions in which Intel allegedly threatened to cut off access to equipment and technical information if customers Digital Equipment, Intergraph, and Compaq Computer didn't surrender their intellectual property rights.

A number of legal observers have argued that the FTC is on shaky ground in alleging that Intel's actions constitute anticompetitive behavior. Among other things, they say, it is conceivable that Intel is within its rights not to share proprietary information with adversaries. They also argue that Intel's conduct does not violate antitrust laws because it doesn't harm competition in any market in which Intel competes, and is directed at customers rather than competitors. (See related story)

Apparently aware of these criticisms, FTC lawyers have attempted to go beyond mere allegations that Intel withheld information and equipment that were crucial for other companies. For instance, the complaint accuses Intel of trying "to create a perception in the computer industry" that Digital and Intergraph were "no longer capable of bringing to market in a timely manner new computer system products that incorporate Intel's latest microprocessor technology."

In both cases, that conduct, coupled with Intel's refusal to supply information or equipment, "had a significant adverse impact" on the ability of Digital and Intergraph "to develop and bring to market in a timely manner computer systems based on Intel microprocessors," the complaint alleged.

But despite nine months of investigation, the FTC is thin on exactly how Intel attempted to create such perceptions. The only specific act the complaint points to is an incident in which Intel allegedly orchestrated "a scene in which a Digital employee was publicly ejected from a widely attended industry meeting sponsored by Intel without any advance notice."

Critics of the FTC's case maintain that the agency has yet to pinpoint a market that is being harmed by Intel's actions, a necessary component of any successful antitrust suit. They also say that the FTC's case is confused by the fact that Digital, Intergraph and Compaq are longtime Intel customers.

There's no general obligation to deal with [noncompetitor customers] in a fair manner, and the commission will be pushing the frontiers of the law to say there is," said William Kovacic, a professor specializing in antitrust law at George Mason University. In addition, he noted, Intel will easily be able to challenge a number of FTC contentions that are central to the case.

For instance, Intel is likely to attack FTC contentions that Intel's conduct did not "serve any legitimate, procompetitive purpose" by arguing that it had good business reasons for terminating its relationship with Digital, Intergraph, and Compaq.

"I think the commission is underestimating Intel's ability to tell a different story and is underestimating the extent to which the law disfavors" its case, added Kovacic.