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Top FTC litigator: Sue Intel

The commission's top prosecutor in its Intel investigation recommends pursuing an antitrust action against the chipmaker.

The top prosecutor for the Federal Trade Commission in its investigation of Intel has recommended pursuing an action against the chipmaker for alleged antitrust violations.

The high-level decision makes it very likely that the commission will seek legal recourse.

Sources close to the investigation said that William J. Baer, the FTC's director of the bureau of competition, has recommended to the five-person commission that charges be filed against Intel for arbitrarily terminating nondisclosure agreements (NDAs), among other acts, which prevented computer companies from shipping products on time. These actions allegedly were undertaken to influence vendors into courses of conduct beneficial to Intel.

A source added the commissioners are likely to vote on the recommendation early next week, although the process could take longer. (Intel is an investor in CNET: The Computer Network.)

As reported last week by CNET NEWS.COM, the FTC's investigative staff sent its recommendation to Baer that a case be filed against Intel. Under agency procedure, after the director passes his recommendation onto the commissioners, the officials then review the recommendations and meet with the parties again before voting on whether to file a case.

At least one observer has said that some sort of legal action is imminent because the commission often follows the recommendation of the director. "There is a good chance that the commission will act against Intel," noted Steve Newborn, an antitrust attorney and former FTC investigator.

Kevin Arquit, a former attorney at the FTC, agreed that Baer's decision is significant. "It would be very unusual for him to recommend a case and the commission not bring it," said Arquit, now in private practice at Rogers & Wells in New York City.

Arquit added, however, that with three new commissioners on the five-commissioner board, there is less certainty about how it might act.

It is also possible that Intel might try to head a suit off, either through informal settlement negotiations or by arguing that the case has no merit. "What happens now is that [Intel] and its lawyers will do a dog-and-pony show in the commissioners' offices, where [the company] will attempt to talk them out of the case," Arquit said. "This is their last chance to resolve the situation informally in a way that involves the commission."

Intel clearly is more adverse to litigation than Microsoft, Newborn and others say. But an agreement would carry future restrictions on Intel's behavior. Under a settlement, the FTC could still file a complaint and sign a consent decree with the chip giant that would stipulate some ground rules for the company, said Howard Morse, another former FTC investigator.

The suit recommended by Baer would probably turn on Intel's relationship with computer makers Intergraph and Digital Equipment. Both companies have alleged that the chipmaker terminated NDAs as part of an effort to force them to enter into technology cross-licensing pacts. Without the information in the NDAs, the companies were hampered from releasing products based around Intel chips, the companies claimed.

Intergraph and Digital 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 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 the chip giant 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.

Meanwhile, the FTC apparently is 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. Experts are divided on whether such a suit could be sustained.

Intel licenses its intellectual property, but often reluctantly, according to observers. This tight control could lead to antitrust problems for Intel because it is expanding its focus far beyond microprocessors, Newborn added.

For instance, Intel has said it has licensed technology to make highly integrated chipsets with graphics capabilities to other parties, but 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 it effectively will be using its dominance in microprocessors and chipsets to force graphics chipmakers out of the market, Newborn theorized.

Others suggest 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's antitrust division and an attorney who also is 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 already has 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 probe.

A second inquiry followed the legal settlement with Digital. This deal also was 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 also has contacted graphics chipmaker 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.

Reuters contributed to this report.