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FTC Intel case weakens, in part

As the basic rights to Pentium II technology snake their way to competitors, monopoly charges dissipate even though business issues still loom.

With the basic rights to Intel's Pentium II technology beginning to snake their way to competitors, it may become more difficult for the Federal Trade Commission (FTC) to bring charges against the chip maker, though questions about its business practices still loom large.

Last fall, the agency began a far-reaching investigation into Intel's dominance in certain processor markets. One avenue of investigation, sources said, has been Intel's virtual lock over the intellectual property (IP) needed to build Pentium II computers. By holding these patents to itself, Intel was effectively creating a monopoly in high-end desktop computing, according to FTC thinking.

But mergers, market shifts, and alliances unforeseen at the time the investigation began have created a situation where Intel competitors have greater access to the technology underpinning the Pentium II architecture than originally believed.

"In some sense it is weaker. If you are creative, you can develop a product that uses Intel's IP and not get sued," said Dean McCarron, principal analyst at Mercury Research. "The strength of Intel's IP in terms of a legal position is being subverted by people interested in doing [Pentium II] Slot 1 processors."

While no one has yet released a Pentium II clone, the legal and technical pathways are clear for Cyrix, Advanced Micro Devices, and others to make Pentium II-style, so-called "Slot 1" processors.

Highlighting a major breakthrough in one of the key Pentium II computer building blocks, VIA Technologies will next month release a chipset that is expected to be targeted at low-end computers using the Pentium II, said sources, while Acer may reconsider releasing its own Pentium II chipset despite earlier legal threats from Intel.

Both products would use the Pentium II's most valued intellectual property, the "P6" system bus, and compete against Intel's own Pentium II chipsets, a lucrative product line that has thus far experienced no direct competition.

"I don't think there is a monopoly on the P6 bus," observed Richard Belgard, a Silicon Valley patent consultant. The bus is a conduit which the processor uses to talk to other components in the computer.

Of course, proliferation of Pentium II technology may not spell the end of Intel's legal troubles with the FTC. "They are looking at Intel's business practices in general," commented Linley Gwennap, editor in chief of the Microprocessor Report.

Evidence that may impinge on this area is coming out in a patent infringement suit filed by Intergraph

In Intergraph vs. Intel, the trial court recently filed an restraining order that essentially prevents Intel from treating Intergraph differently from other large computer vendors. The decision cites a number of hardball tactics allegedly used by Intel to force concessions from the Alabama workstation maker that would seemingly fall within the ambit of "unfair, monopolistic tactics."

Among the highlights of the decision:

  • Wade Patterson, president of Intergraph's hardware division, stated under sworn affidavit that Intel requested a free license for certain Intergraph technology. When it was refused, Pat Gelsinger, an Intel vice president, said that Intel would refuse to enter into further non-disclosure agreements (NDA) or provide information necessary to future chip development. "The evidence suggests that Intel has used the threatened or actual termination of NDAs as a contractual weapon," the court wrote.
  • Intergraph testified that Intel representative Keith Johnson promised to deliver key development information and new Pentium II "Deschutes" chips prior to release of the processors so that Intergraph could prepare its own products. Intergraph never got the chips or information on time, forcing it to delay a workstation and cancel various server and motherboard projects.
  • Intel failed to inform Intergraph of a bug in its processor and then used the termination of the NDA to prevent Intergraph from getting testing equipment from a third source to search for the bug. "The court can find no legitimate business justification for the bug," the court wrote.
  • Intel offered Intergraph customers funding on the condition that they use workstations from other vendors.

District Judge Edwin Nelson took notice of the fact that Intel said IBM has the legal wherewithal to make a Pentium II. However, even if IBM chose to do so, it would take the company at least two years of development, said Nelson. Until then, Intergraph would be subject to a de facto Intel monopoly. (Intel is an investor in CNET: The Computer Network.)

Regardless of the outcome of the investigation, vendors have said that they have noticed a subtle change in Intel's behavior during the last year. "They've started to loosen up," said one source in the computer industry regarding Intel's sales tactics. "They were worse a year ago."

The newfound availability of the Pentium II technology is something of an accident of history, Belgard and others said. In the early '70s, computer companies signed broad patent agreements that helped spur the growth of the IT industry, but also created a situation where companies can be shielded from legal liability by the umbrella of the ancient agreements. Recent licensing agreements are more limited.

The first Pentium processors proved an interesting case in point. A few years ago, Cyrix created a chip that Intel alleged infringed upon its patents. But a judge ruled that because Cyrix had IBM manufacture the chip on its behalf, Cyrix was not liable. IBM held an old license from Intel.

Pentium II access comes the same way. Cyrix has legal access to the Pentium II patents because it was acquired by National Semiconductor, which has a long-running licensing deal with Intel. AMD has the ability to get into the Pentium II market because it recently signed a manufacturing deal with IBM.

VIA has access to Intel's intellectual properties because of a cross-licensing agreement with Toshiba, said Dean Hays, VIA's director of marketing.

The company has in fact been making chipsets based around the P6 bus for about a year and a half. The chips have not sold well, he said, because they are designed to work with the Pentium Pro, an older, high-end server chip. Most of VIA's customers make motherboards for the lower segment of the market.

"We've got it. It's just that the processors haven't been cost-effective," he said, adding that, to the best of his knowledge, the company has not been contacted by Intel with regard to their ability to make such a chipset.

In a month, VIA will come out with another chipset that uses the P6 bus. While Hays would not comment on product specifics, the new chipset seems destined to work with the Pentium II, in as much as the Pentium Pro is being phased out. At the same time, the Pentium II is coming into the price range of VIA's customers.

Sources at Acer say the company is refraining from finishing development on a P6 chipset. "Intel will give us trouble," said a source at the company. Nonetheless, other sources said the company will release a P6 chipset for low-end boxes in the near future.

Intel itself admits that it will license the technology, but only for a price. "The difference between now and then is that we are not going to give away our IP," said Chuck Mulloy, an Intel spokesman. The company is currently in discussions with a number of parties over the Pentium II patents.

Legally, the existence of the patent licenses could make it more difficult to bring a case because the opportunity to compete exists, said Ray Hartwell, an attorney at Washington, D.C.'s Hunton and Williams firm.

"If, by dint of licensing agreements, Intel's proprietary technology is made available to Intel's competitors on reasonable terms, to that extent Intel's ability to act like a monopolist is weakened," Hartwell noted.

While this leaves open the possibility for Intel to be unreasonable, Belgard asserted that the ancient licensing agreements are reasonable.

"I'm pretty sure money doesn't even change hands," he said.

Intel is an investor in CNET: The Computer Network.