Intel grapples with legal troubles

Faced with fights on several fronts, Intel is starting the year with the spotlight shining on its legal and antitrust woes.

Dawn Kawamoto Former Staff writer, CNET News
Dawn Kawamoto covered enterprise security and financial news relating to technology for CNET News.
Dawn Kawamoto
4 min read
Faced with fights on several fronts, Intel (INTC) is starting the year with the spotlight shining on its legal and antitrust woes.

Earlier this week, the chip giant pushed back the date by which it expects to hear from the Federal Trade Commission on whether the agency will challenge its acquisition of Chips and Technologies (CHPS), marking a fifth postponement of the deal.

Last month, FTC regulators requested additional information on the $700 million patent infringement settlement that Intel reached with Digital Equipment (DEC). On December 10 the regulators requested additional information on Digital's market share, the economic impact from the agreement, and the economics of running the manufacturing plant.

Digital is planning to sell to Intel, said Gail Smart, a Digital spokeswoman.

A broader antitrust investigation the FTC launched back in September forms the backdrop for these two pressing transactions that Intel hopes to close. The FTC subpoenaed the chip maker for evidence on whether the company engaged in unfair or deceptive practices, and whether it monopolized or attempted to restrict price competition in the development or sale of microprocessors and other components.

Despite the legal quagmire, Intel remains optimistic that the Digital and C&T deals won't be challenged by the FTC, and that the company won't be found in violation of any antitrust issues, said Chuck Mulloy, an Intel spokesman.

Victoria Streitfeld, an FTC spokeswoman, declined to comment on the Intel investigations other than to confirm that they are ongoing.

Meanwhile, a source familiar with the investigation said: "I expect the monopolization issues to come to a head in the spring, with some conclusion. There are people in the industry who believe Intel has as great a stranglehold over the PC industry as Microsoft does."

The date by which Intel expected to hear whether the FTC would challenge the Chips & Technologies merger was pushed back, from January 9 to January 13. Mulloy said the FTC simply needed more time.

"Generally speaking, one would expect that if a company has to extend the date a third time on when it expects to hear back, the companies involved may have to make further disclosures," said Howard Morse, formerly assistant director of the FTC's Bureau of Competition, which is responsible for antitrust enforcement in the computer industry.

Although Intel has postponed the closing date on the Chips and Technologies merger five times, the most recent announcement marked the second time it had anticipated that it would get word from the agency on whether it would challenge the deal.

In explaining the process, Morse said the FTC staff will make a recommendation to the bureau directors on whether to pursue enforcement action--which can range from a consent decree to a lawsuit. Should action be pursued, a meeting is held with the companies and the directors. The directors then consult with the chairman of the FTC commission before issuing a recommendation to the commission. The commission then takes a vote on whether to challenge a transaction.

The entire process usually takes only a week once the companies have met with the bureau directors, Morse said.

Intel's Mulloy declined to elaborate on whether the company has met with FTC directors.

Officials from Chips and Technologies also declined to comment.

Concern in the industry centers on whether Intel is planning to use its Chips and Technologies acquisition as an entry into the graphic chips market, one of the few areas it currently does not dominate.

Intel, meanwhile, is looking to close its deal with Digital by April. Under the terms of the agreement, Digital will sell its chip plants to Intel, cross-license patents, receive Intel and Alpha microprocessors from the chip giant, and develop future systems based on Intel's 64-bit microprocessors.

An article in today's Los Angeles Times, however, cited sources indicating that regulators found serious problems with the settlement and are working towards building a case to challenge the deal.

Digital's Smart, however, countered the report. "We have not received any indication that the FTC will challenge the agreement," she said. "We feel confident that the settlement with Intel will be approved by the FTC." Digital is in the process of gathering materials to respond to the FTC's recent request for additional information, she said.

"They did not request specific information...it was more broad," Smart said of the FTC's inquiry.

Whatever action the FTC takes regarding these deals should not serve as an indicator of how the agency will react to the other antitrust investigations Intel is facing, Mulloy said.

"We view the CT&T and Digital investigations as narrowly focused," he said, "so the approach and focus will be different on the broader investigation."

Mulloy said Intel has been providing information on the broader investigation for a number of weeks, and that the company expects the matter will take years to resolve. He cited a previous FTC antitrust investigation that spanned from 1991 to 1993, which resulted in no action being taken against the chip giant.

[Intel is an investor in CNET: The Computer Network]