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Intel reveals FTC defense

A brief in the Integraph suit suggests a legal position the chipmaker could take in its antitrust case.

A brief filed yesterday by Intel in its ongoing litigation with Intergraph could be a guide to interpreting the legal position the chipmaker will take in its case with the Federal Trade Commission (FTC).

The brief argues that a lower court judge erred in numerous ways when he ruled in favor of Intergraph in its antitrust and patent infringement suit against Intel. Chief among the errors: neither Intergraph nor U.S. District Judge Edwin Nelson showed that Intel's dealings with the Huntsville, Alabama, workstation maker harmed competition, as required by federal antitrust law.

Because the complaints by the FTC and See special coverage: Intel in a vise Intergraph contain many of the same allegations, the appeal brief provides a glimpse of Intel's likely defense against the government, said legal experts, who added that some of the arguments the company make stand a good chance of succeeding.

In the FTC case, it's likely that Intel will repeatedly try to propound two basic arguments. First, Intel will argue that the company is not a monopoly. Second, Intel will claim that it is under no obligation to deal with any particular computer vendors. In other words, Intel will say it can pick and choose its customers without running afoul of antitrust law.

Intel is an investor in CNET: The Computer Network.

Intel's likely FTC defense
  • Contrary to the judge's preliminary injunction, Intel does not have a monopoly in either the high-end CPU market or the market for "Intel-branded" CPUs.

  • Even if Intel were a monopolist, antitrust laws do not require it to license its intellectual property to its customers.

  • Intergraph and Judge Nelson fail to define the market in which Intergraph and Intel compete, as required by antitrust law.

  • The evidence in the case does not support the finding that Intel controls an "essential facility."
  • Intergraph sued Intel last November, after the Santa Clara, California-based chip giant allegedly threatened to withhold key technical information if Intergraph did not enter into a patent cross-licensing agreement. Intergraph then amended its complaint to add the antitrust allegations.

    Judge Nelson issued the preliminary injunction on April 10, prohibiting Intel "from terminating Intergraph's rights" to Intel's technical information "or from otherwise taking any action adversely affecting Intel's business relationship with Intergraph."

    Among other issues, the appeal brief takes issue with Nelson's finding that Intel holds a monopoly in two separate "primary" markets--the "high-end" market for central processing units (CPU) and the market for "Intel-branded" CPUs. "For the first market, there are no market shares showing that Intel has monopoly power," the filing states. "The second is simply not a cognizable antitrust market under" established court precedent.

    Observers say that Intel is both right and wrong. Intel does not have a monopoly if all microprocessor markets are considered. However, it commands 80 percent of the market in one of the fastest-growing and largest markets out there--namely the Intel-based computer market--and 100 percent in the Intel-based server and workstation markets.

    Whether either can be defined as a distinct market is one of the key issues of the case.

    Intel lawyers go on to challenge other key findings in Nelson's decision, including one that Intel chips constitute an "essential facility." Under antitrust laws, essential facilities are resources, such as railroads or power companies, that are necessary in order for others to engage in business. Monopolists are required to give competitors access to essential facilities at fair market value. Intel's brief argues that there is no basis for such a ruling in this case.

    "The evidence did not support the court's finding that Intel had a monopoly share of a primary market, so the essential facility finding also was without foundation," the brief states.

    The arguments will likely figure prominently in any defense the company mounts in the FTC matter because the Intergraph claim is one of the three examples of anticompetitive behavior in the government's complaint.

    Interestingly, legal observers said Intel stands a good chance of prevailing in its appeal, because Nelson's decision appears to lack some of the necessary analysis needed to award a preliminary injunction in antitrust cases.

    "Most of what Intel is complaining about is that Intergraph didn't go through the nuts and bolts to prove what they're alleging," said Robert Lande, a professor specializing in antitrust law at the University of Baltimore. "If [Nelson] did not do an in-depth analysis of the precise nature of competition in the precise market, the appeals court will not hesitate to overturn" the decision, he said.

    Another factor that may weigh in Intel's favor is the particular appeals court hearing the case. The U.S. Court of Appeals for the Federal Circuit hears all appeals concerning patents, and is generally viewed as more sympathetic to patent holders' arguments that they are legally entitled to do what they want with proprietary technology.

    No matter how the appeals court rules, the decision likely will have only minimal effect on the government's case, even though the FTC's antitrust complaint relies on some of the same legal theories and many of the same allegations.

    "If Intergraph loses [the appeal] it's going to help Intel at the commission level because they'll be able to cite it," said Ann Yahner, an antitrust attorney at Cohen, Milstein, Hausfeld & Toll. "However, [there is] a better chance at the commission level of getting a wider range of evidence introduced," a factor that will help the FTC.

    In addition, she said, the FTC's case is based on section five of the Federal Trade Commission Act, a statute with broader authority than the Sherman Act, on which Intergraph's case rests. "The FTC Act talks about anticompetitive behavior and actions that hurt competition," said Yahner. "The FTC from the get-go is dealing with a series of Intel actions that the FTC is alleging is harmful to competition."