The witnesses in the FTC-Intel case were the last to know about the surprise settlement, details of which began to emerge this afternoon.
The terms have not yet been made public and lawyers on both sides would not comment on them. But one source familiar with the settlement said that in the general terms of the agreement, Intel
will agree not to use access to its chips or product information
as a lever to settle intellectual property claims. In other words, companies will be able to
pursue legal actions against Intel without necessarily running the risk of finding itself with
The settlement discussions between the Federal
Trade Commission and the top executives and lawyers from Intel--which started approximately two-and-a-half to three
weeks ago--concluded with a proposed settlement yesterday. They were kept
on such a confidential basis that the witnesses did not know that an
agreement had been reached until today, said sources.
The commissioners are expected to vote on the agreement within a matter of days, according to an agency spokeswoman. If approved, the agreement will then be put up for public approval for 60 days.
The discussions culminated this weekend when William Baer, director of the
FTC's bureau of competition, and Craig Barrett, Intel's CEO, approved the
terms of the settlement.
Jim Meadlock, chief executive officer for Intergraph, already flew to Washington
early today to prepare for the FTC's hearing, which was scheduled to begin
tomorrow, said an Intergraph spokesman. Other witnesses, meanwhile, were
preparing to leave for Washington this morning when they received calls to
cancel their travel plans. PC makers, which were going to send executives
to testify at the trial, said they changed their travel schedules
The FTC sued Intel last June, alleging that the company was a monopolist that illegally threatened to stop dealing with customers unless they signed away valuable
intellectual property rights. The commission sought an order that would have forbidden
Intel from engaging in that practice.
Intergraph executives, meanwhile, said that the settlement vindicates the
"When you have a company enter into a consent decree, it's an admission of
some of the terrible things they have been doing," said Jim Meadlock, CEO
"From an antitrust lawyer's perspective, Intel caved," said Bill Jaeger,
Intergraph's antitrust counsel. One of Intel's likely motives for settling,
he added, was to avoid a messy public trial.
The Microsoft antitrust trial is the kind of event Intel was probably trying to avoid. Microsoft witnesses in that case, now in recess, have been embarrassed by videotape lapses and have been confronted with all manner of revealing email evidence.
The FTC's investigation has apparently been instrumental in changing and
softening Intel's overall negotiating tactics. For years, Intel has been
known as a tough negotiator which jealously guarded its intellectual
property. One computer executive recalled that Intel sales representatives
were once known as FIGs, or F------ Intel Guys.
The attitude began to change after the FTC first announced it was
investigating the company's business practices in September 1997.
Coincidentally or not, nearly all of AMD's design wins with major computer
manufacturers occurred after the FTC announced its investigation.
"They've started to loosen up," said one source last year. "They
were worse a year ago."
Intel also seemingly became more open with its technology licensing. In the
past three months, Intel has licensed the "P6" system bus to three other
chipset vendors. The license essentially opens up the market for Pentium II
chipsets, which Intel has had a monopoly on, to other vendors. These
vendors will pay royalties to Intel, but competition will grow, said
The company also recently settled a long-running patent dispute with ST Microelectronics and entered into a
technology exchange with S3, which was one
of the first parties that the FTC contacted with regard to its investigation.
Kept in the dark
Existence of the settlement talks were also kept on a need-to-know basis
inside of Intel, said a company spokesman. Corporate public relations
officials only learned of the possibility of a weekend settlement late
Friday afternoon, the spokesman said.
Members of Intel's litigation were
also in the dark until relatively late in the process. General counsel Thomas Dunlap, assistant general counsel Peter Detkin and some additional lawyers
were in on the negotiations, said one person, but others were kept in
relative darkness and continued to prepare for trial.
"It was pretty surprising," said one observer. "Some people knew, but not
The FTC still has a second, wider investigation into Intel's business
practices, but the agency indicated today that it may be tying up its
issues in that area as well. In a prepared statement, Baer said the FTC
is investigating remaining issues but said his staff "is committed to
working expeditiously to resolve those concerns."
Although news of the settlement came as a surprise, the FTC and Intel had
been working on coming to terms for the past few weeks, said Chuck Mulloy,
"This took two-and-a-half to 3 weeks. We got it formalized late yesterday afternoon,"
"Could not have happened eight months ago"
The settlement came about largely because the differences between the
agency and the chipmaker steadily narrowed over time, said Mulloy. "This
is the result of eight months of trial preparation," he said. "This could
have not have been done eight months ago, because there wasn't enough
clarity in each party's position."
The FTC and Intel forwarded the settlement agreement, signed by lawyers
from both sides, to the FTC commissioners this morning. The commission
still has to vote on whether to approve the settlement. If approved, the
settlement will then go through a 60-day public approval process.
Intel's Barrett flew to Washington yesterday but was
in town for different reasons. Barrett flew to Washington to preside over
the Intel Science Talent Search, said Mulloy, an awards banquet which
honors outstanding high school science students. The timing of the two
events was coincidental, he said, but admitted that Barrett approved the
final settlement agreement.
The settlement ends what was shaping up to be a no-win situation for both
parties. The FTC claimed that Intel used its dominant position in
microprocessors to force computer vendors to give up intellectual property
that could have eventually, potentially, hurt Intel's market position.
Legal observers said that the FTC's case relied on untested legal theories
that would be difficult to prove.
Despite the weaknesses in the FTC's case, Intel had little to gain in a
protracted law suit. If the FTC or an appeals court determined that the
company was a monopoly, it faced even larger potential legal problems and bad public relations.
Terms of the settlement remained confidential, but FTC spokeswoman Victoria
Streitfeld said it gives the government what they have been seeking all
along. The FTC "sought out to establish a principle and the staff believes
that the proposed settlement achieves that goal," Streitfeld said. Both
sides indicated that the agreement resolved the case.
News.com's Dan Goodin and Bloomberg contributed to this report.