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FTC approves Intel settlement

The Federal Trade Commission announces it has approved the surprise settlement struck last week with Intel.

The Federal Trade Commission today announced that it has approved the surprise settlement struck last week with Intel.

The consent order, which was made public today, is being cast as a win for both sides. While it prevents Intel in many cases from witholding advanced product information and samples from customers over intellectual property disputes, it is significantly narrower than the relief the FTC originally requested.

See related special coverage: Broader Intel case reportedly still alive In an action filed last June, the agency alleged that Intel, the world's largest chipmaker, was a monopolist that illegally withheld crucial products from customers unless they signed away valuable intellectual property rights.

Under the settlement, Intel still is permitted to withhold product information and samples from customers who seek a court order prohibiting the sale, use, and manufacture of Intel chips. Two of the three customers Intel is accusesd of harming--Compaq Computer and Digital Equipment--sought such injunctions before Intel cut them off. Intergraph requested an injunction just a few months after losing access to Intel products.

The commission voted 3-0 to accept the proposed consent agreement for a 60-day public comment period, with one commissioner not participating because of medical reasons.

"This gives a framework how to handle these disputes with our customers," said Peter Detkin, associate general counsel at Intel. "We now know what the framework is. They know what the framework is. We think that's very valuable."

The FTC believes that companies moved to seek injunctions earlier against Intel because they didn't have the options available under today's settlement, said Michael Antalics, the agency's assistant director at the bureau of competition.

"If companies have the option to get reasonable compensation and at the same time can continue getting chips and advanced product information, they would prefer that," said Antalics.

"The heart of the commission's complaint against Intel was the principle that a monopolist cannot withhold products or information about products in order to retaliate against customers who find themselves in an intellectual property dispute," FTC chairman Robert Pitofsky said in a statement.

Pitofsky added that the commission recognized that there is an "essential balance" that needs to be struck between protecting the incentives of smaller rivals to innovate and unduly constricting a dominant firm's conduct of its business.

The settlement, which is effective for 10 years, prevents Intel from "impeding, altering, suspending, withdrawing [or] withholding" advanced technical information or samples to customers who assert or threaten to assert patents or other types of intellectual property rights, against the chip giant.

"I believe that Intel is a company that will obey the terms of this order and obey the law if they know what the rules are. I expect them to interpret this order in good faith," said Pitofsky. "But of course, as with any order, we are going to keep an eye on whether people are trying to get around the provisions of it in any way."

The FTC has a compliance group which focuses on handling alleged order violations.

Intergraph, a Huntsville, Alabama maker of workstations that is pursuing a private antitrust and patent infringement suit against Intel, hailed the settlement as a victory for the government.

"Clearly, the FTC's concerns and actions were well-founded for Intel to have chosen to settle out of court," the company said in a statement. It added that the decree reinforced a preliminary injunction Intergraph won last April ordering Intel to resume supplies of technical information and chips to the workstation maker.

The preliminary injunction, which is now on appeal, held that Intel products were "essential" to Intergraph's business. Intel began withholding the products shortly before Intergraph filed suit.

"Should the preliminary injunction in Intergraph's lawsuit happen to be lifted on appeal, Intergraph is still protected by this consent decree," Intergraph added.

Intel and the FTC filed a joint motion last Monday, a day before trial was to start, delaying the courtroom battle pending final approval. With a majority of the agency's commissioners signed off on the settlement, it is now open for public comment. Final approval could happen by early summer.

In its complaint, the FTC accused Intel of depriving its smaller customers of one of their chief assets--intellectual property rights that could be used as leverage when negotiating with Intel. Intel was able to take such action by threatening to withhold technical information customers needed to build their products unless they entered into royalty-free cross-licenses, the FTC alleged.

While the consent decree forbids Intel from severing ties with customers who assert patent rights against Intel products, it requires them to agree in writing not to seek an injunction against the use or sale of Intel chips. All three of the alleged Intel victims sought such injunctions, meaning Intel would be free to take the same actions even after entering into the decree.

Under the settlement, Intel does not admit it is a monopolist or that it engaged in any wrongdoing.

The proposal identifies other specific circumstances where Intel is not obligated to supply product or advance technical information, including the following:

• When a customer has breached an agreement regarding the disclosure or use of the information.
• When the information or product is not being provided to other customers.
• When the information would be used to design competing microprocessors.