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Trial was risky for both sides

Although the FTC and Intel are calling today's surprise settlement proposal a "win-win" for both parties, observers say the situation was more of a "can't win" where the risks were huge.

Although the FTC and Intel are calling today's surprise settlement proposal a "win-win" for both parties, observers say the situation was more of a "can't win" where the risks of losing for both parties outweighed the gains to be had in a face-saving settlement.

Both the FTC and Intel faced uphill battles in the legal action brought by the FTC that was supposed to begin tomorrow, say legal and technical analysts.

To win, the FTC was going to have rely on untested legal arguments that have been criticized by experts. The agency was also faced with the specter of hanging a monopolist's label on a company that has lost market share in the past year.

Legal experts also noted that the FTC was going to have difficulty proving that Intel's acts damaged the microprocessor industry. Intel may have hurt Intergraph, but there was little direct evidence that this hurt AMD.

The effect of any ruling, moreover, would have been limited in scope. Both Compaq and Digital settled their lawsuits with Intel a while back.

Another factor: Intel has been grooming its executives in the nuances of antitrust law since the 1980's. Glaring evidence, like the e-mails that have been seen in the Microsoft antitrust case, was not expected.

At the same time, the case posed significant risks to Intel. If the FTC or an appeals court eventually ruled that Intel is a monopolist, the ruling would likely have opened a Pandora's box of legal problems which could have lingered for years, said sources. And, as in the Microsoft case, Intel--a company that seemingly always tries to get an early settlement-- ran the risk of having testimony about the company's business practices being broadcast around the world for months.

"This is the epitome of a sensible settlement for both parties," said Hillard Sterling, an antitrust litigator with Gordon & Glickson. "It was not surprising given the overly narrow focus of the case and the ultimate waste of litigating this for both parties."

"The big gain for Intel is that they are taking a risk," added Linley Gwennap, publisher of The Microprocessor Report. "They could have lost the suit and been declared a monopolist. That could have opened the door to other suits...Intel is very pragmatic, and they realized there wasn't a whole lot to gain out of this."

The tone of the case in many ways seemed to aim toward settlement. Unlike the Microsoft action, the FTC and Intel never seemed to not have achieved the same level of rancor in the pre-trial proceedings.

"Both parties were providing signals they were interested in this for some time," said Kevin Arquit, a former attorney with the FTC's bureau of competition now in private practice at Rogers & Wells.

Settlement is always a strong possiblity with Intel. The Digital case, which was part of the FTC's larger claim, was settled in October 1997, five months after it was filed, on terms beneficial to Digital. The company walked away with cash payments and other consideration worth close to $1.6 billion, sources estimated at the time.

As part of the settlement, Digital transfered a chip fabrication plant to Intel. Although Intel won because it got a state-of-the-art facility in the deal, the transfer was seen as a major win because Digital could not sell enough Alpha processors to run the factory profitably. The sale of the factory likely helped facilitate the sale of the company later to Compaq.

The FTC approved the settlement in April of 1998.

Intel has also made attempts to settle the Intergraph dispute. Craig Barrett, now Intel's CEO, was the company's negotiator in both instances.

In its case, the FTC alleged that Intel violated antitrust laws when it withheld advanced product information and chip samples from Intergraph, Digital, and Compaq as a way of getting them to drop intellectual property claims. In turn, such practices reduced the likelihood that innovations in the chip industry would occur outside of Intel.

The terms of the settlement are still being worked out and have not yet been made public. Sources, however, speculated that in the general terms of the agreement, Intel will agree not 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 no chips.

Sterling and others noted that the risks if Intel lost may have exceeded the benefits if Intel won. Besides potentially bad public relations, the case could have ended with Administrative Judge James Timony declaring Intel a monopolist, a label that could haunt Intel in private suits brought by rivals.

FTC rules might have hurt Intel
What's more, procedure for the trial meant that Intel was likely to lose before it ever won. Under FTC rules, the matter would be decided by Timony, an FTC employee who is sympathetic to the government's case. If Intel were to challenge Timony's ruling, it would appeal to the same four commissioners who last June voted to bring the case.

At the same time, the concessions Intel likely made are probably modest. While neither side would discuss the terms of the settlement, FTC officials say it provides the remedy they sought when filing their case. That means Intel likely agreed to stop withholding advanced product information and samples when customers make unrelated intellectual property claims. Such a concession removes a powerful weapon from Intel's arsenal, but by no means cripples the company.

Similarly, the FTC faced substantial risks in proving its case. When it filed its case, Intel was crushing its competitors. In the past year, however, the company has lost market share.

Arquit and others noted that most antitrust cases result in settlements, a fact that may have been overlooked in light of the acrimonious battle the Justice Department and 19 states are waging against Microsoft.

"After fixating on Microsoft for so long," said University of Baltimore professor Robert Lande, "you forget that most of the time the parties are reasonable."