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What's at heart of the FTC case

Three computers vendors are at the heart of the Federal Trade Commission's case against Intel.

Three computers makers are at the heart of the Federal Trade Commission's case against Intel.

The FTC is alleging that Intel has used its monopoly position in an unlawful manner against Digital, Intergraph and Compaq.

Digital brought a patent infringement suit against Intel alleging that Intel's Pentium Pro processor infringed upon the patents supporting Digital's Alpha processor in 1997. In retaliation, Intel cut off information regarding its processor line up, which damaged Digital's ability to sell Intel-based servers.

Intergraph, by contrast, attempted to assert patent claims against other workstation vendors. These vendors sought See special coverage: Intel in a vise indemnification from Intel. The chipmaker then demanded a royalty-free license from Intergraph. Intergraph refused. Intel cut off information to Intergraph and prevented the workstation vendor from getting these chips on time. A patent suit followed.

Compaq had its flow of product information stopped when it tried to sue Packard Bell for appropriating PC circuit board (motherboard) technology in 1994. Packard Bell bought Intel motherboards. Intel interceded and the conflict was quietly settled.

How is Intel a monopoly?
The FTC has flatly said that Intel is a monopoly because of its market share and the barriers of entry inherent in the market. Intel accounts for approximately 80 percent or more of all microprocessors worldwide, according to the FTC's complaint. The figure complies with figures from most analytical firms. In some markets, such as desktop computers, Intel's market share is even higher. (Intel is an investor in CNET: The Computer Network.)

FTC vs. Intel: breakdown by vendor
When Digital sued Intel for patent infringement in 1997, Intel withdrew necessary technical information and created perception that Digital couldn't compete in PC technology market. Digital eventually settled suit.

Intel pulled necessary advance chip information when Intergraph refused to license technology. Breach forced Intergraph to delay workstation. Suit pending.

Compaq sued Packard Bell in 1994 for infringement of motherboard patents. Intel, which supplied Packard Bell, cut Compaq's access to chip information. Access granted only after Compaq dropped suit.

Further, the FTC has alleged that the cost and risk of competing with the market means this share won't likely go away soon. Developing a new microprocessor takes $250 million and four years of development time. In addition, a chip fabrication facility costs $1.6 billion. Even if a competitor were to become a "fabless" chip house, establishing customers, and credibility with customers, would be extremely difficult.

Intel also owns substantial market shares in peripheral chips and motherboards.

What are the strengths of the suit?
The three examples seem to show that Intel will, in advance, give access to its products as a way to prevent computer or even chip vendors from coming out with alternative microprocessor or component technology, according to legal experts. The FTC will show, essentially, that Intel is illegally maintaining its monopoly power by shouting down any company that tries to assert its legal rights.

Where are the pitfalls?
Some observers have said that the FTC will likely have to show that there are more than these three instances to maintain a case. The FTC will also have a difficult time persuasively articulating that a company cannot control its intellectual property.

"If the disputes are contained within that relationship, they have no significant competitive impact," Richard Gilbert, an economics professor at the University of California at Berkeley, said in a recent interview.

"The conduct that is alleged is not unusual in a licensing arrangement," he added. "The question is whether it affects competition generally, and I have not heard anyone make a good case yet."