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Details of settlement talks emerging

Many witnesses and lawyers had to change travel plans fast this morning after learning of the surprise settlement, a day before the FTC-Intel trial was set to begin.

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 no chips.

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 today.

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 company's position.

"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 of Intergraph.

"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 analysts.

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 many."

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, Intel's spokesman.

"This took two-and-a-half to 3 weeks. We got it formalized late yesterday afternoon," he said.

"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.