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FTC-Intel effect is largely psychological

The settlement approved today will make large companies think twice about retaliating against a smaller firm.

Intel and the Federal Trade Commission forged a pragmatic deal that sets new restrictions on the world's largest chipmaker.

The ruling may effect the psychology of some other Silicon Valley companies but its legal effect will likely be limited mostly to companies selling general purpose microprocessors.

The ruling may make it virtually unthinkable for companies to exercise some of the more drastic options available when asserting patents and other intellectual property against Intel, said Stephen Calkins, a professor at Wayne State University and general counsel at the FTC from 1995 to 1997.

Companies that file patent infringement suits generally have two recourses. The first is to seek monetary damages from the infringing company. The second, is to seek an injunction prohibiting the manufacture, sale, or use of the infringing product. Injunctions are considered much more severe, because they can prevent a company from selling its flagship product.

"All of the protections the FTC is giving customers apply only if they forego injunctions," Calkins explained. In signing the agreement, "Intel has managed to reduce the dollar value of claims against it by, as a practical matter, removing firms' ability to close [Intel] down."

In a complaint filed last June, the FTC alleged Intel was a monopolist that coerced three customers into signing over valuable intellectual property rights or lose products and data that were crucial to the companies' business. The agency sought an order preventing Intel from engaging in the practice.

The consent order made public today provides new ground rules for Intel and its customers when they wrangle about patents and other intellectual property. Under the deal, Intel is barred from withholding advanced product information and samples from those customers as long as they agree not to seek court orders prohibiting the sale or use of Intel products. The deal, however, protects Intel's right to use those strong-arm tactics when customers asserting intellectual property seek such an injunction.

In return for losing one of the more powerful weapons in their arsenal, companies with intellectual property beefs against Intel gain the assurance that they will not be cut off from the products and data they need in order to survive. Under the settlement, seeking royalties and damages from Intel will become significantly less risky, a factor some say will foster competition.

"This will make it easier for players like Compaq or DEC or other large computer companies to potentially engage with companies who are designing and developing future generation of microprocessors that might compete with Intel," said an attorney at a large chip company, who asked not to be named.

Outside the market for general purpose microprocessors, however, the agreement is not likely to have broad consequences, some legal observers noted.

"This will be seen as a modest accomplishment for the FTC that does not have far-reaching implications for other firms," said William Kovacic, a professor of law at George Washington University. "A litigated case would have yielded a decision on a very important legal principle that would have had broad significance in this industry and others. Settlements lack that kind of significance."

The settlement is also too fact-specific to set much of a precedent, Kovacic and others added. Nonetheless, Wayne State's Calkins said, the settlement is likely to make large companies think twice as they deal with smaller customers. "Any firm that has substantial power will have to review this order carefully before retaliating against a firm that exercises its intellectual property rights against it," he said.