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Intel denies allegations in FTC brief

Even the FTC's top economist can't find that Intel harmed competition in the microprocessor industry, the chip giant alleges in its pre-trial brief filed today.

Even the FTC's top economist can't find that Intel harmed innovation in the microprocessor industry, the chip giant alleged in its pre-trial brief filed today.

Intel's brief, filed in advance of next week's administrative trial at the Federal Trade Commission, argues that the admission undermines the agency's case that Intel is a monopolist that used its intellectual property to stifle competition among would-be competitors.

Intel noted that Frederic Scherer, the government's economic expert, said in pretrial testimony that the high level of competition in the industry makes it virtually impossible for chipmakers to reduce research and development efforts.

It "is unthinkable that a company could stand still in this kind of industry under any circumstances," Intel quotes Scherer as saying. The economist at Harvard University's Kennedy School of Government also said that innovation among chip companies makes the industry "one of the fastest treadmills I've seen," according to the filing.

What's more, senior executives from virtually every Intel rival agree that Intel's conduct has not slowed their companies' pace of innovation, Intel alleged. Even executives from Compaq Computer and Digital Equipment, which Intel is accused of illegally bullying, said that innovation has not suffered as a result the hard-ball tactics, Intel added.

In an action filed last June, the FTC accused Intel of illegally forcing Intergraph, Compaq, and DEC to license their technology or lose access to crucial Intel products and product information. The actions threaten both current and future competition to Intel's 75 percent market share, the government alleged.

Along with a separate pretrial brief filed by the FTC, the two sides provided the most detailed picture yet of the case they expect to present during trial, which is expected to call between 40 and 50 witnesses and last six to 12 weeks.

In its own pretrial brief, the FTC put to rest speculation that it was expanding the case it would present at trial, scheduled for March 9. The only new material to come to light was a plan by the FTC to allege that the Santa Clara, California, company illegally prevented computer makers, or OEMs, from differentiating the types of chip sets, mother boards and other components they put in their machines.

"Intel's conduct adversely affects rival microprocessor suppliers--albeit indirectly--by reducing the ability of potential OEM customers to rely on the strength of their own brand identity to sell computers using non-Intel microprocessors," FTC lawyers asserted. By "precluding OEMs from differentiating themselves from one another," they argue, Intel "obstructs distribution opportunities" for rival chipmakers.

Intel noted that the claim was first advanced by rival Advanced Micro Devices in a document filed two years ago with the Securities and Exchange Commission. OEMs and other manufacturers of chip technology could continue making Intel-driven technology "only to the extent that Intel makes its related proprietary technology available," AMD warned.

In its filing, Intel pounced on the theory as an "AMD-manufactured claim" that had no merit. The issue of AMD's role in the case is likely to be a major area of contention as the trial unfolds. At least two of the main players in the FTC's case--its lead prosecutor Richard Parker and Scherer, the agency's economic expert--have worked for AMD in the past. Last month, Intel's bid to remove Parker from the case was rejected.

For its part, the FTC will allege that Intel used its dominance to "coerce" customers into licensing their intellectual property, an act that helps cement Intel's dominant position. "The evidence will show that the ability of Intel to force licenses to the technology it desires will, over time, dull the incentive of other firms to innovate," FTC attorneys wrote.

Meanwhile, Intel will argue that it is not a monopolist because it cannot control prices or exclude competition in the market for general purpose microprocessors. It will also present testimony from executives from virtually all of the major chipmakers--including IBM, Sun Microsystems, Motorola, National Semiconductor, and Silicon Graphics--saying Intel's intellectual property conduct has not affected their research and development activities.

For example, William Strecker, senior vice president at Compaq, said in a deposition that his company remained "very committed" to the Alpha microprocessor, while DEC chairman Robert Palmer testified that his company did not scale back research and development on the chip. Compaq acquired DEC in 1998. Both companies entered into cross licenses with Intel after the chip giant threatened to withhold chips and published information.

The lack of evidence, Intel argued, will prove fatal to the FTC's case.

"After more than 18 months of a pre-complaint investigation and pre-trial discovery in which they obtained over 1,000 boxes of documents, [FTC investigators] are still unable to identify any harm to competition," Intel argues. The chipmaker added that even Scherer "concedes that he has found no evidence that innovation has been adversely affected."