Antitrust lawsuit seeks fundamental changes at Intel

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Federal regulators on Wednesday accused Intel Corp. of abusing its market dominance to stifle competition in a lawsuit that, instead of seeking monetary damages, would impose more painful, fundamental changes on the way the world’s leading computer chip maker does business.

The suit by the Federal Trade Commission reaches further than any of the other regulatory cases brought in recent years against Intel, which commands about 81% of the world’s market for central processing units, the brains of computers and other electronic gear.

If it prevails, the FTC said, consumers could eventually see computer prices drop as Intel’s grip on the chip market loosened and more manufacturers became able to compete.


“What would a fine matter?” said David Balto, a former antitrust official at the FTC and the Justice Department. “What’s important is Intel has engaged in a variety of coercive tactics that have prevented competition . . . and the FTC’s action, if successful, would break those markets open.”

The FTC alleges that Intel has waged a systematic and illegal campaign to shut out rival makers of CPUs and graphic computing chips, known as GPUs, by cutting off their access to the marketplace. In doing so, the agency contends Intel deprived consumers of the opportunity to buy potentially superior competing chips at lower prices.

“Intel has engaged in a deliberate campaign to hamstring competitive threats to its monopoly,” said Richard A. Feinstein, director of the FTC’s Bureau of Competition. “It’s been running roughshod over the principles of fair play and the laws protecting competition on the merits.”

Instead of filing a typical antitrust case, the agency used a broader statute covering unfair competition that prevents it from levying fines for Intel’s actions, which date to 1999.

The law, however, opens the way for the FTC to restrict many of the ways Intel does business. In place of a fine, those restrictions could have more significant consequences for the company and others -- as well as consumers -- by placing new limits on practices such as offering volume discounts and bundling products, antitrust experts said.

But Intel general counsel Doug Melamed said the agency was overstepping its bounds and “advocating new rules for regulating and micromanaging business conduct.”


“Those rules would harm, not help, competition and reduce incentives for companies to invest in research and development and other pro-competitive activities,” he said. “This lawsuit will cost taxpayers tens of millions of dollars but it will not help American consumers.”

Some analysts saw the FTC’s action as a signal of more aggressive antitrust enforcement by the Obama administration. But Feinstein said it was not.

“This is more of a reminder to the business community that when we perceive monopolies that are not competing on the merits, but instead are engaging in exclusionary conduct to the detriment of consumers, we are prepared to act,” he said.

Feinstein noted that the formal investigation began in May 2008, under the Bush administration, and that the FTC voted unanimously to file the suit, with one Republican joining two Democrats. Another Republican commissioner, William Kovacic, recused himself. A fifth commission seat is vacant.

The suit is the latest regulatory challenge to Intel, which has been targeted by regulators in Europe and Asia. The European Union levied a $1.45-billion fine against Intel in March, charging that the company had forced computer makers to use its chips instead of those of its main rival, Advanced Micro Devices Inc.

New York Atty. Gen. Andrew Cuomo last month filed antitrust charges against the company. And more recently Intel agreed to pay $1.25 billion to Advanced Micro Devices to settle a bitter, long-running lawsuit that echoed many of the FTC’s allegations.


The FTC said Intel used threats and rewards aimed at the world’s largest computer makers, including Dell, Hewlett-Packard and IBM, to keep them from buying rival computer chips. In addition, the agency accused Intel of secretly redesigning key software, known as a compiler, in a way that stunted the performance of competitors’ products.

The FTC is seeking to force Intel to make a host of changes to its business practices, including limiting the way it uses discounts and bundling to sell its products, as well as requiring it to make its technology available to other companies so that their products would operate with Intel chips.

The case builds upon allegations that Advanced Micro Devices has made for years. But the FTC added new accusations that Intel has choked off competition among makers of a different kind of chip that handles advanced computer graphics. The FTC said Intel reacted to the new chips as it did to earlier ones that threatened its market share -- by engaging in illegal actions, such as bundling its products in a way that made it difficult for rivals to compete.

Advanced Micro Devices and Nvidia, a maker of graphic chips, both lauded the lawsuit.

“As the FTC states, when Intel fell behind in innovation within its core CPU market, it moved to smother competition in the GPU marketplace,” said Nvidia Chief Executive Jen-Hsun Huang. “This has curbed innovation and investment, and reduced consumer choice.”

Billion-dollar fines, while seemingly huge, have not significantly hurt Intel, which does nearly $40 billion in annual business, said analyst Patrick Wang of Wedbush Morgan Securities Inc.

“They’ve got such a big war chest, that if you fine them another billion dollars -- they’ll just say, ‘Oops, sorry,’ and move on,” he said.


But Intel may not look kindly on the FTC’s trying to set the terms of its business, said Stacy Rasgon, an analyst at Sanford C. Bernstein & Co. Rasgon said some of the business changes the government hoped to impose on Intel looked “vague” and “open-ended.”

“If I were running a technology-based company the size of Intel, with all the leverage they have, I wouldn’t want to sign on to something like that,” he said.

Melamed said Intel had done nothing wrong and called the FTC case “misguided.” And free-market advocates came to the company’s defense.

“No serious antitrust theory supports the FTC’s action, which appears to take Intel to task for competing ferociously in a market that is ferociously competitive,” said Ken Ferree, a senior fellow at the Progress & Freedom Foundation, a Washington think tank.

But Balto said the FTC case was a major advancement over other cases because it tries to prevent abuses in “the battle for supremacy in future products” instead of focusing on past practices.

And consumers ultimately will benefit, said Bert Foer, president of the American Antitrust Institute, a consumer-focused advocacy group partially funded by Advanced Micro Devices.


“You want these companies to stay in the market and be fighting against each other in ways that traditionally benefit consumers,” he said. “What you don’t want is a dominant firm that ends up being the . . . the only real place to go.”

Times staff writer Don Lee contributed to this report.