Intel agrees to broad new restrictions in settlement

Giant computer chip maker Intel Corp. agreed to accept broad new restrictions on the way it does business to settle federal charges that it abused its dominant market position to stifle competition over the last decade.

Wednesday’s agreement with the Federal Trade Commission could alter the course of the global semiconductor industry, as well as strengthen the hand of the FTC as it looks at other antitrust allegations in the technology sector, including those involving such leading players as Google Inc. and Apple Inc.

“I think it signals the FTC is trying to crack down on anticompetitive behavior in this industry,” said George H. Pike, an assistant professor at the University of Pittsburgh School of Law who teaches intellectual property and writes about information technology issues and the law.

Intel’s agreement, which would be made final after a 30-day period of public comment, would prohibit the Santa Clara firm from using certain rewards, threats and other tactics that regulators say induced computer makers Dell Inc., Hewlett-Packard Co. and others to buy exclusively from Intel. It also requires Intel to back away from engaging in so-called predatory-design changes and exploiting licensing agreements for the purpose of hampering competitors.

The settlement would resolve an administrative complaint brought by the FTC in December, which came after Intel agreed in November to pay $1.25 billion to settle a suit by its longtime rival, Advanced Micro Devices Inc. of Sunnyvale, Calif.

Earlier last year, the European Union levied a $1.45-billion fine against Intel, which the chip maker is appealing. Intel also faces antitrust allegations in Asia.

Although the FTC doesn’t have the authority to levy fines in such cases, the commission’s chairman, Jon Leibowitz, said the agreement goes beyond the terms stemming from the other antitrust complaints against Intel.

The new restrictions, he said, would apply to a broader range of microprocessors — including graphic computing chips — and help restore competition in the semiconductor market.

“The agreement provides fencing-in protection to ensure that Intel doesn’t come up with new ways to undermine competition,” Leibowitz said during a news conference announcing the settlement. “And just as important, it provides this relief right away.”

Intel pointed out that, in settling, the company didn’t admit to any wrongdoing

“This agreement provides a framework that will allow us to continue to compete and to provide our customers the best possible products at the best prices,” said Douglas Melamed, Intel’s general counsel.

Analysts said it wasn’t clear how much the settlement would hurt Intel’s business. The chip maker controls about 80% of the market for central processing units, or CPUs, which function as the brains of personal computers and servers. It holds about a 50% share in the increasingly important category of graphic chips.

But the agreement does appear to bolster the competitive position in the CPU market of AMD, Taiwanese chip maker Via Technologies Inc. and Nvidia Corp., a Santa Clara company that specializes in graphic chips.

The settlement requires Intel, for example, to offer modifications to existing licensing agreements that would give AMD, Nvidia and Via greater ability to form partnerships and raise capital. Intel’s rivals also would have greater rights to contract out manufacturing to third parties, giving them more control over managing supplies.

AMD, whose complaints have been central to various investigations, cheered the settlement, saying the agency “acted firmly in the interest of American consumers.”

Intel’s consent decree with the FTC “backstops the AMD settlement and puts more meat into it,” said Rob Enderle, principal analyst at Enderle Group, a technology advisory firm in San Jose.

But Enderle said the full effects of the settlement might not be known for years to come and would depend on how Intel decides to respond to the agreement — whether it will engage in a bruising fight over its implementation, which could prove costly and distracting, or focus more intensely on research and design to become stronger in the face of greater competition.

At the same time, Enderle said, the new terms could weaken Intel and other American companies in the industry relative to some foreign rivals because antitrust regulations and enforcement are generally weaker in Asia and many other parts of the world.

Either way, neither Enderle nor other experts see lower computer prices for consumers coming directly from the settlement in the immediate future, in part because Intel’s allegedly monopolistic practices included discounting that in some cases artificially lowered prices in the market.

Leibowitz, the FTC’s chairman, acknowledged that it would take awhile for consumers to benefit from the agreement.

“But we think relief will be sooner rather than later,” he said. Had the FTC taken the case to litigation, he said, the dispute probably would have taken two to three years to resolve.