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August 4, 2010, Alert No. 2,118.
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FTC and Intel Settle Antitrust Claims

8/4. The Federal Trade Commission (FTC) and Intel announced that they have settled the FTC's administrative claims that Intel violated Section 5 of the FTC Act. See, Agreement Containing Consent Order [3 pages in PDF] and Decision and Order [22 pages in PDF].

This proceeding is in the nature of a Sherman Act antitrust case. However, the FTC proceeded under Section 5 of the FTC Act, which has only rarely been invoked in the antitrust context, to avoid the large body of antitrust case law, and reach conduct that is not prohibited by the antitrust statutes.

The Decision and Order, among other things, regulates Intel's pricing and other marketing practices, changes Intel's obligations under intellectual property contracts with AMD, Nvidia, and Via, requires Intel to extend Via's x86 licensing agreement through 2018, and compels Intel to maintain the PCI Express Bus for at least six years.

The order consists of definitions and mandates. It does not explain the FTC's understanding of the antitrust obligations that arise under Section 5 of the FTC Act.

The order is not final. The FTC seeks public comments before making the order final. Comments are due by September 7, 2010.

Summary of the Order. The Decision and Order provides that it "does not constitute an admission by Respondent that the law has been violated as alleged in such complaint, or that the facts as alleged in such complaint, other than jurisdictional facts, are true". (Intel is the Respondent.)

This settlement does not resolve the legal questions of whether the FTC has authority to bring antitrust actions under Section 5 of the FTC Act, and if so, what is the extent of that authority, and what anticompetitive conduct constitutes a violation of Section 5.

The FTC stated in a release that Intel is prohibited by the order from "conditioning benefits to computer makers in exchange for their promise to buy chips from Intel exclusively or to refuse to buy chips from others; and retaliating against computer makers if they do business with non-Intel suppliers by withholding benefits from them".

The FTC stated in this release that Intel must also "modify its intellectual property agreements with AMD, Nvidia, and Via so that those companies have more freedom to consider mergers or joint ventures with other companies, without the threat of being sued by Intel for patent infringement".

The FTC stated in an analysis [16 pages in PDF] of the order that it "is designed to protect the ability of customers and existing and future Intel competitors to engage in mutually beneficial trade, while prohibiting Intel from using certain practices to deter or thwart such trade. The Proposed Consent Order therefore prohibits Intel from engaging in: 1) certain pricing practices that could allow Intel to exclude competitors while maintaining high prices to consumers ...; 2) predatory design that disadvantages competing products without providing a performance benefit to the Intel product ...; and 3) deception related to its product road maps, its compilers, and product benchmarking ..."

This FTC analysis also states that the order "seeks to undo the effects of Intel’s past restraints on competition by enhancing the ability of AMD, NVIDIA, Via, and others to compete effectively with Intel. To that end, the Proposed Consent Order seeks: 1) to make it easier for AMD, NVIDIA, and Via to use third-party foundries to manufacture products (to enable them to better match Intel's manufacturing advantages) ...; 2) to give AMD, NVIDIA, and Via flexibility to secure modifications of change of control provisions in their Licensing Agreements with Intel ...; 3) to extend Via’s intellectual property license ...; and 4) to provide assurances to manufacturers of complementary and peripheral products that they will be able to connect their devices to Intel’s CPUs ..."

The FTC analysis cites as authority for the proposition that it can use Section 5 as an antitrust tool only two ancient cases. The main authority is the Supreme Court's 1953 opinion in FTC v. Motion Picture Adv. Serv. Co., 344 U.S. 392. The Court wrote then that "the Federal Trade Commission Act was designed to supplement and bolster the Sherman Act and the Clayton Act". Then, in 1966, the Supreme Court quoted this opinion in its opinion in FTC. v. Brown Shoe Co., 384 U.S. 316. Antitrust law has been transformed significantly since then.

Procedural History. On December 16, 2009, the FTC filed a five count administrative complaint [24 pages in PDF] against Intel alleging violation of Section 5 of the FTC Act, which is codified at 15 U.S.C. § 45. However, the allegations are in the nature of violations of federal antitrust law. See, story titled "FTC Files Antitrust Charges Against Intel by Administrative Complaint Under FTC Act" in TLJ Daily E-Mail Alert No. 2,024, December 17, 2009.

The FTC complaint alleged that from 1999 forward Intel's conduct "was and is designed to maintain Intel's monopoly in the markets for Central Processing Units" or CPUs, and "to create a monopoly for Intel in the markets for graphics processing units" or GPUs.

The complaint alleged that the relevant markets are first, "CPUs for use in desktop, notebook, netbook (or nettop) computers, servers, and narrower relevant markets contained therein", and second, "GPUs (including all graphics processors, or chipsets with graphics processors regardless of industry nomenclature) for use in desktop, notebook, netbook (or nettop) computers, servers, and narrower relevant markets contained therein". (Parentheses in original.)

The complaint alleged, among other things, that Intel acted "to block or slow the adoption of competitive products and maintain its monopoly to the detriment of consumers. Among those practices were those that punished Intel’s own customers – computer manufacturers -- for using AMD or Via products. Intel also used its market presence and reputation to limit acceptance of AMD or Via products, and used deceptive practices to leave the impression that AMD or Via products did not perform as well as they actually did."

It further alleged that Intel entered into "anticompetitive arrangements with the largest computer manufacturers that were designed to limit or foreclose the OEMs’ use of competitors' relevant products", "offered market share or volume discounts selectively to OEMs to foreclose competition in the relevant CPU markets", "used its position in complementary markets to help ward off competitive threats in the relevant CPU markets", and "paid or otherwise induced suppliers of complementary software and hardware products to eliminate or limit their support of non-Intel CPU products".

On December 31, 2009, Intel submitted its Answer [22 pages in PDF]. It denied most of the factual allegations in the complaint. It denied that it violated Section 5 of the FTC Act. It asserted that "The Complaint fails to state a claim upon which relief can be granted under Section 5". It also argued that the relief sought in by the complaint would "harm competition, injure consumers, interfere with valid contracts, and abrogate valid intellectual property rights".

Intel's answer also argued that Intel did not receive "fair notice" of the FTC's "new, ad hoc interpretations" of Section 5 of the FTC Act. Moreover, "Those interpretations are vague, novel, and in important respects inconsistent with existing antitrust standards. Intel did not have reasonable or adequate notice of the standards by which the Commission now proposes to judge its conduct when it engaged in that conduct. Further, the Commissioners' new, proposed interpretations of Section 5 do not provide reasonable persons, including Intel, with fair notice of the standards to which they must conform their conduct in the future. The Commission’s proposed interpretations of Section 5 are thus unconstitutionally vague on their face and/or as applied to Intel’s prior and contemplated conduct. Therefore, application of the Commissioners’ proposed interpretations of Section 5 to Intel would not be in the public interest and would violate Intel's rights to due process under the Fifth Amendment to the Constitution of the United States."

Intel also argued in its answer that the microprocessor market is competitive. It wrote that "The Complaint paints a picture of competition for microprocessors and graphics products that bears little resemblance to reality. Competition in these sectors has been robust during the period covered by the Complaint, producing greater consumer benefits than any other sector of the economy."

Intel continued that "According to the Complaint, Intel's alleged conduct raised the prices of microprocessors (also known as ``CPUs´´) and the products containing them. In reality, during the period covered by the Complaint, according to U.S. Bureau of Labor Statistics data, microprocessor prices, adjusted for quality, declined at an annual rate of 42%. This rate of decline was greater than that of any of the 1,200 other products that the Bureau tracks, including any other high-technology product. During the same period, the quality-adjusted price of personal computers declined at an annual rate of 23%. Contrary to the Complaint's allegation that Intel’s conduct reduced output, sales of x86 microprocessors grew from 136.5 million in 1999, the first year covered by the Complaint, to 324.7 million in 2008." (Emphasis in original. Parentheses in original.)

The FTC sought to admit into evidence the European Commission's decision in its antitrust proceeding against Intel. See, EC Decision [518 pages in PDF].

See also, story titled "European Commission Initiates Proceeding Against Intel Alleging Anticompetitive Behavior" in TLJ Daily E-Mail Alert No. 1,617, July 26, 2007, story titled "EC Fines Intel One Billion Euros" in TLJ Daily E-Mail Alert No. 1,937, May 12, 2009, and story titled "EC Releases Intel Decision" in TLJ Daily E-Mail Alert No. 1,986, September 22, 2009.

On May 6, 2010, the FTC's administrative law judge (ALJ) ruled the EC decision inadmissible in this U.S. administrative proceeding. See, Order Denying Complaint Counsel's Motion to Admit European Commission Decision [PDF].

Reaction to the FTC Intel Settlement

8/4. Doug Melamed, Intel's General Counsel, stated in a release that the antitrust settlement agreement between the Federal Trade Commission (FTC) and Intel "provides a framework that will allow us to continue to compete and to provide our customers the best possible products at the best prices ... The settlement enables us to put an end to the expense and distraction of the FTC litigation."

Melamed was part of the legal team at the Department of Justice's (DOJ) Antitrust Division (AD) that sued Microsoft in 1998. He was a Deputy Assistant Attorney General, and later head of the AD after the departure of Joel Klein.

Jonathan LeibowitzJonathan Leibowitz (at right), Chairman of the FTC, stated in a FTC release that "This case demonstrates that the FTC is willing to challenge anticompetitive conduct by even the most powerful companies in the fastest-moving industries".

Ed Black, head of the Computer and Communications Industry Association (CCIA), stated in a release that "This proposed settlement hopefully means that we may soon end a dark chapter in our industry's history. However, we are not there yet. Whether the settlement is effective largely depends on how the FTC enforces it, including the mechanisms it puts in place to do so. It also depends on Intel making a good faith effort to live up to the spirit of the agreement. I have seen well-intentioned antitrust actions completely gutted during the enforcement process."

He added that "Of particular significance to our industry is the recognition, once again, that intellectual property rights and claims have been misused to achieve anticompetitive purposes."

Tom Lenard, head of the Technology Policy Institute (TPI), stated in a release that "It is understandable that both the FTC and Intel would want to settle this case and avoid protracted litigation. However, because the FTC's initial complaint was questionable, it is questionable whether this settlement helps consumers or promotes competition. Overall, I am concerned that this order does the opposite of what antitrust enforcement is supposed to do and runs the risk of deterring behavior that is pro-competition and pro-consumer."

Lenard elaborated that "Major provisions of the proposed order limit Intel's volume discounting practices and modify, in potentially significant ways, some of Intel's intellectual property agreements. Both can have adverse consequences. Since price competition is the essence of competition, authorities should be extremely wary of micromanaging the ways in which firms can price compete. Moreover, ex post modifications of intellectual property licensing agreements affect not only Intel but other firms in high-tech markets in ways that reduce incentives to invest in innovation."

Paul Otellini, P/CEO of Intel, is scheduled to speak at the three day conference titled "TPI Aspen Forum" and "Innovation and Critical Policy Choices: Is the United States Losing its Edge", in Aspen, Colorado, on August 22-24, 2010.

Commentary on Antitrust Processes

8/4. Intel stated in its release regarding the Federal Trade Commission's (FTC) administrative action against it that this settles an "antitrust suit". The FTC stated in its release that it "sued" Intel.

However, there is no lawsuit or other judicial proceeding. Moreover, the FTC alleged no violation of the Sherman Act, Clayton Act, or other antitrust statute.

The FTC proceeded administratively, acting as investigator, prosecutor, and judge. And, it proceeded under Section 5 of the FTC Act, which is codified at 15 U.S.C. § 45. This is primarily an anti-fraud statute.

The FTC has statutory authority to enforce antitrust laws. There are well developed bodies of judicial case law that construe and give meaning to the various sections of the Sherman Act and Clayton Act. In contrast, Section 5 of the FTCA has hardly been invoked as an antitrust statute for decades. There is no body of case law that gives meaning to Section 5 as an antitrust statute.

This is why the FTC has chosen to invoke Section 5. It enables the FTC to regulate conduct that is not unlawful under the antitrust statutes.

There now is almost nothing to put companies on notice as to what might constitute a violation of Section 5 in the antitrust context. There is almost nothing to constrain the FTC. This is the essence of government intransparency.

Intel raised the issues of whether the FTC has authority under Section 5 of the FTC Act to bring this administrative action, and whether the lack of notice to Intel violated various of its rights.

With this settlement, these issues go unresolved. Although, now that the FTC has brought and settled a high profile antitrust action under the rubric of Section 5 of the FTC Act, other prospective antitrust targets of FTC actions are on notice that the FTC may apply Section7nbsp;5 again.

Leibowitz stated in the FTC release that now everyone has "a greater degree of certainty about the rules of the road going forward". Actually, future FTC targets remain in the dark as to what the FTC might consider to constitute a violation of Section 5 in the antitrust context.

Moreover, no one knows, if the FTC brings another antitrust Section 5 administrative action, and enters an order without the consent of the target, whether the judicial department will say that the Sherman Act, but not Section 5, apply to that antitrust claim.

Perhaps the FTC will invoke Section 5 antitrust authority in a manner analogous to how the Federal Communications Commission (FCC) invokes antitrust merger review authority. The FCC lacks statutory authority to conduct antitrust merger reviews. Hence, it invokes this authority in a manner that evades judicial review. Such review would likely result in a Court of Appeals holding that the FCC lacks antitrust merger review authority.

The FCC only conducts antitrust merger reviews involving entities that are repeat players before the FCC, and for whom time is of the essence in obtaining FCC approval of the merger. In other mergers, the parties may not consent to the FCC's conditions. If the FCC were to issue a final order without consent that blocks the merger, or imposes conditions, then those parties might file a petition for review of the FCC's final order. Hence, the FCC is careful in picking its targets and its merger conditions.

Similarly, the FTC, cognizant of the weakness of its assertions that Section 5 of the FTC Act can be applied as a substitute for the Sherman Act, and that in can proceed in the absence of any guidance as to what constitutes an antitrust violation of Section 5, may be cautious in picking its targets and remedies.

For example, a company like Oracle, which has a history of snubbing the FTC and defeating the FTC in the District Court, may make an unlikely target. The FTC may also be hesitant to impose draconian remedies that might incent an otherwise compliant company to seek judicial review.

Also, the FTC, in the case of targets that refuse to enter into consent agreements, may simply keep the proceeding open indefinitely, and not issue an appealable final order.

It should be noted that under Section 3 of the FTC's rules, the FTC can force the proceeding at a pace so rapid that it denies the target the opportunity to mount an effective defense. But, nothing in these rules then requires the FTC to enter a final order in a timely manner. See, story titled "FTC Writes Rules to Bolster Power of Antitrust Regulators" in TLJ Daily E-Mail Alert No. 1,882, January 13, 2009.

In This Issue
This issue contains the following items:
 • FTC and Intel Settle Antitrust Claims
 • Reaction to the FTC Intel Settlement
 • Commentary on Antitrust Processes
 • People and Appointments
 • More News
Washington Tech Calendar
New items are highlighted in red.
Wednesday, August 4

The House is in recess. It will next meet at 2:00 PM on September 14, 2010. See, HConRes 308.

The Senate will meet at 9:30 AM. It will resume consideration of the House message to accompany HR 1586 [LOC | WW].

8:30 - 10:45 AM. Day two of a two day partly closed meeting of the Department of Commerce's (DOC) Bureau of Industry and Security's (BIS) Emerging Technology and Research Advisory Committee. The BIS did not disclose the subject matter of this meeting. See, notice in the Federal Register: July 16, 2010, Vol. 75, No. 136, at Pages 41439-41440. Location: DOC, Hoover Building, Room 3884, 14th Street between Pennsylvania and Constitution Avenues, NW.

9:00 AM - 5:00 PM. Day one of a three day meeting of the National Institute of Standards and Technology's (NIST) Information Security and Privacy Advisory Board (ISPAB). The agenda includes "Embedded software (biomedical, ICS) and associated malware", "FISMA Guidance", "National Initiative for Cybersecurity Education (NICE)", "Key Priorities next 2-3 years for NIST in cyber security", "Threat Vector Initiative", "Fedramp", "Cyber Coordinator Briefing", "National Protection and Programs Directorate Briefing", "Security Roadmap", "Initiative 3 Exercise (Einstein)", "S-Cap usage and continuous monitoring", "Authentication and Trust Framework Secure Online Transaction (SOT) Work", and "Assurance of Legitimate Government Outbound Mail". See, notice in the Federal Register, July 13, 2010, Vol. 75, No. 133, at Pages 39920-39921. Location: Marriott Hotel Washington, 1221 22nd St., NW.

10:00 AM. The Senate Judiciary Committee's (SJC) Subcommittee on Terrorism and Homeland Security will hold a hearing titled "Government Preparedness and Response to a Terrorist Attack Using Weapons of Mass Destruction". See, notice. The HJC will webcast this event. Location: Room 226, Dirksen Building.

10:00 - 11:00 AM. The American Enterprise Institute (AEI) will host an event titled "After ECFA: The Present and Future of Cross-Strait Relations". The ECFA is the Economic Cooperation Framework Agreement, a free trade agreement between the People's Republic of China and Taiwan. The speakers will be Shin-Yuan Lai (Minister of Taiwan's Mainland Affairs Council), and Gary Schmitt (AEI). See, notice. Location: AEI, 1150 17th St., NW.

10:00 AM. The U.S. Court of Appeals (FedCir) will hear oral argument in Shum v. Intel, App. Ct. Nos. 2009-1385 and 2010-1109. Location: Courtroom 201.

2:00 - 4:00 PM. The Federal Communications Commission's (FCC) Consumer Advisory Committee will meet. See, FCC notice and notice in the Federal Register, July 19, 2010, Vol. 75, No. 137, at Page 41863. Location: FCC, Room 3B516, 445 12th St., SW.

4:00 PM. Timothy Geithner (Secretary of the Treasury) will give a speech. The Center for American Progress (CAP) will webcast this event. Location: CAP, 10th floor, 1333 H St., NW.

Thursday, August 5

8:30 AM - 5:00 PM. Day two of a three day meeting of the National Institute of Standards and Technology's (NIST) Information Security and Privacy Advisory Board (ISPAB). See, notice in the Federal Register, July 13, 2010, Vol. 75, No. 133, at Pages 39920-39921. Location: Marriott Hotel Washington, 1221 22nd St., NW.

10:00 AM. The Senate Judiciary Committee (SJC) will hold an executive business meeting. The agenda again includes consideration of several judicial nominees: Mary Helen Murguia (to be a Judge of the U.S. Court of Appeals for the 9th Circuit), Edmond E-Min Chang (U.S. District Court, Northern District of Illinois), Leslie Kobayashi (USDC/DHawaii), Denise Casper (USDC/DMass), and Carlton Reeves (USDC/DMiss). See, notice. The SJC will webcast this event. The SJC rarely follows its published agendas. Location: Room 226, Dirksen Building.

10:00 AM. The U.S. Court of Appeals (FedCir) will hear oral argument in Typhoon Touch v. Dell, App. Ct. No. 2009-1589, an appeal from the U.S. District Court (EDTex) in a patent infringement case regarding touch screen computing technology. Location: Courtroom 201.

10:00 AM. The U.S. Court of Appeals (FedCir) will hear oral argument in Nuance Communications v. ABBYY Software, App. Ct. No. 2010-1100. Location: Courtroom 201.

10:30 AM. The Federal Communications Commission (FCC) may hold an event titled "open meeting". Location: FCC, Commission Meeting Room, 445 12th St., SW.

2:30 PM. The Senate Intelligence Committee (SIC) will hold a closed hearing. Location: Room 218, Hart Building.

Friday, August 6

8:00 AM - 12:30 PM. Day three of a three day meeting of the National Institute of Standards and Technology's (NIST) Information Security and Privacy Advisory Board (ISPAB). See, notice in the Federal Register, July 13, 2010, Vol. 75, No. 133, at Pages 39920-39921. Location: Marriott Hotel Washington, 1221 22nd St., NW.

10:00 AM. The U.S. Court of Appeals (FedCir) will hear oral argument in Extreme Network v. Enterasys Network, App. Ct. No. 2009-1325, an appeal from the U.S. District Court (WDWisc) in a patent infringement case regarding computer networks technology. Location: Courtroom 201.

10:00 AM. The U.S. Court of Appeals (FedCir) will hear oral argument in Western Union v. Moneygram, App. Ct. No. 2010-1080, an appeal from the U.S. District Court (WDTex) in a patent infringement case regarding money transfer technology. Location: Courtroom 201.

Deadline to submit initial comments to the Federal Communications Commission (FCC) in response to its Notice of Proposed Rulemaking (NPRM) regarding license renewals, discontinuance of operations, geographic partitioning, and spectrum disaggregation for certain Wireless Radio Services. The FCC adopted this NPRM on May 20, 2010, and released the text [71 pages in PDF] on May 25, 2010. It is FCC 10-86 in WT Docket No. 10-112. See, notice in the Federal Register, July 7, 2010, Vol. 75, No. 129, at Pages 38959-38974.

Monday, August 9

The House may meet. See, release of Rep. John Boehner (R-OH), the House Republican leader.

Tuesday, August 10

The House may meet. See, release of Rep. John Boehner (R-OH), the House Republican leader.

6:00 - 8:15 PM. The DC Bar Association will host a panel discussion titled "The Legal Duty to Provide Information Security: Who, What, When, Where and How". The speaker will be Jay Westermeier (Finnegan). The price to attend ranges from $89 to $129. Reporters are barred from attending most DC Bar events. This event qualifies for CLE credits. See, notice. For more information, call 202-626-3488. Location: DC Bar Conference Center, 1101 K St., NW.

Wednesday, August 11

9:00 AM - 1:00 PM. The Commodities Futures Trading Commission's (CFTC) and Securities and Exchange Commission's (SEC) Joint CFTC-SEC Advisory Committee on Emerging Regulatory Issues will meet. See, notice in the Federal Register, July 29, 2010, Vol. 75, No. 145, at Page 44781. Location: CFTC, Three Lafayette Centre, 1155 21st St., NW.

2:00 - 4:00 PM. The Department of State's (DOS) International Telecommunication Advisory Committee (ITAC) will meet to discuss preparations for the 2011 ITU-R World Radiocommunication Conference Preparatory Meeting. See, notice in the Federal Register, June 21, 2010, Vol. 75, No. 118, at Page 35122. Location: 1200 Wilson Boulevard, Arlington, VA.

Deadline to reply comments to the Federal Communications Commission (FCC) in response to its Notice of Inquiry and Notice of Proposed Rulemaking (NOI and NPRM) [222 pages in PDF] regarding high cost universal service subsidies and broadband. The FCC adopted and released this item on April 21, 2010. It is FCC 10-58 in WC Docket No. 10-90, GN Docket No. 09-51, and WC Docket No. 05-337. See, notice in the Federal Register, May 13, 2010, Vol. 75, No. 92, at Pages 26906-26916.

People and Appointments

7/30. The American Federation of Television and Radio Artists (AFTRA) named Mary Cavallaro head of its news department. She replaces Debra Osofsky. See, AFTRA release.

More News

8/4. The Federal Communications Commission (FCC) published a notice in the Federal Register that sets comment deadlines for its Notice of Proposed  Rulemaking (NPRM) [92 pages in PDF] regarding changes to its Personal Radio Services rules. Initial comments are due by September 3, 2010. Reply comments are due by September 20, 2010. The FCC adopted this NPRM on June 1, 2010, and released the text on June 7, 2010. It is FCC 10-106 in WT Docket No. 10-119. See, Federal Register, August 4, 2010, Vol. 75, No. 149, at Pages 47141-47169.

8/4. The Federal Communications Commission (FCC) published a notice in the Federal Register that sets comment deadlines for its Notice of Proposed Rulemaking (NPRM) and Further NPRM [36 pages in PDF] regarding "prescribing a point to point predictive model for determining the ability of individual locations to receive an over the air digital television broadcast signal at the intensity level needed for service through the use of an antenna" (NPRM), and "determining eligibility of satellite subscribers for receiving distant network signals from their satellite TV provider using on-location testing/measurements" (FNPRM). Initial comments are due by August 24, 2010. Reply comments are due by September 3, 2010. This NPRM is required by the Satellite Television Extension and Localism Act of 2010 (STELA), which the Congress enacted in May. See, story titled "Obama Signs Satellite TV Bill" in TLJ Daily E-Mail Alert No. 2,089, May 28, 2010. The FCC adopted and released this item on July 28, 2010. It is FCC 10-133 in ET Docket Nos. 10-152 and 06-94. See,  in the Federal Register, August 4, 2010, Vol. 75, No. 149, at Pages 46885-46894.

8/2. The Semiconductor Industry Association (SIA) announced in a release that "Global sales of semiconductors in the second quarter of 2010 grew to $74.8 billion, an increase of 7.1 percent from the first quarter total of $69.9 billion" and that "June 2010 sales of $24.9 billion were 0.5 percent higher than May when sales were $24.8 billion."

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