FTC Files Antitrust Charges Against Intel by Administrative Complaint Under FTC Act

December 16, 2009. The Federal Trade Commission (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. The allegations are in the nature of violations of federal antitrust law.

President Obama's appointees at the FTC and the Department of Justice's (DOJ) Antitrust Division, and their staff, have given speeches and made announcements regarding changing antitrust policy and enforcement practices. This is the first big enforcement case demonstrating that this administration's aggressive words are matched by its activist actions.

The FTC announced in a release that the vote was 3-0. Jonathan Leibowitz, Pamela Harbour, and Thomas Rosch voted. William Kovacic recused himself. One position if vacant.

FTC Chairman Leibowitz and Commissioner Rosch wrote in a joint statement [3 pages in PDF] that "Intel fell behind in the race for technological superiority in a number of markets and resorted to a wide range of anticompetitive conduct, including deception and coercion, to stall competitors until it could catch up".

This wide ranging complaint contains 106 numbered paragraphs, many of which contain subparts.

The complaint alleges 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 alleges 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 alleges, 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 alleges 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".

The FTC charges that Intel's acts and practices constitute "unfair methods of competition", "deceptive acts or practices", and "unfair acts or practices" in or affecting interstate commerce, in violation of Section 5 of the FTC Act.

The FTC further alleges that "Intel has willfully engaged in anticompetitive and exclusionary acts and practices to acquire, enhance or maintain its monopoly power in the relevant markets, constituting unfair methods of competition in or affecting commerce, in violation of Section 5".

And, it alleges that "Intel has willfully engaged in anticompetitive and exclusionary acts and practices, with the specific intent to monopolize or maintain a monopoly in the relevant markets, resulting, at a minimum, in a dangerous probability of monopolization in the relevant markets, constituting unfair methods of competition in or affecting commerce, in violation of Section 5".

Leibowitz and Rosch wrote in their statement that "The complaint challenges Intel's conduct as an unfair method of competition, both in violation of the Sherman Act and also as a ``stand-alone´´ violation of Section 5".

The FTC's request for relief is five pages long, in single spacing. The FTC seeks a cease and desist order that prohibits a wide range of enumerated business practices, including those involving marketing, pricing, and discounts.

The FTC seeks an order "Requiring Intel to make available technology (including whatever is necessary to interoperate with Intel's CPUs or chipsets) to others, via licensing or other means, upon such terms and conditions as the Commission may order, including but not limited to extensions of terms of current licenses" and "Prohibiting Intel from including or enforcing terms in its x86 licensing agreements that restrict the ability of licensees to change ownership, to obtain investments or financing, to outsource production of x86 microprocessors, or to otherwise partner with third parties to expand output". (Parentheses in original.)

The FTC also wants to require Intel to provide the FTC with prior notice of "acquisitions, mergers, consolidations, or any other combinations of assets, including but not limited to intellectual property, in the relevant microprocessor markets and complementary software and hardware products".

AMD, Nvidia and the antitrust bar are among the beneficiaries of this action.

In November, Intel and AMD settled claims brought by AMD in the U.S. District Court. See, story titled "Intel and AMD Announce Settlement Agreement" in TLJ Daily E-Mail Alert No. 2,014, November 12, 2009.

Intel also faces government actions in Europe and New York. On May 13, 2009, the EC announced that it would fine Intel one billion Euros for offering rebates to its customers.

See, 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.

See also, story titled "New York State Files Civil Antitrust Complaint Against Intel" in TLJ Daily E-Mail Alert No. 2,011, November 9, 2009.

Reaction. Intel stated in a release that it "has competed fairly and lawfully. Its actions have benefited consumers. The highly competitive microprocessor industry, of which Intel is a key part, has kept innovation robust and prices declining at a faster rate than any other industry. The FTC's case is misguided. It is based largely on claims that the FTC added at the last minute and has not investigated. In addition, it is explicitly not based on existing law but is instead intended to make new rules for regulating business conduct. These new rules would harm consumers by reducing innovation and raising prices."

Douglas Melamed is now Intel's SVP and General Counsel. He was previously a Deputy Assistant Attorney General (DAAG), and the acting AAG, in the DOJ's Antitrust Division, with responsibility for the Microsoft case. He then worked in the Washington DC office of the law firm of Wilmer Hale.

He stated in Intel's release that "This case could have, and should have, been settled. Settlement talks had progressed very far but stalled when the FTC insisted on unprecedented remedies -- including the restrictions on lawful price competition and enforcement of intellectual property rights set forth in the complaint -- that would make it impossible for Intel to conduct business."

Melamed added that "The FTC's rush to file this case will cost taxpayers tens of millions of dollars to litigate issues that the FTC has not fully investigated. It is the normal practice of antitrust enforcement agencies to investigate the facts before filing suit. The Commission did not do that in this case".

Ed Black, head of the Computer & Communications Industry Association (CCIA), stated in a release that this "shows this administration and this FTC takes antitrust enforcement seriously". He added that "Although we commend Intel for settling its private litigation, it is the FTC who is charged with protecting consumers beyond the scope of the private litigation filed by AMD. We hope that Intel continues on its recent conciliatory path and enters into a larger settlement with the FTC".

Ken Ferree of the Progress & Freedom Foundation (PFF) stated in a release that "I really expected much better of this administration. 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. If this ever ends up before a federal court, I'm sure the FTC's efforts will be exposed for what they are -- an attempt to make headlines rather than good law."