Intel Settles Lawsuit With US Trade Commission

Intel can no longer use its market dominance and money to hinder competition from the likes of Advanced Micro Devices and Nvidia, according to an agreement between the giant chip maker and the Federal Trade Commission announced on 4 Aug.

The agreement resolves a lawsuit filed against Intel in December 2009 in which federal regulators said the company used a combination of conditional financial payments and coercion to convince OEMs to limit their use of competing products from AMD, Nvidia and Via Technologies. The FTC also accused Intel of altering some of its technologies to hamper the performance of products from AMD and others.

The result was an anti-competitive environment that stunted innovation, reduced choices and kept prices higher than necessary, according to Jon Leibowitz, chairman of the FTC.

The new settlement is designed to ensure that doesn’t happen again, Leibowitz said during a conference call with journalists.

Consumer Benefits

Reaching an agreement was important to avoid years of litigation, he said. Consumers will feel the results quickly. “It provides this relief right away, so it helps consumers now, which is critical in a dynamic industry such as this one,” Leibowitz said.

Intel officials said they were happy to put the lawsuit behind them, and noted that they did not admit to violating any antitrust laws nor to any allegations in the FTC lawsuit.

“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,” Doug Melamed, Intel senior vice president and general counsel, said in a statement. “The settlement enables us to put an end to the expense and distraction of the FTC litigation.”

The FTC will conduct a 30-day public comment period on the settlement, then make a final vote on it.

Intel has been hammered for several years by allegations of using unfair business practices to illegally hold down competition from AMD. FTC was the first regulatory body to allege that Intel had used similar practices in its dealings with Nvidia in the growing graphics space.

In this case, Leibowitz said Intel’s “disturbing behavior” had been going on for a decade. That behavior, he said, included using conditional rebates and discounts, as well as threats, against OEMs to limit their use of AMD and Nvidia products. The FTC also claimed that Intel altered some of its technologies—such as compilers—to weaken the performance of AMD products. “If Mother Teresa ran a chip company, she probably wouldn’t participate in this kind of practice, but it wouldn’t be illegal,” he said.

What was troubling was that Intel officials made it sound as though problems with AMD’s products, and not their own changes of Intel technologies, caused the poor performance, convincing OEMs that the issue had to do with AMD chips.

As part of the settlement, Intel is not allowed to alter its technologies to harm competitors, must modify intellectual property agreements with AMD, Nvidia and Via to enable them to create mergers and joint ventures with other vendors without fear of being sued by Intel over patent infringements, must extend Via’s x86 licensing agreement to 2018, and must keep the PCI Express Bus interface for at least six years to ensure that the performance of GPUs is not harmed.

Intel also will create a $10 million (£6.3m) fund to reimburse software developers who must recompile their code to work with competing products.
Officials from AMD and Nvidia applauded the FTC’s actions.

“The FTC has acted firmly in the interest of American consumers to safeguard the competitive process in the critically important microprocessor and graphics markets,” AMD officials said in a statement. “A level playing field is AMD’s goal, and we are confident that our world-class computing and graphics processors will deliver great value and benefit to consumers in a fair and open marketplace.”

“Nvidia supports the FTC’s action to address Intel’s continuing global anticompetitive conduct,” said a statement from the graphics maker, which is suing Intel over its business practices. “Any steps that lead a more competitive environment for our industry are good for the consumer. We look forward to Intel’s actions being examined further by the Delaware courts later this year, when our lawsuit against the company is heard.”

Ed Black, president and CEO of the Computer and Communications Industry Association, also was pleased with the settlement, but warned that its effectiveness depended on the FTC’s enforcement and Intel’s good-faith efforts.

“I have seen well-intentioned antitrust actions completely gutted during the enforcement process,” Black said. “If Intel is serious about returning to good standing then it must live by the spirit of the settlement, not just its letter. Whether it does or not remains to be seen.”

He said the FTC has shown more foresight in this settlement than other agencies have in past actions against Intel.

Joe Clabby, an analyst with Clabby Analytics, said he normally supports a hands-off approach to business competition, with as little government intervention as possible. However, in cases like Intel using its strong market presence and money to unfairly hurt competitors, such intervention is important, he said.
“I’m all for punishing giants that behave in this manner,” Clabby said in an interview with eWEEK, adding that such actions will change Intel’s practices. “I think they’re getting the message … and hopefully this [will curb] their behavior.”

The problem, he said, is that “Intel does stupid things.” One of those things was taking over the Itanium project from Hewlett-Packard more than a decade ago, and early on, in an effort to make the processor the high-end chip platform of the future, stunted the growth of its x86 Xeon portfolio. This created an opportunity for AMD to make a strong move in the x86 market, which it did in 2003 with Opteron.

Struggling AMD

It helped give a struggling AMD a boost, but ultimately Intel got back into the game with greater innovation around Xeon. “I think [Intel’s] business practices were stupid, but [the company] is competing very well in the technology space,” Clabby said.

Intel owns about an 80 percent share of the global processor market.

The FTC lawsuit is only the latest legal situation to be settled by Intel. In 2009, the European Commission fined Intel $1.45 billion for similar practices on that continent—a fine Intel is appealing—and the settlement with AMD included a $1.25 billion payment.

However, Intel still faces lawsuits from Nvidia and the N.Y. Attorney General’s Office. Intel won a ruling on 28 July in another case, in which a special master for a U.S. District Court ruled against a request for a class action consumer suit against Intel.

Dell got itself into its own legal mess because of its relationship with Intel. Dell settled an investigation by the Securities and Exchange Commission for $100 million—and another $4 million to be paid by CEO Michael Dell—for accounting issues surrounding payments from Intel. According to the SEC, Intel paid Dell millions of dollars into 2007 to not use AMD products, money that Dell used to prop up its struggling financial situation.

After Dell announced in 2007 that it was going to use AMD products, much of the Intel money went away, leading to a drastic drop in Dell’s operating budget. Dell executives never let shareholders know how important the Intel payments were to Dell’s operations. By fiscal year 2007, Intel’s money accounted for 76 percent of Dell’s operating budget.