The Federal Trade Commission is suing Intel Corp., the world’s leading computer chip maker, charging the company has illegally used its dominant market position for a decade to stifle competition and strengthen its near-monopoly of chip production.
In its lawsuit filed in December, the FTC alleges Intel has waged a systematic campaign to shut its rivals out of the market. In the process, says the FTC, the Santa Clara, California-based company deprived consumers of choice and stifled innovation in the microchips that constitute the computers’ central processing unit, or CPU.
These chips are critical components often referred to as the “brains” of a computing device—everything from laptops and netbooks to cell phones and computer game consoles.
“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. The Commission’s action … seeks to remedy the damage that Intel has done to competition, innovation, and, ultimately, the American consumer.”
The FTC complaint claims Intel’s employed anticompetitive tactics to put the brakes on “superior” products from its two main rival chipmakers in the Silicon Valley of California, Sunnyvale-based Advanced Micro Devices (AMD) and Santa Clara-based Nvidia. The FTC claims Intel has offered discounted prices to computer manufacturers to entice them to use its chips over the last decade in an attempt to hold on to its “monopoly.”
Although Intel does not hold the same sway in the mobile device industry that it does in personal computers, whatever actions the FTC takes will apply to all of Intel’s business units, including the division responsible for its mobile-oriented Atom processor.
A microchip process called ARM architecture is found in approximately 90 percent of the mobile phones on the market. AMD and Nvidia are among the industry leaders in the production of ARM-based chips.
Flurry of Action
The FTC’s move came just weeks after New York Attorney General Andrew Cuomo sued Intel on the same grounds. The European Commission in May fined Intel $1.45 billion for the same sorts of alleged antitrust violations.
And in November, Intel and AMD announced they had reached a settlement in which Intel agreed to pay its rival $1.25 billion to settle a similar lawsuit filed by AMD.
Intel Behind Mobile Leaders
Kevin Burden, director of mobile devices at ABI Research, a technology consultancy based in Oyster Bay, New York, questioned why the FTC was going after Intel when it’s hardly a dominant force in the growing mobile market.
“ARM-based processors are the leading architecture powering mobile phones,” Burden said. “And while Atom has had early success in the netbook segment, ARM-based processors are positioned to capture a growing and possibly significant share of new netbook models in the coming year.
“Intel’s position in the netbook market is already threatened by the low power consumption and connectivity capabilities of ARM processors,” he added. “If successful, these actions by the FTC would make it that much easier for [companies that concentrate on ARM-based technology] to extend their lead in mobile devices.”
Claims of Threats
The FTC’s complaint charges Intel carried out an anticompetitive campaign using threats and rewards aimed at the world’s largest computer manufacturers—including Dell, Hewlett-Packard, and IBM—to coerce them into not buying rival computer chips.
Intel also used this practice, known as exclusive or restrictive dealing, to prevent computer makers from marketing any machines with non-Intel computer chips, says the FTC.
Intel also allegedly redesigned in secret a key piece of software, known as a compiler, in a way that deliberately stunted the performance of competing CPU chips. Intel told its customers and the public the software performed better on Intel chips than on those of its competitors, but the company deceived them by failing to disclose these differences were due largely or entirely to Intel’s compiler design, according to the FTC.
Montgomery Kosma, vice president of legal services outsourcing for Alexandria, Virginia-based CPA Global, a technology consulting and law firm, says there’s often a fine line between competing in the marketplace and breaking the law. And he is skeptical about claims Intel has crossed it.
“There’s nothing that prohibits vigorous competition,” Kosma said. “The question is whether you use illegal tactics.”
Another critical question, Kosma says, is whether the FTC suit will do any more than suits already filed by Intel competitors AMD and Nvidia and the European Union.
“The FTC has joined the party, in a sense. There is some sense of piling on here.”
The key question is whether consumers are being harmed by Intel’s business practices, Kosma says.
“Many of the questions by the regulators are about the discounts that Intel gives compared to other companies in the market,” he said. “But when you can go out and buy a netbook for $199, and there’s a continual increase in computing power, it’s difficult to argue that the consumer is being harmed by such discounts.
“If there were restrictions that kept prices artificially high, that would be different,” Kosma added. “When it comes to the core issue of pricing, the FTC has to be careful before it decides to act.”
Calling Off the Dogs
The Washington, DC-based Association for Competitive Technology and a group of more than three dozen tech firms sent a letter to the FTC in December urging the agency to drop its suit against Intel.
“[The FTC’s suit] presents a clear danger to our businesses, and could have the perverse effect of stifling innovation, raising prices, and costing America jobs,” the letter said. “The chip market is clearly working well for software developers and consumers. We are extremely concerned by the potential of additional government intervention in the chip market.”
Technology analysts at the Competitive Enterprise Institute (CEI) in Washington, DC also question whether the FTC’s action is actually about protecting consumer welfare.
“This lawsuit may succeed at grabbing headlines, but it won’t benefit consumers one bit,” declared Ryan Radia, CEI’s associate director of technology studies. “There is not one iota of evidence that Intel’s maligned actions have actually harmed consumers or delayed processor innovation. In reality, computer chips have gotten faster, cheaper, and more efficient every year for the past two decades.
“This baseless intervention in the marketplace will only delay further innovation in the microprocessor market,” he added.
Not a Monopoly
“The FTC mistakenly equates Intel’s market share with market power,” Radia added. “Intel has managed to sustain its market share over time only because it has continued to innovate aggressively and compete with archrival AMD to bring better processors to the market. This dynamic state of affairs has benefited consumers immensely.
“Spending millions of taxpayer dollars intervening in a well-functioning market is an enormous waste,” he said.
“Intel’s allegedly illegal business practices are properly viewed as legitimate, pro-consumer business practices in the vibrant market setting we see today,” said Wayne Crews, CEI’s vice president for policy. “Intel is disciplined not only by aggressive competitors but by downstream business customers like Dell and HP, impatient capital markets, and consumers.
“Ironically, the primary barrier to computer makers ganging up against Intel, should they truly need to, is antitrust law itself,” Crews added.
Phil Britt ([email protected]) writes from South Holland, Illinois.