| BUSINESSWEEK ONLINE : MARCH 1, 1999 ISSUE | ||||||||
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| NEWS: ANALYSIS & COMMENTARY
Now, It's Intel in the Dock The feds say the chip giant used its data as a weapon to stifle competition Just a few blocks from the federal courthouse where the Justice Dept. is pummeling Microsoft Corp. (MSFT), government lawyers are about to take on another titan of the computer world. On Mar. 9, the Federal Trade Commission will face off against Intel Corp. (INTC) in a showdown that, like the Microsoft case, could determine how these market-dominating players wield their power with rivals and customers. For sheer entertainment value, the Intel suit isn't likely to approach the Microsoft trial, which has been spiced up with juicy E-mails, snippets of Chairman William H. Gates III's testimony, and dramatic moments such as when Justice attorneys showed that a taped Microsoft demo was rigged. Intel has strict rules governing in-house E-mails and the video testimony of its suave chairman, Andrew S. Grove, is not apt to duplicate Gates' hostile performance. And while the Microsoft suit is unfolding in a federal courthouse--with front steps ready-made for impromptu press conferences--the Intel hearing will be before Administrative Law Judge James P. Timony in a simple hearing room at the agency. But the cases share an important element: determining whether these two industry giants abused monopoly power. If they are found guilty, both could be forced to radically alter their behavior. In the process, the course of innovation in the industry could be transformed--for the worse, the defendants maintain, for the better say its rivals. While Justice is trying to prove a broad pattern of anticompetitive behavior by Microsoft, the FTC's attack is far narrower. Its case focuses on how Intel withheld key technical information from customers that, for one reason or another, challenged the chipmaker. Because access to that information--details about new Intel chips--was essential for those companies to participate in the market, Intel had huge leverage. So, the FTC will allege, the practice was an abuse of monopoly power. FIREPOWER. The FTC is relying largely on the testimony of three companies--Compaq Computer (CPQ), Intergraph(INGR), and Digital Equipment, now owned by Compaq--to make its case. Executives from these companies will testify that Intel used its dominance to limit competition. The key allegation: After each one became entangled in patent disputes with Intel, the chipmaker cut off information that it supplies to key customers so they can design systems around Intel chips. The FTC claims such retaliation helped Intel maintain dominance because companies would think twice about doing anything that would prompt Intel to withhold key data. The agency's case already has traction. Last April, a federal judge in Alabama ruled that Intel likely violated antitrust laws when it cut off workstation maker Intergraph after it sued Intel for refusing to pay royalties on designs that allegedly violated Intergraph patents. The judge ordered Intel to resume its business relationship with Intergraph. The case is on appeal. For added firepower, the agency may call Dean A. Klein, vice-president of Micron Technology Inc. (MU), which makes memory chips. Klein could testify that while he was chief technology officer of Micron Electronics, a computer maker owned by Micron Technology, Intel tried to squelch introduction of a chipset (components that work with an Intel microprocessor in a computer) that would have competed with Intel products, according to industry insiders. Atiq Raza, chief operating officer of chipmaker Advanced Micro Devices Inc. (AMD), also is expected to testify about how Intel tries to keep PC makers in its fold. To win his case, Richard Parker, the FTC's lead counsel, must prove three things: that Intel has monopoly power, that as a monopolist it can't withhold its intellectual property at will, and that its actions ultimately hurt competition. On the monopoly issue, the government alleges that Intel's power is so entrenched that rivals can't dent its 97% share in high-end chips. The agency's economics expert, Frederic M. Scherer of Harvard University's John F. Kennedy School of Government, will say that the $2 billion cost for a new chip plant is a huge barrier to entry. Like Microsoft, Intel will counter that its huge market share does not make it a monopoly--and it faces a wealth of competition. AMD and Cyrix, for example, dominate the sub-$1,000 PC market. And it will claim that if it were a true monopolist, it could raise prices--rather than dropping them, as it routinely does. But even if it were a monopolist, Intel will argue, it is free to share--or not share--intellectual property with whomever it chooses. It argues that it had legitimate business reasons for cutting off the three companies at the center of the trial, companies that were attacking it legally. ''Do the antitrust laws require that you feed the hand that bites you?'' says New York antitrust attorney Robert A. McTamaney. ''The answer is no.'' The FTC, however, can trot out prior rulings saying that a monopoly can't use access to intellectual property as a weapon to quash competition. As in the Microsoft suit, however, the feds must prove that harm was done. That may be tough. Intel argues that neither Intergraph nor Compaq was producing chips when it cut off data, so chip competition wasn't hurt. Digital was indeed a chip rival. But Intel has a November, 1998, deposition from Robert Palmer, then Digital chairman, in which Palmer testified that Intel's conduct didn't affect development of Digital's Alpha chip. As for discouraging others from competing head-on with Intel, the company intends to offer statements by IBM (IBM), Motorola (MOT), and National Semiconductor that Intel's actions had no impact on innovation. So, was anyone hurt? George S. Cary, a Washington antitrust attorney and a former FTC official, says that it may be enough for the FTC to show that Intel's biggest sin was to stifle potential research and development. ''There's an inference that depriving people of their intellectual property will chill innovation,'' Cary says. Intel is clearly worried. To hedge its bets, it has begun working the political process, hiring former White House counsel Jack Quinn to lobby and bringing Grove to town to meet with senators and make Intel's case. For now, Washington can look forward to an antitrust double feature. By Susan B. Garland in Washington with Andy Reinhardt and Peter Burrows in San Mateo To read a letter to the editor about this story, click here. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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