Semiconductors

Intel: Antitrust Troubles Ahead?


Tech trust-busting is back in vogue in Washington, and the timing couldn't be worse for chipmaker Intel (INTC).

In a May 11 speech in Washington, D.C., Assistant Attorney General Christine Varney announced a return to "vigorous antitrust enforcement action" by the Justice Dept. The government will "take a new tack" toward redressing monopolistic practices and wield active antitrust enforcement in response to the "economic distress" that can result from uncompetitive markets, Varney told an audience at the Center for American Progress, a liberal policy research group. She also warned courts and parties to lawsuits against invoking the antitrust policies of the Bush Administration, which has been seen as softer than the Clinton Administration in going after allegations of anticompetitive behavior.

The remarks come as European Union officials prepare to find Intel guilty of anticompetitive practices in Europe, imposing a large fine in excess of €1 billion ($1.36 billion). An announcement could come as soon as May 13 that Intel violated EU monopoly rules by offering computer makers financial incentives to favor its chips over those made by smaller rival Advanced Micro Devices (AMD).

Following Europe's Lead

Europe's decision could give justification for the Federal Trade Commission, which is probing Intel in the U.S., to take a tougher stance, possibly moving from an investigation to a lawsuit against it. "There is a small amount of safety in numbers," says an antitrust lawyer who represents companies in the tech industry. The FTC could portray itself as "not out to lunch" if it stepped up actions against Intel in the wake of Europe's decision, he says.

Indeed, the European decision may form a template for the FTC to follow in its own scrutiny of the chipmaker's practices, says Albert Foer, president of the American Antitrust Institute, a group that advocates for increased antitrust enforcement and has received funding from AMD.

European antitrust sentiment didn't always cross the Atlantic under President George W. Bush. But his successor is vowing to crack down on allegations of anticompetitive behavior. And Varney, the Obama Administration's top-ranking antitrust official, is likely to hold sway in the FTC, where she formerly served as a commissioner. "She's the unusual Assistant Attorney General who is a former commissioner of the Federal Trade Commission," says Stephen Calkins, a law professor at Wayne State University. Varney's relationships with FTC members may influence decisions the two U.S. government antitrust bodies make about cases. "It means she has an unusually personal understanding of the other antitrust agency," he says.

Intel Declines Comment

One beneficiary of the EU decision and the new U.S. policy could be AMD, which has been pressing U.S. and European authorities for years to sanction Intel for what AMD says are anticompetitive practices in the $30 billion market for computer-industry-standard x86 processors. The EU has charged Intel with paying PC makers rebates to slacken their usage of AMD chips, and with selling chips below cost. European regulators have also said that Intel paid a German retailer to keep PCs that use AMD chips off its shelves. When the EU levies its fine, it's also expected to order an end to the rebates.

An Intel spokesman declined to comment on the EU case, saying only that Intel competes within the law to benefit consumers. Intel shares rose 8¢, or 0.5%, to 15.37 on May 11. The shares have gained 4.8% so far this year, compared with a 9.8% increase in the Nasdaq composite index.

How Intel holds onto its dominant market share is at the core of AMD's complaints to regulators. Intel held 77.3% of worldwide PC microprocessor shipments in the first quarter, compared with 22.3% for AMD, according to market researcher International Data Corp. AMD contends it doesn't hold a larger piece of the market because of subsidies Intel pays to computer makers to reimburse them for advertising costs, and because of threats to stop the payments if vendors don't buy enough from Intel. Mike Silverman, a spokesman for AMD, said in an e-mail that the company is "encouraged that the FTC is conducting a serious investigation," and called on it and the Justice Dept. to "investigate thoroughly" its claims.

Andrew Cuomo on the Case

AMD's complaints have led to legal troubles for Intel in a number of jurisdictions. A civil suit filed by AMD against Intel in U.S. District Court in Delaware in 2005 is slated for trial next March. New York State Attorney General Andrew Cuomo's office has an ongoing investigation into whether Intel stifled competition and hurt consumers by illegally coercing PC makers to use its chips. Intel has also faced antitrust inquiries in Japan and South Korea.

Intel may not be the only tech company in the crosshairs of U.S. antitrust regulators. In mid-2008 remarks before she was nominated for the Administration's top antitrust job, Varney said Google's growing power in Internet computing could be the next frontier in tech industry antitrust regulation. Varney lobbied the Clinton Administration to open its landmark antitrust case against Microsoft (MSFT) as a lawyer for Netscape.

Google (GOOG) is already drawing scrutiny from U.S. regulators. The company dropped an advertising deal with Yahoo (YHOO) last year amid opposition from the Justice Dept. which is also examining Google's efforts to digitally scan millions of books. Meanwhile, the FTC is investigating the effects of overlapping board members between Google and Apple (AAPL).

Google on Justice's Radar

In her remarks last year, Varney called Microsoft—long the Justice Dept.'s No. 1 enemy—a "last century" case, and drew parallels between Microsoft's dominance of PC operating systems and Google's growing influence over the technology for computing conducted over the Internet. Google spokesman Adam Kovacevich said in an e-mail that Varney's early efforts are "a positive step. It's clear that the U.S. economy needs strong antitrust enforcement," he said.

Remarks like that show Google isn't making the same mistakes Microsoft did when it took a more belligerent stance toward regulators in the 1990s. But for it and Intel, the thorniest legal problems may yet lie ahead.

Ricadela is a writer for BusinessWeek in Silicon Valley. With Theo Francis in Washington, D.C. and Andy Reinhardt in London

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Ricadela is a reporter for Bloomberg News and Bloomberg Businessweek in San Francisco.

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