Intel: Innovator or inhibitor?

Federal Trade Commission expected to sue next week.

By Marc Songini
Network World Fusion, 6/5/98

Washington, D.C. - Intel Corp.'s alleged monopolistic sins may be catching up with it next week if, as expected, the Federal Trade Commission sues the chipmaker for antitrust violations.

Although the FTC isn't commenting, the commission's competition chief, William Baer, recommended bringing legal action against Intel for withholding vital information from competitors and customers.

Intel is on the carpet for its treatment of workstation maker Intergraph Corp. During a patent dispute between the two companies, Intel yanked precious information and product samples shared under non-disclosure agreement (NDA) from Intergraph, delaying the manufacture of several Intergraph products, including a server. Last November, Intergraph sued, claiming Intel ended the NDA relationship unfairly to gain access to patented Intergraph technology.

The FTC is also investigating a separate, similar, though now-defunct, lawsuit from Digital Equipment Corp. Intel competitors S3, Inc., Cyrix Corp. and Advanced Micro Devices, Inc. have also been subpoened for the FTC investigators.

Intel's worries may not end there, either. "I think the FTC is investigating a lot of different things," said Linley Gwennap, editor of the Microprocessor Report, an industry newsletter. "The FTC is trying to establish a type of behavior using a monopoly in ways not fair to Intel's customers. They are looking at things like chipsets and graphics. It gets broader down the road."

Gwennap said Intel's threat to sue anyone making a special P6-bus chip set without their licensing is being investigated by the FTC, as well. "The company is angling to completely eradicate competition in the merchant chip-set market," Gwennap said.

Intel declined to comment on the specifics of the FTC investigation, but claimed they were in compliance with the law. "We're continuing to cooperate with the FTC," said an Intel spokesperson last week. "Our behavior and policies are based on the most conservative legal standards available."

The FTC news comes as no surprise to many industry watchers, as Intel is the undisputed master of the PC and PC server chip market and rumored to use hardball tactics to get what it wants. And those who try and survive without a partnership with Intel are, in effect, committing economic suicide.

Some have accused Intel of denying or delaying shipment of their products to vendors who dare use chips from other manufacturers; Intel, say others, is willing to throw its weight around with potential rivals.

Indeed, last week, the San Jose Mercury News reported more instances the FTC was investigating, including a 1994 court case Intel stepped into on behalf of PC maker Packard Bell. Compaq was suing Intel partner Packard Bell for patent violations.

According to the report , Compaq, the largest user of Intel chips, made a point of not including Intel in the Packard Bell suit. Intel had already started restricting access to key information about its Pentium Pro chip to Compaq after Compaq had chosen Intel competitor Advanced Micro Devices, Inc. as one of its suppliers and the PC maker didn't want to anger Intel more.

Intel joined the lawsuit, anyway, with the intention of making Compaq back down. "Intel didn't really give Compaq a choice," said one insider. "They couldn't risk more problems with Intel." Faced with opposition from Intel, Compaq eventually signed an agreement that settled the dispute. Calls to Compaq for comment went unreturned.

The Mercury also cited another example the FTC was weighing, this time with the Acer Group, which was suing a group of Taiwanese clone manufacturers for patent violations. Intel objected to Acer's lawsuit, as it was a major supplier to the Taiwanese clone makers, making Acer back down.

Intel declined comment on any alleged antitrust incidents.

One local attorney, specializing in antitrust issues, didn't think the Compaq and Acer situations were in the same league as the Intergraph and Digital ones. These instances show Intel may have questionable manners, but not that "market power is being improperly exercised," said Rich Gray, a partner in the San Jose law firm Bergeson, Eliopolous, Grady & Gray.

However, apparently Intel's treatment of Intergraph tested the FTC's patience. Intel's tactic with Intergraph is highly questionable, according to one Intel critic. The way Intel denies access to its patented information -- or "gold books" -- is illegal or if it isn't, should be, said Robert Collins, editor of the online X86.org Intel Secrets publication. "They got 86% of the market through the distribution of the 'gold books'," Collins said. "It's the key to whether a company can compete in the industry or not. If they don't have the gold books, they can't compete."

Whatever the outcome, it is unlikely anything will resolve soon, as such litigation can take years to finish. It also remains unclear whether it will affect Intel's current operations.