The FTC Plays Legal Hardball with Intel

The U.S. Federal Trade Commission filed a major lawsuit against Intel (INTC) on Wednesday, dumping a massive lump of coal in the stocking of the world's dominant chipmaker. The lawsuit, which accuses the company of trying to "stifle competition and strengthen its monopoly," comes just one month after Intel's $1.25 billion settlement with AMD (AMD), its main rival. That deal was designed in part to forestall further government investigations of Intel.%%DynaPub-Enhancement class="enhancement contentType-HTML Content fragmentId-1 payloadId-61603 alignment-right size-small"%%

So much for that: Richard A. Feinstein, director of the FTC's Bureau of Competition accused Intel of "running roughshod over the principles of fair play and the laws protecting competition on the merits. The Commission's action today seeks to remedy the damage that Intel has done to competition, innovation and, ultimately, the American consumer," Feinstein said.

Feinstein brushed off Intel's settlement with AMD. "Our complaint extends beyond the allegations that were being made by AMD," he said. In its lawsuit, which doesn't seek monetary damages, but rather injunctive relief, the FTC said Intel has waged a deliberate campaign to harm its competitors, ultimately denying consumers access to lower priced products from the company's rivals.

Bad Behavior in Graphics?

In particular, the commission accuses Intel of unfairly bundling chip components in a way that damaged Nvidia, a much smaller chipmaker that specializes in graphics chips. At issue is Intel's behavior in the market for GPUs -- or graphics processor units, a kind of microchip designed for high-speed graphics applications, like video games.

"Over a period going back to 1999, at each stage at which Intel's dominance in various chip markets has been threatened, they have responded, rather than by competing aggressively on the merits, with a course of conduct that has been exclusionary and detrimental to competition and consumers," Feinstein said at a news conference.

Nvidia praised the FTC's move. "We are particularly pleased to see scrutiny being placed on Intel's behavior toward GPUs, which have become an increasingly important part of the PC industry," the company said in a statement.

Intel denies the charges, insisting that it has behaved "fairly and lawfully," and calling the FTC's case "misguided."

This Close to a Settlement

The company -- which controls 80% of the worldwide microchip market -- had been in settlement talks with the FTC, but those negotiations broke down in recent days.

"This case could have, and should have, been settled," Intel Senior Vice President and General Counsel Doug Melamed said in remarks cited by The Wall Street Journal. "Settlement talks had progressed very far but stalled when the FTC insisted on unprecedented remedies -- including the restrictions on lawful price competition and enforcement of intellectual property rights set forth in the complaint -- that would make it impossible for Intel to conduct business."

Intel also faces an investigation by New York State Attorney General Andrew Cuomo, who has accused the company of paying IBM (IBM) $130 million to favor Intel's chips and stall adoption of AMD's chips. Intel is also appealling a $1.45 billion fine placed on it by the European Union.

Here is Intel's full response to the FTC lawsuit:
The lawsuit filed by the FTC is misguided and unwarranted. Put simply, Intel has not violated the law. Litigation was not our choice, but, now that we have been sued, we will aggressively defend ourselves, and we look forward to a successful resolution of the FTC's claims.

This lawsuit is not based on claims that Intel violated the existing antitrust laws. Instead, the FTC is advocating new rules regulating business conduct. Those rules would harm, not help, competition and would reduce incentives for companies to invest in research and development and other pro-competitive activities.

This lawsuit will cost the taxpayers tens of millions of dollars, but it will not help American consumers. Instead of litigation, the issues could and should have been resolved by a voluntary settlement between Intel and the FTC. Over the past weeks, we had been progressing toward a settlement of all outstanding issues with the FTC. What brought us to litigation was the 11th hour addition of new issues related to graphics and benchmarks - some of which were first mentioned to Intel as recently as December 8 and none of which was fully investigated. In addition, the FTC asked for remedies that would have made it impossible for Intel to conduct its legitimate business. The news issues and settlement demands left Intel with no choice but to litigate.

Intel respects the Federal Trade Commission and its staff who have worked on this matter. But, today we have been sued as the price for refusing to agree to demands that would have been bad for our company, bad for the computer industry and bad for consumers. We expect that Intel will now have a full and fair opportunity to present all of the facts and evidence that demonstrate why this lawsuit is misguided. We look forward to doing so.
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