Observers: Intel probably agreed to FTC limits

Observers: Intel probably agreed to FTC limits

Mum's the word on the details of the jointly filed proposed settlement between the US Federal Trade Commission and Intel announced on Monday, but observers said it is likely that Intel agreed to mild restrictions.

"The one thing they [Intel] said was that they're happy with the settlement, so I would assume that the costs are fairly low," said Linley Gwennap, senior analyst at MicroDesign Resources in California.

A former staff attorney at the FTC agreed.

"On the scale of intrusive to light-handed, it's probably relatively light-handed," said William Kovacic, a visiting professor of antitrust law at George Washington University who left the FTC in 1983.

The parties apparently reached a proposed settlement over the weekend, and jointly filed a motion withdrawing the FTC's case against Intel from adjudication. The case had been scheduled to go to trial yesterday. The proceedings before the administrative law judge will be stayed while the commission considers the proposed settlement, the details of which will not be made public unless and until it is accepted by the commission. According to FTC rules, the commission can accept the proposed settlement, reject it and return it to litigation, or take other action it deems appropriate, the FTC said.

Intel was charged with coercing firms into sharing technology patents by denying them access to future microprocessors, activity which wouldn't be illegal when practised by a smaller, less powerful firm. But the FTC said that Intel was a monopoly, and that it exploited its power to snuff out competition and cement its chokehold over the microprocessor market. Intel did not contest most of the facts in the case, but argued that the market it competes in is so competitive that its actions were justified and legal under intellectual property law.

The proposed settlement probably requires Intel to cede some control of its intellectual property, analysts said.

"My speculation would be that the commission would not settle the case without some limit on Intel's freedom to withdraw cooperation from existing competitors," said Kovacic. "At the same time, I can't imagine Intel accepting such a limitation without significant exceptions being allowed. I think the key issue is what those exceptions will be."

Intel is probably willing to accept limitations to avoid the greater threat of being declared a monopoly, analysts said. Antitrust law sets out much more stringent requirements for a monopolist than for other companies, they said.

"That is a label to avoid," said Kovacic.

In addition, once a company is declared a monopoly, other companies can sue much more effectively, because of the restrictions, analysts said.

Being branded a monopoly "would open the door to all kinds of nasty legal situations down the road", said Gwennap. "Even though Intel felt they had a pretty strong case to prevail . . . they didn't want to take the risk and be declared a monopolist."

As for the FTC, it probably understood that Intel had a good case and that the most the FTC could get would be for Intel to agree to solve its intellectual property disputes differently, analysts said.

In its complaint filed during 1998's third quarter, the FTC said Intel harmed competition by coercing three firms -- Compaq, Digital Equipment (now owned by Compaq) and Intergraph -- into licensing microprocessor patents on terms favourable to Intel. In each case, the firms had asserted patent infringement claims either directly or indirectly against the chip maker. And in each case, Intel tried to force the firms into favourable settlements by denying them access to samples and information relating to future Intel processors, which the firms depended on to carry out their core business, the FTC charged.

The proposed settlement may require Intel to pursue its intellectual property disputes in court, while maintaining its agreements with companies such as Digital instead of withholding technology from them, according to Gwennap.

"I think Intel was entering the case with stronger legal cards than the commission to play, and the commission probably realised this, Gwennap said. "The FTC [is probably] getting most of what it would have gotten anyway" if the matter had gone to trial, he said.

But if the proposed settlement benefits Intel and the FTC, it does not necessarily help consumers, according to Gwennap. Increasingly, the line between intellectual property law and antitrust law is blurry, Gwennap said. The vagueness begs the question whether even a monopolist is allowed to protect its intellectual property or whether a monopolist has a responsibility to provide fair and equal access to its technology, he said.

"It's important at some point to adjudicate this crossover between intellectual property law and antitrust law so that everybody knows what the rules are," Gwennap said. "Consumers would have benefited more if it had been tried because it would have established a precedent.

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