Intel: FTC Does Not Understand Processor Business

Intel officials are hitting back at the Federal Trade Commission, saying the agency has little understanding of the microprocessor business and that its lawsuit against the chip maker contradicts established antitrust laws.

In their 25-page official response to the lawsuit filed by the FTC in December, Intel officials strongly defend their business practices, saying that contrary to FTC claims, innovation has flourished in the processor market, resulting in higher performing PCs that steadily have dropped in price.

“The [FTC] Complaint paints a picture of competition for microprocessors and graphics products that bears little resemblance to reality.” Intel’s response says. “Competition in these sectors has been robust during the period covered by the Complaint, producing greater consumer benefits than any other sector of the economy.”

The FTC filed its complaint Dec. 16, claiming that Intel’s business practices created an unfair competitive market for processors, echoing concerns that other organizations—including main rival Advanced Micro Devices, the European Commission and the N.Y. Attorney General’s Office—have made over the past few years.

As in the prior complaints and lawsuits, the FTC said that over the past decade, Intel has used its dominance in the x86 processor space to coerce systems makers like Hewlett-Packard, Dell and IBM into limiting their use of products from AMD. In addition, the agency claims that Intel altered some of its technology—such as compilers—to hinder the performance of products from AMD and other competitors.

In going a step further, the FTC also said that Intel is practicing the same business methods in the graphics space in its burgeoning competition with Nvidia.

In its sharply worded response, dated Dec. 31, Intel disputes the allegations and the FTC’s proposed remedies. The increase in R&D spending over the past few years by both AMD and Nvidia illustrates the room for competition and innovation in the market, according to Intel, and contrary to the FTC’s claims, Intel has not intentionally slowed its own innovation.

“The large increases in AMD's and Nvidia's R&D expenditures over the period of alleged predation speak volumes to the opportunities available to Intel's competitors,” the response reads. “These investments, and the combination of dramatic increases in product quality and unparalleled reductions in prices, provide the true measure of competition in the microprocessor and graphics industries.”

Intel also criticizes the FTC for what the chip maker says is its lack of understanding of the CPU and graphics markets, and says that much of AMD’s problems in the years since releasing its Athlon and Opteron processors had more to do with issues surrounding AMD’s ability to execute and not with competition from Intel.

Intel also dismisses issues surrounding giving Dell and others special pricing based on volume as routine business practices protected by rulings made by the Supreme Court in unrelated cases.

“The offer of a lower price for more volume necessarily implies that the lower price is contingent on the additional volume,” Intel says. “The Complaint seeks—by using words such as ‘threats’ and ‘exclusionary’—to transform procompetitive, above-cost price reductions aimed at winning additional sales into something sinister. But the Supreme Court has repeatedly declared such above-cost discounting to be entirely lawful.”

Intel officials dispute calls by the FTC that they should open up their technology for use by competitors as a remedy. Such a move would hinder Intel’s ability to innovate and compete, the chip maker says.

“Contrary to well-accepted antitrust principles, the Complaint treats Intel as if it were a public entity that has an ongoing duty to help competitors,” Intel says. “That approach reaches into every corner of the case, however inconsequential. … The relief contemplated by the Complaint would require Intel to delay or even forgo product improvements unless it could simultaneously ensure that such improvements equally benefited Intel competitors, essentially requiring Intel to design its products for the benefit of its competitors rather than for its own benefit and the benefit of consumers.”

Intel further criticizes the FTC for pursuing the complaint under the FTC Act rather than in the courts, and says the agency is going beyond the regulations laid out in the act and is using the FTC Act to defy Supreme Court precedence. Intel is accusing the FTC of trying to micromanage Intel’s business, to the point of deciding which patents Intel should be able to license.

The agency’s interpretation of Section 5 of the FTC Act  is “vague, novel, and in important respects inconsistent with existing antitrust standards.”

The FTC said last month that it expects a trial on the issues before an administrative judge to start in September.

Intel spent much of 2009 defending itself against claims of anti-competitive practices. Though the chip maker settled its legal disputes with AMD in December in an agreement that included a $1.25 billion payment, it still is appealing a $1.45 billion fine levied by the European Commission earlier in the year.

In addition, Intel is disputing a lawsuit filed by the N.Y. Attorney General’s Office.