The Federal Trade Commission’s lawsuit against Intel has a familiar ring to it, echoing many of the charges of anticompetitive behavior that can be found in similar complaints filed by European regulators, U.S. investigators and rivals of the chip making giant.
However, there are key elements that separate the FTC’s Dec. 16 filing from those other ones, such as expanding the focus beyond Intel’s behavior in the computer processor market to include the company’s business practices in the increasingly important graphics chip space.
Also, the FTC is not looking for monetary damages from Intel. Instead, it has outlined a number of desired changes to Intel’s business practices-ranging from pricing to bundling of products to interoperability-that regulators say are needed to ensure fair competition, but which Intel executives say will hurt the company’s own ability to compete.
Those key differences helped fuel the FTC’s decision to go ahead with the lawsuit despite Intel’s $1.25 billion settlement with CPU rival Advanced Micro Devices in November, and led to settlement negotiations between the FTC and Intel breaking off.
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In a conference call with reporters, Richard Feinstein, director of the FTC’s Bureau of Competition, said such steps are necessary to protect the market and consumers from what he called Intel’s exclusionary and damaging behavior that he said has been going on for more than a decade, whenever Intel feels threatened.
However, Doug Melamed, senior vice president and general counsel for Intel, called the FTC suit misguided, saying Intel has competed aggressively but fairly and the conditions the agency wants to put on Intel would limit the chip maker’s ability to innovate and compete. Those conditions include making Intel unable to offer volume discounts and bundle products, and forcing Intel to license its intellectual property.
“We have been sued today for not agreeing to [conditions] that will be bad for Intel, bad for the market and bad for consumers,” Melamed said during a conference call with reporters.
The FTC lawsuit was just the latest legal action to be taken against Intel by a governmental agency. Intel already is appealing a $1.45 billion fine levied by the European Commission earlier in 2009 involving antitrust issues in the CPU space, and the N.Y. Attorney General’s Office is pursuing similar claims in that state.
Some Say FTC Suit Wont Benefit Consumers
It’s also an indication of the Obama administration’s decision to be more aggressive in prosecuting antitrust cases. For example, federal investigators reportedly are looking into IBM’s mainframe business for antitrust violations. In addition, earlier this year, Christine Varney, head of the Department of Justice’s antitrust division, pledged to target “monopolists” that use their position to hold down competition.
The FTC is accusing Intel of violating parts of the FTC Act instead of antitrust laws, and is pursing the claim internally rather than through the courts, Feinstein said. He expects the trial before an administrative judge to start in September 2010. If it loses there, Intel can appeal to the full commission and to the federal courts after that, he said.
The FTC move drew reactions from both sides, including organizations that say the lawsuit is antithetical to good business.
“No serious antitrust theory supports the FTC’s action, which appears to take Intel to task for competing ferociously in a market that is ferociously competitive,” said Ken Ferree, senior fellow at The Progress & Freedom Foundation, a Washington think tank. “If this ever ends up before a federal court, I’m sure the FTC’s efforts will be exposed for what they are-an attempt to make headlines rather than good law.”
The Competitive Enterprise Institute, another think tank, agreed.
“This lawsuit may succeed at grabbing headlines, but it won’t benefit consumers one bit,” said Ryan Radia, associate director of technology studies at CEI. “There is not one iota of evidence that Intel’s maligned actions have actually harmed consumers or delayed processor innovation. In reality, computer chips have gotten faster, cheaper and more efficient every year for several decades. This baseless intervention in the marketplace will only delay further innovation in the microprocessor market.”
However, Ed Black, president and CEO of the Computer & Communications Industry Association, applauded the FTC’s actions. A vocal critic of the business practices employed by companies like Intel and IBM, Black said the result of the suit will be better protection for consumers and other vendors.
“The FTC indicates in its complaint that at least two companies, AMD and Nvidia, were out-competing some of Intel’s offerings,” Black said. “It appears Intel was falling behind and tried to trip up their competitors. If so, this is a good example of why competition laws and regulators willing to use them are critical to consumers and the nation’s economy, which needs innovation.”
FTC Suit Could Aid GPU Market
The FTC lawsuit is putting the spotlight on the graphics chip business, a growing area in the tech industry. It not only alleges anticompetitive practices by Intel against AMD going back almost a decade, but also more recent behavior against GPU makers, in particular Nvidia, illustrating the growing importance of graphics technology in general-purpose computing.
Black said it was important for the FTC to not only right some wrongs done in the past, but also to protect the GPGPU (general-purpose GPU) market.
“The good news is this lawsuit comes at a crucial moment for competition among graphics processing units,” he said. “This extra scrutiny could help preserve competition there, which would mean better, cheaper products for customers and more innovation.”
Nvidia and, more recently, AMD have aggressively pushed GPUs for highly parallel computing workloads, arguing that the graphics chips offer greater performance than CPUs at a better price. Both are pursuing co-processing models, in which both CPUs and GPUs are used in the same machines. AMD in 2011 will release the first of its Fusion integrated CPU-GPU products.
The FTC’s action also comes just over a week after Intel decided to shelve its “Larrabee” GPU, which was scheduled for a first-generation release in early 2010. That said, Intel is planning to release processors in its “Westmere” portfolio early next year with greater GPU capabilities, and analysts expect Intel to continuing working on its own GPU technology.
Though Intel has known for several weeks that the FTC was concerned about the graphics issue, regulators were still giving Intel specifics about those concerns as late as Dec. 8, Melamed said. He accused the FTC of not fully investigating the issue before moving ahead with its complaint.
“The FTC has not sought [input] from Intel on these new issues,” Melamed said. “It’s relying entirely on the little bits of information they’re getting from third parties.”
The FTC said the practices that Intel employed against AMD earlier in the decade-aimed at limiting the competitor’s access to the market-were now being used against Nvidia. Intel is suing Nvidia over a licensing deal between the two companies in 2004. The agreement let Nvidia develop chip sets for Intel processors, but Intel claims that right doesn’t extend to chips based on its “Nehalem” architecture or future platforms.
Both Nvidia and AMD expressed approval of 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,” Nvidia said in a statement.
AMD’s statement was equally brief: “The FTC’s action against Intel is good news for consumers. It is yet another example of regulators around the globe acting to protect consumers by enforcing competition laws.”
Many analysts said they thought the agreement between Intel and AMD would mean the FTC would back off of its investigation. However, the addition of the graphics market and some of the e-mail exchanges between OEMs and Intel published in the N.Y. attorney general’s lawsuit probably were enough to convince the FTC to continue its probe.
The e-mails are being used to bolster the claims by N.Y. Attorney General Andrew Cuomo that Intel over several years essentially bribed and coerced OEMs, including Dell, into limiting their use of AMD products.
“[FTC investigators] have seen the e-mails, and they’re saying, ‘This is really undesirable behavior,'” said Roger Kay, an analyst with Endpoint Technologies Associates. “They’ve seen Michael Dell quaking in his boots, and they’re saying, ‘Wow, this is really bad.'”
