Intel FTC Settlement Illustrates Aggressive U.S. Antitrust Approach

Industry observers are split over whether the increasingly aggressive antitrust stance taken by U.S. regulators is a good or bad thing for the IT industry.

Download the authoritative guide:

Officials with the Federal Trade Commission say the agreement the FTC reached with Intel to settle antitrust allegations will create a more competitive playing field that will benefit vendors, OEMs and customers alike.

The settlement, announced Aug. 4, heated up the simmering debate about the degree to which the government should intervene in the IT market, and whether that intervention helps or hurts those involved, from vendors to consumers.

Intel was accused of using conditional financial payments and coercion to force OEMs to limit their use of products from Advanced Micro Devices and graphics chips maker Nvidia. The FTC also said Intel altered some of its technologies, such as compilers, so that they would hinder the performance of AMD products, and then laid the blame for the poor performance on AMD's technology.

The settlement set out a broad set of restrictions on Intel business practices. For its part, Intel has denied any wrongdoing in this and other legal cases.

The agreement comes at a time when regulators in both the United States and Europe are taking a hard look at antitrust issues in the IT space. IBM is getting attention both here and abroad over its System z mainframe business, while Google also has had its share of questions being raised. Even Intel, while putting the FTC case aside, faces a lawsuit filed by the N.Y. State Attorney General's Office, and is also dealing with the European Commission, the antitrust arm of the European Union, over a $1.45 billion fine levied in 2009.

Advocacy groups like the CCIA (Computer and Communications Industry Association) have cheered government agencies that have taken on some of the larger companies-including IBM and Intel-that the organization believes are unfairly stifling competition through their market dominance.

CCIA President and CEO Ed Black, in response to the FTC's announcement of the settlement, said it was time for regulators to get control of the situation.

"CCIA has long urged the FTC to act because of the importance of this market to the whole high-tech industry, its impact on consumers and innovation, and the particularly egregious nature of Intel's actions," Black said in a statement. "Initial indications are that the commission's settlement reflects a deeper and broader understanding of the markets involved than any past rulings against Intel. The forward-looking nature of the settlement is vital to restore competition to a part of the high-tech ecosystem that has been severely harmed."

That harm came in the form of slowed innovation, a lack of choices for consumers and prices that-while falling-were not falling as fast as they could have with an even playing field, according to FTC Chairman Jon Leibowitz.

Others view the aggressive approach taken by the FTC and other regulatory bodies as harmful to one of the few remaining industries that the United States has an advantage in. Rather than protecting consumers, regulators are acting on the complaints of competitors, Evan Stewart, an antitrust expert and partner with the law firm Zuckerman Spaeder in New York, said in an interview with eWEEK.

"This is a disturbing trend," Stewart said. "The antitrust [groups] are not keeping an eye on what's best for the customer. Is Intel developing superior products that are serving the consumers? I think the answer is yes."

The FTC should worry less about what the company's competitors are saying and more about whether consumers are benefiting, he said.

"Competitors always whine," Stewart said.

The real test of this agreement will be three to four years down the road, when it can be better determined whether Intel and consumers were harmed by the settlement, he said. In similar situations in the past-including when the Department of Justice took on Microsoft and other regulatory agencies went after IBM-the result was harm done to both the tech company in question and the IT market in which it operated.

The IT industry should expect a continuation of this aggressive regulatory approach, Stewart said, noting a comment in 2009 by Christine Varney, an assistant attorney general and top antitrust official at the Department of Justice, who said loose antitrust rules under the Bush administration were contributors to the current global economic woes. She promised greater oversight by the Obama administration.

"She is a person of her word," Stewart said. "And this [IT industry] is where the action is."

It's also an unfortunate intersection of an industry in which the United States has a competitive edge over the rest of the world, and one that the government knows the least about, he said.

"Some damage is going to be done [by the settlement]," Stewart said. "You just hope it's not too bad."

Hans Mosesmann, an analyst with Raymond James Equity Research, said in a research note Aug. 4 that the impact of the settlement could be minimal because the restrictions outlined in the agreement are similar to ones Intel already is operating under, thanks to its agreement with AMD in December that settled their private legal disputes. The only difference now is that those protections are extended to Nvidia and Via Technologies.

Other restrictions already were included in licensing agreements with Intel competitors.

"What is interesting is that a governing body in the U.S. has joined other countries (Korea, Japan and the EU, for example) in pinning Intel as the bully," Mosesmann wrote in his note. "The message is that Intel should be more constrained in its dealings with OEMs, ODMs (original design manufacturers), the channel and its competitors. We are watching you."