[Federal Register: April 23, 1999 (Volume 64, Number 78)]
[Notices]
[Page 20133-20139]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23ap99-151]
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_______________________________________________________________________
Part VII
Federal Trade Commission
_______________________________________________________________________
Intel Corporation; Analysis To Aid Public Comment and Commissioner
Statements; Notice
[[Page 20134]]
FEDERAL TRADE COMMISSION
[Docket No. 9288]
Intel Corp.; Analysis To Aid Public Comment and Commissioner
Statements
AGENCY: Federal Trade Commission.
ACTION: Proposed consent agreement: Publication of commissioner
statements.
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SUMMARY: The consent in this matter settles alleged violations of
federal law prohibiting unfair or deceptive acts or practices or unfair
methods of competition. The attached Analysis of Proposed Consent Order
to Aid Public Comment describes both the allegations in the complaint
that the Commission issued in June 1998 and the terms of the consent
order--embodied in the consent agreement--that would settle these
allegations. This document also contains the Statement of Chairman
Pitofsky and Commissioners Anthony and Thompson, and the Statement of
Commissioner Swindle.
DATES: Comments must be received on or before May 24, 1999.
ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,
Room 159, 600 Pennsylvania Avenue, NW, Washington, DC 20580.
FOR FURTHER INFORMATION CONTACT: John Horsley or Richard Parker, FTC/H-
3105, 600 Pennsylvania Avenue, NW, Washington, DC 20580. (202) 326-2648
or (202) 326-2574.
SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal
Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Sec. 3.25(f) of
the Commission's rules of practice (16 CFR 3.25(f)), notice is hereby
given that the above-captioned consent agreement containing a consent
order to cease and desist, having been filed with and accepted, subject
to final approval, by the Commission, has been placed on the public
record for a period of sixty (60) days. The following Analysis of
Proposed Consent Order to Aid Public Comment describes the terms of the
consent agreement, and the allegations in the complaint. This document
also contains (1) the Statement of Chairman Pitofsky and Commissioners
Anthony and Thompson, and (2) the Statement of Commissioner
Swindle.<SUP>1</SUP> An electronic copy of the full text of the consent
agreement package can be obtained from the FTC Home Page (for March 17,
1999) on the World Wide Web, at ``http://www.ftc.gov/os/
actions97.htm.'' A paper copy can be obtained from the FTC Public
Reference Room, Room H-130, 600 Pennsylvania Avenue, NW Washington, DC
20580, either in person or by calling (202) 326-3627.
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\1\ The Analysis and other Commissioner Statements were
published in the Federal Register on March 24, 1999, and the public
comment period began at that point. See 64 FR 14246 (March 24,
1999).
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Public comment is invited. Comments should be directed to: FTC/
Office of the Secretary, Room 159, 600 Pennsylvania Avenue, NW,
Washington, DC 20580. Two paper copies of each comment should be filed,
and should be accompanied, if possible, by a 3\1/2\-inch diskette
containing an electronic copy of the comment. Such comments or views
will be considered by the Commission and will be available for
inspection and copying at its principal office in accordance with
Sec. 4.9(b)(6)(ii) of the Commission's rules of practice (16 CFR
4.9(b)(6)(ii)).
Analysis of Proposed Consent Order To Aid Public Comment
The Federal Trade Commission has accepted for public comment an
Agreement Containing Consent Order with Intel Corporation (``Intel'')
to resolve the matters charged in an administrative Complaint issued by
the Commission on June 8, 1998. The Agreement has been placed on the
public record for sixty (60) days for receipt of comments from
interested members of the public. The Agreement is for settlement
purposes only and does not constitute an admission by Intel that the
law has been violated as alleged in the Complaint or that the facts
alleged in the Complaint, other than jurisdictional facts, are true.
I. The Complaint
The Complaint alleges that Intel has monopoly power in the
worldwide market for general purpose microprocessors. According to the
Complaint, Intel's market dominance is reflected in a market share
approximating 80 percent of dollar sales, together with high entry
barriers including large sunk costs of design and manufacture,
substantial economies of scale, customers' investments in existing
software, the need to attract support from software developers, and
reputational barriers.
The Complaint alleges that Intel sought to maintain its dominance
by, among other things, denying advance technical information and
product samples of microprocessors to Intel customers (``original
equipment manufacturers'' or ``OEMs'') and threatening to withhold
product from those OEMs as a means of coercing those customers into
licensing their patented innovations to Intel.
A microprocessor is an integrated circuit that serves as the
central processing unit (or CPU) of computer systems. Microprocessors
are sometimes described as the ``brains'' of computers because they
perform the major data processing functions essential to computer
systems. Advance technical information about new microprocessor
products is essential to Intel's OEM customers, who design, develop,
manufacture, and sell computer system products such as servers,
workstations, and desktop and mobile personal computers. Computer
design and development require the effective integration of multiple
complex microelectronics components (including microprocessors, memory
components, core logic chips, graphics controllers, and various input
and output devices) into a coherent system. To achieve such system
integration, a computer OEM requires product specifications and other
technical information about each component, such as the electrical,
mechanical, and thermal characteristics of the microprocessor. OEMs
also need advance product samples, errata, and related technical
assistance in order to perform system testing and debugging, thereby
assuring the high performance and reliability of new computer products.
Intel promotes and markets its microprocessors by providing
customers with technical information about new Intel products in
advance of their commercial release, subject to formal nondisclosure
agreements. Such information sharing has substantial commercial
benefits for Intel and its OEM customers. Customers benefit because the
information enables them to develop and introduce new computer system
products incorporating the latest microprocessors as early and
efficiently as possible. Intel benefits because a larger group of OEMs
can sell new computer systems incorporating Intel's newest
microprocessors as soon as the new microprocessors are introduced to
the market.
The Complaint charges that Intel suspended its traditional
commercial relationships with three established customers--Digital
Equipment Corporation, Intergraph Corporation, and Compaq Computer
Corporation--by refusing to provide advance technical information
about, and product samples of, Intel microprocessors. Intel did so,
according to the Complaint, to force those customers to end disputes
with Intel concerning the customers' asserted intellectual property
rights and to grant Intel licenses to patented technology developed and
owned by those customers. In at least one of the cases,
[[Page 20135]]
the Complaint alleges that Intel also acted to create uncertainty in
the marketplace about the customer's future source of supply of Intel
microprocessors.
The computer industry is characterized by short, dynamic product
cycles, which are generally measured in months. Time to market is
crucial. Indeed, the denial of advance product information is virtually
tantamount to a denial of actual parts, because an OEM customer lacking
such information simply cannot design new computer systems on a
competitive schedule with other OEMs. An OEM who suffers denial of such
information over a period of months will lose much of the profits it
might otherwise have earned even from a successful new computer model.
Continued denial of advance technical information to an OEM by a
dominant supplier can make a customer's very existence as an OEM
untenable.
As a result of the commercial pressure exerted by Intel's conduct,
Compaq and Digital quickly entered into cross-license arrangements with
Intel. Intergraph was able to resist that pressure because it succeeded
in obtaining a preliminary injunction from a federal district court
requiring Intel to resume and continue supplying Intergraph with
advance product information, part samples, and other technical support
pending a judicial resolution on the merits of the claims in the
lawsuit.
The alleged conduct tends to reinforce Intel's domination of the
general purpose microprocessor market in at least three ways. First,
the alleged conduct tends to give Intel preferential access to a wide
range of technologies being developed by many other firms in the
industry. To the extent that firms desiring to compete with Intel are
unable to obtain comparable access to such a wide range of technology,
they can be seriously disadvantaged, thus making it more difficult for
them to challenge Intel's dominance. Second, because patent rights are
an important means of promoting innovation, coercion that forces
customers to license away rights to microprocessor-related technologies
on unfavorable terms tends to diminish the customers' incentives to
develop such technologies, and thus harms competition by reducing
innovation. Finally, Intel's conduct tends to make it more difficult
for an OEM to serve as a platform for microprocessors that compete with
Intel's. Intel's actions ensure that Intel can act as a conduit for
technology flows from one OEM to another. That is, an OEM that seeks to
enforce its intellectual property rights against other Intel customers
may face retaliation from Intel, as the Complaint alleges Compaq did
when it sued Packard-Bell for patent infringement. The result is that
OEMs find it more difficult to differentiate their computer systems
from their competitors through patented technology. As a result, an OEM
seeking to use non-Intel microprocessors is less able to offset the
lack of an Intel microprocessor by the strength of its own reputation
for offering superior technology in other areas. For all of these
reasons, continuation of this pattern of conduct would likely have
injured competition by entrenching Intel's dominant position.
The Complaint also alleges that Intel's exclusionary conduct was
not reasonably necessary to serve any legitimate, procompetitive
purpose.
Exclusionary conduct by a monopolist that is reasonably capable of
significantly contributing to the maintenance of a firm's dominance
through unjustified means has long been understood to give rise to
serious competitive concerns. See, e.g., Lorain Journal Co. v. United
States, 342 U.S. 143, 154 n.7 (1951); Eastman Kodak Co. v. Image
Technical Services, 504 U.S. 451, 483 & n.32 (1992); Aspen Skiing Co.
v. Aspen Highlands Skiing Co., 472 U.S. 585, 596 n.19 (1985); United
States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966); Barry Wright
Corp. v. ITT Grinnell Corp., 724 F.2d 227, 230 (1st Cir. 1983) (Breyer,
J.) (citing 3 P. Areeda & D. Turner, Antitrust Law, para. 626 at 83
(1978)).
Such conduct harms consumers, not only because competition brings
lower prices, but also because competition is a powerful spur to the
development of new, better, and more diverse products and processes.
Unjustified conduct by a monopolist that removes the incentive to such
competition by depriving innovators of their reward or otherwise
tilting the playing field against new entrants or fringe competitors
thus has a direct and substantial impact upon future consumers.
In the absence of a legitimate business justification that
outweighs these concerns, such conduct constitutes a violation of
Section 2 of the Sherman Act, 15 U.S.C. 2, and therefore Section 5 of
the Federal Trade Commission Act, 15 U.S.C. 45. In issuing the
Complaint, the Commission found reason to believe that such a violation
had occurred.
II. Terms of the Proposed Consent Order
The Proposed Order would remedy all of the concerns embodied in the
Complaint. The substantive prohibition, Section II.A., prohibits Intel
from withholding or threatening to withhold certain advance technical
information from a customer or taking other specified actions with
respect to such information for reasons relating to an intellectual
property dispute with that customer. It also prohibits Intel from
refusing or threatening to refuse to sell microprocessors to a customer
for reasons related to an intellectual property dispute with that
customer. This provision is designed to prevent Intel from restricting
access to microprocessor products, or advance technical information
relating to such products, as leverage in an intellectual property
dispute against a customer that is receiving advance technical
information from Intel at the time the dispute arises. The Proposed
Order does not impose any kind of broad ``compulsory licensing'' regime
upon Intel. So long as it is otherwise lawful, Intel is free to decide
in the first instance whether it chooses to provide or not provide
information to customers, and whether to provide more information or
earlier information to specific customers in furtherance of a joint
venture or other legitimate activity. Moreover, the Order is limited to
the types of information that Intel routinely gives to customers to
enable them to use Intel microprocessors, not information that would be
used to design or manufacture microprocessors in competition with
Intel.
In short, Paragraph II.A. secures to Intel customers the right to
seek full and fair value for their intellectual property, free from the
risk of curtailment of needed advance technical information or product.
With one exception, Intel will be required to continue providing
information and product while the customer seeks any of a range of
legal and equitable remedies available to it, such as damages (trebled
or otherwise increased in appropriate cases), reasonable royalties, and
attorneys fees and costs. These remedies will generally be sufficient
to protect the customer in its exercise of its intellectual property
rights.
The exception involves situations where a customer maintains the
right to seek an injunction against Intel's manufacture, use, sale,
offer to sell or importation of its microprocessors. The Order
contemplates that Intel may request a customer to waive that remedy and
give the customer a reasonable opportunity to make a simple written
statement to that effect. If the customer refuses, Intel will not be
required by this Order to continue providing information or product
with respect to the microprocessors that the customer is seeking to
enjoin.
[[Page 20136]]
This part of the Order strikes an appropriate balance, on a
prospective basis, between the interests of Intel and its customers. If
a customer chooses to seek an injunction against Intel's
microprocessors, it cannot, under the provisions of this Order, be
assured of continuing to receive advance technical information about
the very same microprocessors that it is attempting to enjoin. If an
Intel customer nevertheless wishes to seek injunctive relief against
Intel's manufacture, use, sale, offer to sell or importation, it
remains free to do so, but without the protections in this Order. In
all other circumstances, Intel is required to continue supplying
technical information and product under the Proposed Order.
The Proposed Order contains a number of other definitions and
provisos to ensure that it will achieve its purposes while not sweeping
more broadly than needed to remedy the competitive concerns alleged in
the Complaint:
<bullet> ``Advance Technical Information'' (or ``AT Information'')
is defined in Paragraph I.C. to encompass all information necessary to
enable a customer to design and develop, in a timely way, computer
systems incorporating Intel microprocessors. The Proposed Order
establishes a rebuttable presumption that the provision of AT
information six months before the commercial release date of a
microprocessor is sufficient to enable the customer to design and
develop new systems based on that microprocessor in a competitive and
timely way. AT Information does not include detailed microprocessor
design information or other information not generally provided to
Intel's customers.
<bullet> ``Intellectual Property Dispute'' is defined in Paragraph
I.D. to include not only situations in which a customer directly or
indirectly asserts or threatens to assert patent, copyright or trade
secret rights against Intel, but also to situations in which a customer
asserts such rights against another Intel customer, or where a customer
has refused a request by Intel to license or otherwise convey its
intellectual property rights.
<bullet> Paragraph II.B.1. states that the Proposed Order does not
prohibit Intel from seeking legal or equitable remedies based upon its
own intellectual property, provided that it continues to supply AT
Information to the customer.
<bullet> Paragraph B.2. and B.3. make clear that the Proposed Order
does not prohibit Intel from withholding AT Information or making
decisions about product supply based on otherwise lawful business
considerations unrelated to the existence of the intellectual property
dispute. For example, Intel retains the right to withhold information
from a customer that has breached an agreement regarding the disclosure
or use of the information.
<bullet> Paragraph B.4. provides that the Proposed Order does not
require Intel to provide AT Information or microprocessors to
facilitate the design or development of a type of system that the
customer has not designed or developed or demonstrated plans to design
or develop within the preceding year.
<bullet> Paragraph B.5. makes clear that the Proposed Order does
not prohibit Intel from restricting the use of AT Information to the
customer's design and development of computer systems that incorporate
the microprocessor to which the AT Information pertains. For example,
if a recipient of AT Information is in the business of designing
competing microprocessors, the Proposed Order would not prevent Intel
from using reasonable firewall provisions to prevent that recipient
from using the information in that competing business.
<bullet> Paragraph B.6. provides that the Proposed Order does not
require Intel to disclose information or supply microprocessors that
are not otherwise available for disclosure or supply to Intel's
customers. If the information or product is not being provided to other
customers, then the refusal to provide it to a customer with which
Intel has an intellectual property dispute does not provide the kind of
leverage that the challenged conduct provides.
<bullet> Paragraph B.7. makes clear that, apart from the specific
requirements and prohibitions, the Proposed Order does not otherwise
limit Intel's intellectual property rights.
In light of the rapidly changing nature of the industry, Intel's
obligations under the Proposed Order would terminate in ten years. The
Commission appreciates that this same industry dynamic makes it
important for it to address disputes over Intel's compliance with the
Order expeditiously, should any such disputes arise.
Parts III, IV, and V of the Proposed Order set out various
procedural requirements, such as notice to affected persons and annual
compliance reporting. Paragraph III.A. permits Intel to provide notice
of the Order to recipients of AT Information through a conspicuous
notice placed, for thirty days after final entry of the Order, as the
first item on the ``In the News'' portion of the ``developers'' page of
Intel's World-Wide Web site. Because recipients of AT Information must
frequently visit that area of Intel's Website in order to receive
information needed in their business, a notice displayed at that
location will ensure notice to all affected persons. After the initial
thirty day period, Intel will maintain a link from the ``developers''
page to the Order, so that new customers will also have access to the
Order. The other provisions of these paragraphs are standard provisions
of the type typically included in Commission orders of this kind.
III. Opportunity for Public Comment
The Proposed Order has been placed on the public record for 60 days
in order to receive comments from interested persons. Comments received
during this period will become part of the public record. After 60
days, the Commission will again review the Agreement and comments
received, and will decide whether it should withdraw from the Agreement
or make final the Order contained in the Agreement.
By accepting the Proposed Order subject to final approval, the
Commission anticipates that the competitive issues described in the
complaint will be resolved. The purpose of this analysis is to invite
and facilitate public comment concerning the Proposed Order. It is not
intended to constitute an official interpretation of the Agreement and
Proposed Order or in any way to modify their terms.
By direction of the Commission.
Donald S. Clark,
Secretary.
Statement of Chairman Robert Pitofsky and Commissioners Sheila F.
Anthony and Mozelle W. Thompson
In the Matter of Intel Corporation
Docket No. 9288
We join our colleague Commissioner Swindle in welcoming comments
during the public comment period. To facilitate that comment, we
briefly recapitulate the precedent, legal and economic reasoning, and
judgment that led us to accept the settlement for public comment.
The Complaint alleged that Intel has monopoly power in the
worldwide market for general purpose microprocessors, and that it
sought to maintain that monopoly power by coercing customers into
licensing to it certain patented innovations. Intel carried out this
coercion, according to the Complaint, by refusing to provide advance
technical information about Intel microprocessors, withholding product
samples, and creating uncertainty in the marketplace about the
[[Page 20137]]
customer's future source of supply. Advance technical information about
new microprocessor products is essential to Intel's customers, so it is
alleged, because one cannot achieve the effective integration of
components such as microprocessors, memory components, core logic
chips, graphics controllers, and various input and output devices
without information such as the electrical, mechanical, and thermal
characteristics of the microprocessor.
The conduct is alleged to reinforce Intel's domination of the
general purpose microprocessor market in at least three ways. First,
the conduct gives Intel preferential access to the technologies of
other firms. To the extent that competitors cannot obtain comparable
access to technology, it would be more difficult for them to challenge
Intel's dominance. Second, coercion that forces customers to license
away patent rights on unfavorable terms tends to diminish the
incentives to develop such technologies. Finally, a computer maker's
inability to enforce its patent rights makes it more difficult to
develop and maintain a brand name based on superior technology, because
the patent owner is forced to share its technology with all computer
makers. In turn, a weakened brand identification tends to make it more
difficult for that computer manufacturer to find consumer acceptance
for computers using non-Intel microprocessors.
These are allegations, not proven facts, and Intel would have had a
full opportunity to respond to these allegations had there been a
trial. But the allegations are consistent with our knowledge of the
industry and with common sense, and the proposed remedy is consistent
with both of those as well as with Intel's representations as to its
own legitimate business needs.
Some have raised questions about a few of the factual predicates of
the case. But those questions are of a type that one would litigate at
trial, not use as a basis to reject a settlement. It is in the nature
of any settlement before trial that the facts are not fully known. Were
we to demand certainty, no case could ever be settled. Complaint
Counsel would have had an opportunity to present its evidence with
respect to each of the points that we have heard raised, and its
pretrial brief promised to do so.\1\
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\1\ As to monopoly power, Complaint Counsel said it would offer
evidence that the sub-$1000 segment was a small and relatively
unprofitable portion of the market (CCBr. at 13), and that at the
high-end, many computer manufacturers have been abandoning their
proprietary microprocessor designs in favor of Intel's (CCBr. at 11-
12). In the market as a whole, Complaint Counsel contended that
Intel's share had grown, not shrunk, and was in the range of 80% or
more. (CCBr. at 9 n.6.) Complaint Counsel also represented that it
would prove the existence of formidable barriers to entry and
expansion--including large sunk costs, long development lead times,
economies of scale, network effects, intellectual property rights,
and reputational barriers. (CCBr. at 15.)
As to whether Intel's actions affected actions taken against
customers rather than competitors, these customers had
microprocessor or related technology that Intel, the alleged
monopolist, desired. Moreover, the Supreme Court has repeatedly
condemned both monopolists and cartels that strike at their
customers in order to injure competitors. See, e.g., Lorain Journal
Co. v. United States, 342 U.S. 143 (191); Blue Shield v. McCready,
457 U.S. 465 (1982).
As to the customers in question being ``litigious,'' one could
alternatively characterize the customers as firms attempting to
resist inappropriate demands to turn over their constitutionally-
derived patent rights. If monopoly power could be used to force an
end to litigation, in such a Hobbesian world the strong would always
vanquish the weak, regardless of he underlying merits. Such an
outcome is the antithesis of civil society. Nor would forbidding
such conduct necessarily condemn parties to lengthy an expensive
litigation. Non-monopolists settle disputes all the time, even
though they do not have the powerful weapon of monopoly power to
wield.
As to whether Intel's conduct harmed consumer welfare, Compliant
Counsel acknowledged the burden of proving that Intel engaged in
``conduct, other than competition on the merits or restraints
reasonably `necessary' to competition on the merits, that reasonably
appear[s] capable of making a significant contribution to creating
or maintaining monopoly power.'' CCBr. at 5-6, quoting Barry Wright
Corp. v. ITT Grinnell Corp., 724 F.2d 227, 230 (1st Dir. 1983)
(Breyer, J.) (quoting 3 P. Areeda & D. Turner, Antitrust Law para.
626 at 83 (1978).
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Some have also questioned the practicalities of enforcing the
order. But courts weigh facts and circumstances and make determinations
about the purposes motivating challenged conduct every day, both within
and outside the antitrust field. Certainly the order could have been
made more certain in its application by, for example, requiring Intel
to deal with all comers on identical terms, regardless of circumstances
or the credit-worthiness or other characteristics of would-be
customers. Such an order would have been far more burdensome on Intel
and would have deterred a wide range of efficient conduct. Both the
Commission and a respondent share a common interest in an order that is
well-tailored to the violation and to the competitive circumstances--
even, sometimes, at the expense of bright-line clarity.
In short, in welcoming public comments on the proposed order, we
remain of the view that Complaint Counsel and Intel have done a
commendable job of crafting a remedy that addresses serious potential
competitive harm without significantly hindering Intel's legitimate
business activity. Moreover, this important balance supports the
climate of innovation that benefits both industry and consumers.
Statement of Commissioner Orson Swindle
In the Matter of Intel Corporation
Docket No. 9288
When the Commission accepted the consent agreement with Intel
Corporation last month, I said that I would take the opportunity to
express my views about it following my medical leave. In this statement
I will address issues arising from both the consent agreement and the
administrative complaint, from whose issuance I dissented last June.
Since we do not have the benefit of a trial record here <SUP>1</SUP>--
and because the information in hand does not allay the misgivings I
have had since the outset--I hope that public comment on the consent
agreement will provide helpful guidance on how to vote once the
agreement comes off the public record.
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\1\ Were we considering this matter at the conclusion of an
adjudicative proceeding, I would of course base my analysis strictly
on information in the adjudicative record. In the absence of such a
record, I am compelled to rely on other sources of information.
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In essence, the complaint consists of an allegation that Intel has
monopoly power in general-purpose microprocessors (complaint Paras. 4-
10, 38 <SUP>2</SUP>); an allegation that Intel engaged in exclusionary
conduct toward several customers by cutting off key technical
information and microprocessor prototypes in order to coerce those
customers to license certain of their intellectual property to Intel
(Paras. 11-37, 39); and concluding allegations that, through its
exclusionary behavior, Intel has both illegally maintained its monopoly
power in general-purpose microprocessors and attempted to monopolize
current and future generations of such microprocessors, in violation of
Section 5 of the FTC Act (Paras. 40-42).
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\2\ Unless otherwise indicated, all further citations to
paragraph numbers refer to the administrative complaint.
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In the first place, there is no doubt that Intel has long bestrode
the market for general-purpose microprocessors, but there has also been
reason to ask whether Intel's position in the market is as unassailable
as the complaint suggests. It is widely recognized that Intel is facing
vigorous competition in supplying microprocessors to the segment
consisting of personal computers costing less than $1000--a segment
toward which a good deal of consumer demand appears to have been
shifting lately. Although Intel has not
[[Page 20138]]
faced challenges of the same magnitude in the midrange and high-end
segments of the business, some have also questioned the durability of
the firm's dominance of those segments as well. In the absence of a
full-blown adjudicative record that might have proved what Paragraph 38
alleges, available information has not dispelled my questions about
whether Intel has monopoly power--as opposed to just an extremely large
market share--in general-purpose microprocessors.<SUP>3</SUP>
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\3\ In their statement, my fellow Commissioners--citing
complaint counsel's pretrial brief as support--assert that
``Compliant Counsel said it would offer evidence that the sub-$1000
segment was a small and relatively unprofitable portion of the
market * * * and that at the high-end, many computer manufacturers
have been abandoning their proprietary microprocessor designs in
favor of Intel's * * * Moreover, according to my colleagues, ``[i]n
the market as a whole, Compliant Counsel contended that Intel's
share had grown, not shrunk, and was in the range of 80% or more.''
Statement of Chairman Robert Pitofsky and Commissioners Sheila F.
Anthony and Mozelle W. Thompson at 2 n.1. I do not disagree that
these propositions that complaint counsel aimed to establish. My
point is simply that I have not yet been persuaded by the evidence
in the Commission's possession--as distinguished from complaint
counsel's representations and contentions--that Intel possesses
monopoly power in the relevant market.
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Second, even if one were to assume Intel's monopoly power, I have
misgivings about the theory of violation underlying the complaint. The
complaint claims that Intel took action against three customers--firms
whose primary significance to the case, according to the Commission's
own documentation, lies in their being manufacturers of PCs, not in
their being competitors of Intel in the microprocessor
market.<SUP>4</SUP> What action did Intel take against those customers,
and for what reasons?
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\4\ Of course, both Digital (the developer of the Alpha
microprocessor) and Intergraph (which developed the Clipper chip
prior to 1993) were not only Intel's customers but also--at least to
the extent that they were able to chisel away at Intel's alleged
monopoly--its competitors in the microprocessor market. The
Commission's complaint, however, is couched almost entirely in terms
of Intel's allegedly anticompetitive behavior toward three victims
that needed Intel technical information and prototypes so that they
could build computers. And although press releases do not
necessarily reflect the official views of the Commission (in the
sense that the complaint does), both the June 8, 1998, FTC press
release that announced the issuance of this complaint as well as the
March 17, 1999, release announcing the Commission's acceptance of
this consent agreement spoke almost entirely in terms of Intel's
conduct toward its customers. Even if Digital and Intergraph can be
characterized as Intel's present or erstwhile competitors--thereby
giving this matter more of the character of a traditional
monopolization case--the Commission has consistently placed far
greater emphasis on the supplier/customer relationship between Intel
and its alleged victims.
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The Commission's complaint says that Intel cut off the supply of
technical information and microprocessor prototypes to Digital
Equipment, and demanded the return of information and prototypes
already in Digital's possession, after Digital sued Intel for patent
infringement (Paras. 18-19). Intel took similar actions against
Intergraph, a customer focused largely on workstations and servers,
after Intergraph spurned Intel's demand for a royalty-free license to
certain Intergraph microprocessor-related technology (Paras. 26-29).
Finally, Intel cut off technical information to Compaq Computer, which
had earlier sued Packard Bell Electronics on the theory that certain
Packard Bell computer systems used Intel microprocessors that infringed
Compaq's patents--a lawsuit in which Intel felt an obligation to
intervene on behalf of the defendant (Paras. 34-35). According to the
complaint, Intel's purpose in taking these actions was to ``forc[e]
those customers to grant Intel licenses to microprocessor-related
technology developed and owned by those customers' (para. 13). The
alleged effects of Intel's behavior were ``to diminish the incentives
of those three Intel customers--as well as other firms that are Intel
customers or otherwise commercially dependent upon Intel--to develop
new innovations relating to microprocessor technology'' (para. 14) and
to ``entrench[] [Intel's] monopoly power in the current generation of
general-purpose microprocessors and reduce[] competition to develop new
microprocessor technology and future generations of microprocessor
products' (para. 39).
At this point I do not have sufficient information to be confident
that complaint counsel would have proved these rather dramatic charges.
My vote against pursuing the case last June, especially as regards
Intel's conduct toward Digital and Compaq, rested in part on my sense
that the Commission had not sufficiently considered the grounds on
which even a putative monopolist is entitled to withhold aid and
comfort from another company that threatens serious harm by suing it or
suing a third party on whose behalf the monopolist is obligated to
intervene. It was my judgment then, and it remains so now, that one
could plausibly view Intel's conduct in precisely such an exculpatory
light. If the Commission intended to broadcast some kind of general
admonition that a monopolist in these circumstances cannot resort to
``self-help'' (by, e.g., withdrawing and withholding technical
information and prototypes) but must instead hire lawyers and take its
disputes through lengthy and expensive litigation, then that is a
message to which I most assuredly do not subscribe. On the other hand,
if the complaint was meant to tell a narrower, more traditional
antitrust story based on harm to competition and consumers--in this
case, harm to innovation in a high-technology industry--I remain unsure
whether even that more modest edifice can rest on Intel's decision to
withdraw assistance from a handful of customers who were litigious or
otherwise flouted Intel's wishes.<SUP>5</SUP>
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\5\ My colleagues characterize Intel's conduct as ``coercion
that forces customers to license away patent rights on unfavorable
terms'' (Statement of Chairman Pitofsky and Commissioners Anthony
and Thompson, supra n.3, at 1), which begs the important question
whether Intel was truly engaged in such coercion or was instead
defending against attacks by its alleged victims. Regarding my
doubts about whether Intel's alleged conduct (and its
anticompetitive effects) could have been proved, my colleagues state
that these allegations ``are consistent with our knowledge of the
industry and with common sense * * *'' Id. It bears repeating that
my concerns arise from the state of the evidence underlying the
Commission's allegations. I take little comfort from--indeed, I am
not sure I fully understand--the notion that monopolization
allegations are ``consistent with our knowledge of the industry and
with common sense.'' I do not--as my colleagues suggest (id.)--
''demand certainty'' about the facts at issue, but I do look to the
strength of the evidence rather than to what a litigant's pretrial
brief might promise to deliver (id. at 2).
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Before I turn to the order, I wish to address one other
consideration concerning issuance of the complaint against Intel.
Regardless of how one characterizes the dealings between Intel and its
three customers--i.e., regardless of whether one accepts the
complaint's claim that Intel used its monopoly power to unfairly gain
access to intellectual property developed by those customers--I do not
believe that the complaint spells out an especially coherent theory of
how those dealings harmed consumers. Consumer welfare is the touchstone
of antitrust enforcement, and the ``public interest'' standard of
Section 5 of the FTC Act embodies considerations of consumer welfare.
In the absence of clear evidence of how Intel's dealings with Digital,
Intergraph, and Compaq could have adversely affected consumers, one can
question the very basis for issuing this complaint--and for injecting a
government agency into the dynamic workings of a fast-moving, high-
technology industry.<SUP>6</SUP> I look forward to any public comments
that deal with the likely harm to consumers stemming from the
misconduct alleged in the Commission's complaint.
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\6\ I note that to the extent this case is depicted as involving
harm to Intel's competitors (rather than to its customers), that
would tend to attenuate further any theory that Intel's conduct
threatened harm to consumers.
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Regarding the proposed order itself, some observers have
characterized it as
[[Page 20139]]
having achieved whatever objective prompted the Commission's suit
against Intel. I am not so sure, in part because of my uncertainty
(discussed earlier) over what message the complaint was meant to
communicate and in part because of the very terms of the order. In
fact, given my reservations about the merits of the complaint, I would
be more concerned about the order--comprising a difficult-to-enforce
mandate to ``sin no more,'' with a major proviso and some significant
exceptions--if it seemed likely to impose real and significant
restrictions on Intel.
I expect the proposed order to present possible enforcement
difficulties because, among other things, its basic prohibition (order
para. II.A) commands Intel not to take certain adverse actions against
microprocessor customers with regard to ``Advance Technical
Information'' ``for reasons related to an Intellectual Property
Dispute'' <SUP>7</SUP> and not to ``base[ ] any supply decisions for
general purpose microprocessors upon the existence of an [Intellectual
Property] Dispute.'' No matter what may motivate Intel's future
decisions whether to furnish technical information and microprocessor
prototypes to customers, it is extremely doubtful that Intel is going
to create any kind of record that will enable the Commission to
ascertain whether such a decision is ``for reasons related to'' or
``base[d] * * * upon'' the one ground made impermissible by the order--
an intellectual property dispute. Exacerbating the impact of Paragraph
II.A's subjective language are two further paragraphs that allow Intel
to withhold advance technical information from customers (order para.
II.B.2) or make product supply decisions (order para. II.B.3) based on
``business considerations unrelated to the existence of the
[Intellectual Property] Dispute''--further verbiage that appears to
make order enforceability hinge on difficult inquiries into the state
of mind of Intel decision makers. I hope that my pessimism is
unwarranted, but the key terms of the order seem destined to enmesh the
Commission in expensive, and perhaps intractable, enforcement
proceedings if Intel is ever suspected of violating it.<SUP>8</SUP>
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\7\ All italics in this paragraph are added.
\8\ Presumably in response to my point about the difficulty of
order enforcement in this case, my fellow Commissioners note that
``[c]ertainly the order could have been made more certain in its
application by, for example, requiring Intel to deal with all comers
on identical terms, regardless of circumstances or the credit-
worthiness or other characteristics of would-be customers.''
Statement of Chairman Pitofsky and Commissioners Anthony and
Thompson, supra n. 3, at 2. There is nothing in my statement to
suggest that I would favor an order drafted along such rigid,
mechanical lines. My point was that, in its current form, the order
against Intel could present formidable enforcement problems.
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I end where I began--searching for information to help me decide
whether I now have reason to believe that Intel violated the law and,
if so, whether I can support this consent order. I genuinely look
forward to receiving public comments both supportive and critical of
the settlement and the underlying theory of violation. <SUP></SUP>I
hope that the considerations spelled out in this statement will be
helpful to those preparing to submit comments to the Commission.
[FR Doc. 99-10252 Filed 4-22-99; 8:45 am]
BILLING CODE 6750-01-P