Intel lawsuit may be flawed
By Reuters
Special to CNET NEWS.COM
June 7, 1998, 2:50 p.m. PT
The government's anticipated antitrust lawsuit against Intel--expected to focus on the chip giant's practice of withholding its intellectual treasuresfrom some computer makers--will probably be flawed, analysts say.
On Monday, the Federal Trade Commission is expected to file a lawsuit against Intel alleging the world's biggest chip maker abused its microprocessor monopoly power to bully other high-tech companies. The microprocessor is the heart of the personal computer.
The core of the FTC case is believed to be instances in which Intel stopped supplying certain customers with proprietary data about its chips because its licensing agreements with these customers-notably Intergraph and Digital Equipment went awry.
Workstation maker Intergraph has filed an antitrust lawsuit against Intel because Intel cut off its supply of information about future products when Huntsville, Ala.-based Intergraph sued it for patent infringement.
A similar set of events occurred with Maynard, Mass.-based computer maker Digital, but Intel and Digital settled their dispute. Intel has argued it had to protect its intellectual property--its designs for chips that are at the heart of over 80 percent of the world's personal computers--from legal foes.
"If the disputes are contained within that relationship, they have no significant competitive impact," Richard Gilbert, an economics professor at the University of California at Berkeley, said in a recent interview.
"The conduct that is alleged is not unusual in a licensing arrangement. The question is whether it affects competition generally, and I have not heard anyone make a good case yet."
Intel is expected to argue that individual transactions with its microprocessor customers have not harmed the competitive landscape and that its customers are free to buy the chips from its rivals--Advanced Micro Devices Inc. and Cyrix, a National Semiconductor Unit--as some do.
But Intergraph said in its lawsuit against Intel that the company's actions were a serious threat to its core business. "If you are protecting intellectual property, how is that monopolistic?" said David Wu, an analyst at ABN AMRO.
A spokesman for the Santa Clara, Calif.-based chip giant declined to comment on the impending FTC action.
One issue also expected to come up is the definition of a monopoly. While Intel does not deny it has a dominant position in the marketplace, it is expected to argue it is not a monopoly because it does not control prices.
The FTC will try to show a pattern of behavior that is abusive of monopoly power, and the agency is likely to allege Intel does control the market through its technology, which is a standard in the PC industry. Intel chips and Microsoft Corp.'s Windows operating system software form the "Wintel" combination found in the vast majority of PCs.
The FTC is also looking at Intel's intervention in a 1995 lawsuit Compaq filed against rival PC maker Packard Bell. Intel came to the aid of Packard Bell, signaling to Compaq, one of its biggest customers, that if it sues Packard Bell, it was also suing Intel.
SoundView Financial analyst Scott Randall, discussing his forecast of how the FTC will argue, said, "There is a doctrine called crucial technology. If you have significant control over the market and there are crucial technologies that you control, that can prevent competitors from entering."
Ironically, the lawsuit comes at a time when Intel is going through one of its toughest times in over a decade. The company's profit margins are under pressure from tumbling PC prices and it has been forced to cut prices more often in a cutthroat PC market. It has announced plans to cut 3,000 jobs through attrition and layoffs, its biggest job cuts in over a decade.
The company forecast flat revenues for the second quarter, but analysts have been worried the company will not meet Wall Street expectations due to the sluggish PC market.
"Everyone shoots at the top dog, and they are getting shot at more than ever," said William Tai, a principal with Institutional Venture Partners and a former Wall Street analyst. "I think all natural monopolies come to an end at an appropriate time. There are larger issues looming for Intel with respect to their earnings than the FTC investigation."
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