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U.S. Expected to File Suit Against Intel
By JOEL BRINKLEY
WASHINGTON -- The Federal Trade Commission is expected to file a major antitrust lawsuit against Intel Corp. on Monday, and Intel executives and lawyers, saying the very future of the company is at stake, have vowed to fight the suit vigorously.
The government is expected to accuse the company of using its position as the world's largest manufacturer of microprocessor chips to gain leverage in disputes with certain computer manufacturers by withholding key technical information about its chips. Because Intel's microprocessors serve as the brains for more than 90 percent of the world's personal computers, the government contends that the manufacturers cannot design new computers unless Intel provides the technical data.
After the FTC staff forwarded its recommendation for the antitrust suit to the commissioners last week, Intel officials met with the commission to voice their strong opposition. The commission is scheduled to hold a closed meeting on Monday at which it is expected to vote to approve the complaint and forward it to one of the commission's administrative law judges for trial.
Because the disputes at the heart of the case are between Intel and two companies that are not currently major producers of PCs -- Intergraph Corp. and Digital Equipment Corp. -- some industry analysts have seen the prospect of an FTC action as largely symbolic, rather than posing a true threat to Intel's business activities. But Intel sees the stakes as high indeed.
And in their meetings with the commissioners last week, according to lawyers involved in the talks, Intel officials argued that the company must retain the right to decide who has access to the company's intellectual property, rather than cede that power to the government. Describing this principle as enormously important, Intel said it would appeal the case all the way to the Supreme Court, if necessary.
FTC officials said they would discuss the case openly only after it was filed, probably on Monday.
But Steven Calkins, who was general counsel for the FTC until last year, said of Intel's stance: "That sounds lovely. But I would guess that the commission would find it wholly unpersuasive for anyone to suggest that anyone with patents or copyrights can do whatever they want with them without ever running afoul of antitrust law."
And some other lawyers who are expert in antitrust law said Intel's argument seemed based more on business and public relations principles than on a persuasive argument in an antitrust case.
But in their discussions with the commission, Intel presented several more traditional legal arguments based on its interpretation of antitrust law.
The federal case would follow a similar lawsuit filed by Intergraph, a maker of computer work stations. Intergraph's suit contends that during a patent dispute between it and Intel, Intel was trying to get access to certain patented microprocessor technologies for which Intergraph owned the rights. As leverage, the suit said, Intel refused to give Intergraph the product data books that set out the specifications for Intel's Pentium II family of microprocessors.
That, and a similar problem with Digital Equipment, are at the heart of the FTC's case. But the Intel lawyers and executives told the commission that withholding the information was not an antitrust violation because Intel is not in competition with Intergraph -- or with the Digital division that makes PCs.
Further, they argued, Intel has the right to demand payment in kind for the company's technical information.
It's a question of "value for value," said Steven Salop, an antitrust expert at Georgetown University, who is serving as a consultant to Intel for the FTC suit. "Why shouldn't they be allowed to charge for the information through a reciprocal exchange of information?" Intel argued that it had the right to withhold information from Intergraph as long as Intergraph refused to turn over the data Intel wanted.
But Howard Morse, a Washington lawyer who was deputy director of the FTC's Bureau of Competition until last December, saw the problem in a different light. "What Intel is doing here," he said, "is using its monopoly power to force other companies to give up their intellectual property." Intergraph, in its suit, said it had no alternatives for the microprocessors it needed other than Intel, and a federal judge agreed.
In its meetings last week, Intel also argued that public statements from Intergraph and the other companies from which Intel withheld information had indicated that their businesses had not been harmed as a result.
"That may be a useful public relations argument," said Kevin Arquit, a New York lawyer who is a former FTC official, "but I don't think it will be persuasive at the commission. There's no way to know if they would not have been even more profitable if Intel hadn't done it."
The Intel lawyers and executives contended that under antitrust law, it must be proved that Intel's behavior harmed competition not in the computer manufacturing business but in Intel's industry -- the microprocessor business. What is more, the Intel lawyers argued, Intergraph did not appear to have been greatly harmed, either. And in any case, Intel contended, Intergraph is such a small player that a significant harm to the overall computer industry was not possible.
It is true, Morse said, that the FTC will have to prove harm to competition. "But the commission doesn't have to find dead bodies on the highway," he added. "They just have to show that the company's behavior harmed innovation by Intergraph or others. Will companies engage in research and development if they think that Intel is going to come in and take their R&D away from them?" If they do not pursue such research, he said, then competition in the industry is harmed.
But Salop, Intel's adviser, said, "I think the FTC is relying on theories rather than proof with respect to harm to competition."
If the FTC does vote to file the suit, it would be referred to an administrative law judge at the agency, who would hold a trial. If the judge ruled against Intel, the company could appeal back to the commissioners. If the FTC turned down such an appeal, then the company could take its case to the U.S. Court of Appeals.
An advantage Intel would hold in this circumstance is that it could select any appeals court in the country, trying to find a court it might believe is least sympathetic to FTC cases.
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