FTC: 'Intel fell behind' against AMD, used unfair tactics to catch up

The FTC's proposed remedies

While charges of violating the Sherman Antitrust Act were anticipated, the Federal Trade Commission also charged Intel this morning with violations of Section 5 of its own FTC Act -- specifically, with creating the conditions for an unfair method of competition not covered by Sherman.

In their explanation of charges this morning, FTC Chairman Jon Leibowitz and Commissioner Thomas Rosch wrote, "Despite the long history of Section 5, until recently the Commission has not pursued free-standing unfair method of competition claims outside of the most well-accepted areas, partly because the antitrust laws themselves have in the past proved flexible and capable of reaching most anticompetitive conduct. However, concern over class actions, treble damages awards, and costly jury trials have caused many courts in recent decades to limit the reach of antitrust. The result has been that some conduct harmful to consumers may be given a 'free pass' under antitrust jurisprudence, not because the conduct is benign but out of a fear that the harm might be outweighed by the collateral consequences created by private enforcement. For this reason, we have seen an increasing amount of potentially anticompetitive conduct that is not easily reached under the antitrust laws, and it is more important than ever that the Commission actively consider whether it may be appropriate to exercise its full Congressional authority under Section 5."

Section 5 permits the FTC to prevent individuals, partnerships, and corporations (excluding banks) "from using unfair methods of competition in or affecting commerce and unfair or deceptive acts or practices in or affecting commerce." In essence, the Act broadens the FTC's power to prohibit what it deems to be anti-competitive activity, and it does not need to show case precedent with regard to the Sherman Act to do it.

The Commission considered Intel's oft-heard argument that its conduct can't be held as exclusionary if the net effect was the lowering of CPU prices. But in his partial dissent from the complaint -- specifically, with regard to the part in which he did not dissent -- Comm. Rosch explained why Intel may still be held accountable under Sections 2 and 5 of the FTC Act:

"To be sure, most conventional Section 2 cases alleging monopoly maintenance or attempted monopolization rise or fall on proof of higher prices -- if for no other reason than that kind of injury is easiest to measure. But that is not the only kind of consumer injury with which a law enforcement agency like the Commission should be concerned. The Commission must also be concerned with whether a course of conduct by a firm with monopoly power reduces consumer choice by reducing alternatives. That is true whether the 'consumer' suffering the reduction in choice is an original equipment manufacturer...or an end user of computer equipment that buys equipment from the OEM. Thus, if and to the extent that an exclusionary course of conduct by a firm with monopoly power results in that less measurable form of consumer injury, Section 5 is the most appropriate vehicle for the analysis, and the Commission, with its expertise and experience, is the most appropriate plaintiff to make that determination."

So among the remedies the FTC is seeking are price controls that would effectively bar Intel from making any kind of pricing discount deal with an OEM that it would not make with any other OEM of like standing in the market. It seeks to bar Intel from offering conditional rebates and discounts to OEMs, and from manufacturing any technology that intentionally impairs the performance of another from a competing manufacturer. It would prohibit Intel from producing false and misleading advertising, and to correct allegedly false statements it made in the past.

And the FTC would also require Intel to license interoperability information under terms and conditions specified by the Commission, "including whatever is necessary to interoperate with Intel's CPUs or chipsets."

Intel's response early this afternoon came from newly appointed general counsel Doug Melamed, who characterized his company as one bewildered by an arsenal of new charges against it. "This case could have, and should have, been settled," Melamed said. "Settlement talks had progressed very far, but stalled when the FTC insisted on unprecedented remedies -- including the restrictions on lawful price competition and enforcement of intellectual property rights set forth in the complaint -- that would make it impossible for Intel to conduct business...The FTC's rush to file this case will cost taxpayers tens of millions of dollars to litigate issues that the FTC has not fully investigated. It is the normal practice of antitrust enforcement agencies to investigate the facts before filing suit. The Commission did not do that in this case."