Editors' note: This is a guest column. See Larry Downes' bio below.
Wednesday's announcement that the Federal Trade Commission had filed a complaint against chipmaker Intel came as quite a surprise.
Not because of the allegations themselves, which focus on illegal tactics the company allegedly uses to maintain its dominance in the market for PC and server CPUs. Nearly all of them have already been cited in regulatory actions in the United States and abroad.
Earlier this year, the European Union fined Intel nearly $1.5 billion for conduct similar to that alleged in the FTC complaint (an appeal is pending). New York State Attorney General Andrew Cuomo, likewise, filed an antitrust case against the company in November. Private antitrust suits, notably by competitor Advanced Micro Devices, have been ongoing since 2005. Japan and South Korea have already concluded their own actions against the company.
Rather, what is surprising about the FTC complaint is its timing. Given the range of both public and private litigation against Intel, it's hard to see what the FTC hopes to achieve by jumping in so late in the game. Indeed, the commission had been investigating the chipmaker since June 2008, before the EU reached its decision and before a landmark settlement between Intel and AMD was reached in the private lawsuit just last month, in which Intel agreed to pay AMD $1.25 billion and cross-license various patents.
According to Intel's statement Wednesday morning, the company and the commission had been close to a settlement "of all outstanding issues with the FTC" when the commission instead decided to issue its complaint.
The real deal
So what's going on here? Let's start by looking at a few key differences between the FTC action and those brought by other litigants. First, the FTC complaint broadens the charges against Intel. In early December, sources reported that the FTC had widened its investigation beyond CPUs to include anticompetitive behavior in graphics processing units, in which Intel is alleged to control about half the market.
Nvidia, one of Intel's main competitors for GPUs and itself a party in still another lawsuit, confirmed that the FTC had contacted the company about its investigation. (In a Wednesday statement, Intel argued that the GPU claims have not been fully investigated by the commission and are therefore premature. It appears that the addition of these new issues derailed the settlement talks, leading to Wednesday's action.)
Second, the FTC's complaint alleges multiple violations of the Federal Trade Commission Act, which only the commission has the authority to enforce. Under section 5 of the act, the commission may use its power to remedy practices that have not yet reached the threshold of harm necessary under either the Sherman Act or the Clayton Act, the more general antitrust statutes. As the U.S. Supreme Court put it in a 1953 case, the commission quotes from in the first sentence of its complaint, section 5 gives the FTC power to "stop in their incipiency acts and practices which, when full blown, would violate" the Sherman or Clayton acts.
Third, and perhaps most disturbing, the FTC's proposed remedies are much broader than those sought in any of the other litigation. Rather than seeking fines, penalties, or money damages, the commission intends to enforce wide-ranging changes to how Intel operates.
For starters, the FTC wants to limit Intel's use of bundled prices, quantity discounts, minimum purchase guarantees from original equipment manufacturers, pricing products below cost and other long-standing industry practices. Moreover, the commission intends to require Intel to license its technology to "others" on terms and conditions "as the commission may order" and to require Intel to preclear any future acquisitions, including purchases of intellectual property such as patents and copyrights.
These and many other restrictions on Intel's conduct would be overseen by an independent monitor appointed by the FTC. Intel would also be required to submit "periodic compliance reports" with the commission.
In short, if the FTC goes forward with its complaint, and Intel is ultimately found to have violated the FTCA, the company would find itself closely regulated for an undetermined period of time by the commission and its outside monitors. Even advertising and promotional materials would need to be reviewable on demand by the government.
Notable timing
None of these differences, however, add up to a justification for the FTC's decision to insert itself into a complicated matrix of ongoing litigation, just as the other actions are or are close to reaching resolution.
For starters, if the GPU claims are as strong as the commission says they are, then they could easily have formed the basis of a separate complaint, filed once the FTC had had a full opportunity to investigate them.
As for the FTCA, the FTC undermines its own argument that the special powers of section 5 are necessary to repair the semiconductor market. The commission notes throughout the complaint that Intel's monopolies and the behaviors it is seeking to remedy, with the exception of the GPU-related violations, have been ongoing since 1999--the year in which Intel and the commission settled an earlier section 5 complaint. Given that so many other lawsuits are already years in progress, it's unlikely that any "incipient" behavior is involved here; whatever Intel has done, it has done for years.
The FTCA is a red herring, in any case. As leading antitrust scholar Richard A. Posner noted in 2005, expansion of the Sherman and Clayton Acts over the years has left no real difference between the more general antitrust laws and the FTC's special powers under section 5. Private enforcement or lawsuits brought by the Department of Justice or state attorneys general now cover all the behavior that may have been subject only to what was once the broader powers of the agency.
The FTC's belated decision to pursue Intel brings Posner's longstanding critique of the commission into sharp focus. Posner, who has questioned the effectiveness of the commission since 1969, concluded in 2005 that the agency's continued existence might be justified, not for its enforcement of antitrust laws, but rather on the basis of its unique role in protecting consumers against fraud. The Department of Justice is a "powerful and highly regarded" federal agency tasked with enforcing antitrust law, Posner wrote, "but there is no counterpart federal agency that tries to protect consumers against fraud and oppression--unless it is the Federal Trade Commission."
And while the FTC complaint duly invokes "harm to consumers" 31 times in its complaint, evidence of any real damage will be hard to come by. Thanks to Moore's Law--Intel founder Gordon Moore's promise that semiconductors will continue to get faster, smaller, and cheaper every 12 to 18 months--the price of raw computing power has fallen dramatically and consistently since Intel was founded. Consumers are not being tricked or misled into buying computers with Intel processors.
Protecting consumers?
The commission can blow all the smoke it wants to about ensuring "freedom of choice" for consumers, but for better or worse, this litigation and all the rest of it is being brought for the benefit of Intel's competitors. Which is not to say that Intel hasn't violated anticompetition laws and that those violations, if left unremedied, "will have an adverse effect on competition and hence consumers," as the FTC delicately puts it.
Perhaps they will. But there is another, greater danger here, and that is the harm to the entire semiconductor industry that will result from regulators stepping in to resolve what are, in essence, private fights between Intel, its competitors, and some of its biggest customers.
The commission, along with its counterparts abroad and judges fashioning remedies in the public and private antitrust cases, might somehow get it right and fix the semiconductor market--or at least make it more efficient than it is under Intel's dominance. On the other hand, they might make things much worse.
The worst-case scenario seems increasingly likely. The FTC, in any event, is weighing in far too late on Intel's battles with AMD, and too soon in its fight with Nvidia and other GPU manufacturers. The remedies it intends to visit are breathtaking in their expansiveness and would leave Intel unable to compete, let alone compete fairly. The only beneficiaries of this latest chapter in the antitrust saga would be Intel's competitors, not consumers.
As Posner noted with characteristic understatement, an FTC untethered from its role of protecting consumers is little more than a tool for unhappy competitors. "If the competitor files a lawsuit, he must bear the expense of the suit," Posner wrote, "but if he can get the FTC to proceed against the seller, he incurs no cost. This opens up the possibility of using the FTC as a weapon against competition."
Even worse, it's a weapon that has the unfortunate habit of regularly backfiring on those who employ it.
The Federal Trade Commission's complaint against Intel for alleged anticompetitive practices has a new twist: graphics chips.
To date, the antitrust actions of regulators worldwide toward Intel have focused on sale practices for central processing units, or CPUs, a market over which the company has fought heavily with Advanced Micro Devices. On Wednesday, however, the FTC spelled out a litany of allegations about Intel's alleged anticompetitive behavior in the market for graphics-processing units, or GPUs, in which Nvidia is a major player.
Nvidia is the world's leading supplier of "discrete," or standalone, graphics chips but takes a distant second place in overall market share to Intel, which supplies "integrated" graphics built into the chipsets that accompany all of its processors. Mercury Research estimates the total market for graphics chips, including integrated graphics, at almost $10 billion in 2009.
Why graphics, and why now? "It would be really hard to sell the public on expending resources to take Intel through administrative proceedings when it had already paid over a billion dollars to AMD," said Joshua D. Wright, a professor at George Mason University School of Law and a scholar in residence at the Federal Trade Commission until 2008.
"[The FTC] needed to be seen as doing something new," Wright said.
"[Nvidia] becomes the remaining star witness, now that AMD has left the field," said Roger Kay, principal at Endpoint Technologies. "And the FTC's focus, which begins to look toward the future, has to take into account how graphics will fit in as computer technology develops," Kay said.
Intel General Counsel Doug Melamed asserted in a statement that the FTC complaint "is based largely on claims that the FTC added at the last minute and has not investigated," referring to the GPU allegations. And Melamed added in a conference call that some of these GPU allegations were made as recently as December 8.
One of the areas the FTC case zeroes in on is the burgeoning competition for chipsets in Netbooks--small, inexpensive laptops that are typically priced around $350. Netbooks are powered by Intel's Atom processor--and integrated graphics silicon built into the chipset. In this market, Nvidia also sells its Ion chipset, which competes with Intel's integrated graphics product.
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The Federal Trade Commission has talked to Nvidia as its probe continues into Intel's business practices.
As CNET reported earlier, Nvidia has complained loudly for years about Intel business practices. Last month, Intel agreed to pay Advanced Micro Devices $1.25 billion to settle a long-running antitrust case against Intel.
In addition to the AMD probe, the FTC has approached Nvidia about Intel's business practices. This time in the graphics chip market, according to an Nvidia spokesperson. The Nvidia-related probe was reported by BusinessWeek.
Intel commands about 50 percent of the graphics chip market. Though Nvidia is the world's leading supplier of "discrete," or standalone, graphics chips, it ranks a distant second in overall market share to Intel, which supplies "integrated" graphics built into the chipsets that accompany all of its processors. Mercury Research estimates the total market for graphics chips, including integrated graphics, at almost $10 billion in 2009.
In the third quarter, Intel had 53 percent of the graphics chip market, up from the 49 percent share in the same period last year, according to Jon Peddie Research, which tracks the graphics chip market. Nvidia took about 24 percent, down from the 28 percent in the third quarter of last year.
Nvidia claims that Intel's "bundling" tactics--the same tactics that AMD has cited for years and that were spelled out in a complaint filed by New York's attorney general last month--are causing it undue harm.
"Intel's tactics with Ion have been the most aggressive we've seen from a competitor," Nvidia CEO Jen Hsun Huang said in a statement provided to CNET last month, referring to Nvidia's Ion chipset that is used in laptops. Intel disputes this.
"We have scrubbed and continue to scrub our pricing practices as it relates to chipsets and processors," Intel spokesman Chuck Mulloy told CNET last month.
And in another feud with Intel, Nvidia has halted development of chipsets for Intel's new "Nehalem" processor technology (marketed as the Core i series of chips), following a complaint filed by Intel in February--which Nvidia then countered in March.
Updated on December 4 at 10:55 a.m. PST: adding comment from Nvidia.
Neelie Kroes
(Credit: EC)Competition commissioner Neelie Kroes and telecommunications commissioner Viviane Reding will take on new duties under a European Commission lineup announced Friday.
Kroes is designated as the digital agenda commissioner, with oversight of the European Network and Information Security Agency (Enisa) and the Information Society Directorate General, which supports IT activities. As such, she is responsible for increasing online access to content and for the digital economy. She has also been named a vice president of the European College, the group of all the commissioners.
At the start of her five years as competition commissioner, Kroes handled the EU's antitrust investigation into Microsoft, which ended in a 497 million euro fine for the software giant.
Read more of "EC reshuffle bumps Kroes out of antitrust seat" at ZDNet UK.
Intel Labs Europe is joining a handful of French institutions to investigate large-scale computing challenges that face today's information technology industry.
The Exascale Computing Research Center will investigate machines that can perform 1,000 times more calculations than today's top supercomputers, Intel said, and the chipmaker is spending millions of dollars on the three-year partnership.
The effort also includes Commissariat a l'Energie Atomique, Grand Equipement National de Calcul Intensif, and the Universite de Versailles Saint-Quentin-en-Yvelines. Those organizations will jointly match Intel's investment, Intel said.
"France has taken a leading role in driving high-performance computing research in Europe. We chose to work with these three organizations because of their world-class software competency in exascale and high- performance computing," said Steve Pawlowski, general manager of the Intel Architecture Group's central architecture and planning, in a statement.
The move also raises the company's profile in a jurisdiction that's been tough on Intel. The chipmaker ended up on the losing end of a European Commission antitrust judgment, and is now appealing the resulting fine of 1.06 billion euros ($1.58 billion). Intel just settled a separate antitrust case brought by rival AMD.
Intel Labs Europe employs 900 researchers in Europe, the chipmaker said.
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Advanced Micro Devices is not the only large Intel competitor to rail against Intel's alleged strong-arm tactics.
Nvidia has also complained loudly for years about Intel business practices in the graphics chip market, where Intel commands about 50 percent of the market.
Nvidia is the world's leading supplier of "discrete," or standalone, graphics chips but takes a distant second place in overall market share to Intel, which supplies "integrated" graphics built into the chipsets that accompany all of its processors. Mercury Research estimates the total market for graphics chips, including integrated graphics, at almost $10 billion in 2009.
In the third quarter, Intel had 53 percent of the graphics chip market, up from the 49 percent share in the same period last year, according to Jon Peddie Research, which tracks the graphics chip market. Nvidia took about 24 percent, down from the 28 percent in the third quarter of last year.
These figures get even more lopsided for Intel when the market is segmented into integrated graphics only. "Put your seatbelt on. They've got 80 percent of the notebook integrated market," said Jon Peddie, president of Jon Peddie Research. Though this is a much smaller and more segmented market than overall PC processor market, which was at the center of last week's $1.25 billion settlement between Intel and AMD, it still shows the level of Intel's dominance, according to Peddie.
Nvidia has taken to lampooning Intel. Here, CEO Paul Otellini is the object of satire on Nvidia's 'Intel's Insides' Web site.
(Credit: Nvidia)Nvidia claims these latter market share figures reflect Intel's "bundling" tactics--the same carrot-and-stick tactics that AMD has cited for years and that were spelled out in a complaint filed by New York's attorney general earlier this month.
Intel is trying to impede competition on two chipset fronts, according to Nvidia. One front is the burgeoning market for chipsets in Netbooks--tiny, inexpensive laptops that are typically priced around $350. In this market, Nvidia sells its Ion chipset, which competes with Intel's integrated graphics product.
"Intel's tactics with Ion have been the most aggressive we've seen from a competitor. They have offered the Atom [a total of three chips] for $25, but when the one-chip Atom is used with Ion, it sells for $45," Nvidia CEO Jen Hsun Huang said in a statement provided to CNET. "A customer can't even choose to resell the chipset and use Ion instead. What's the point of Nvidia getting an Intel bus license if it's impossible to overcome Intel's pricing bundles?" he asked, referring the licensing fee that Nvidia pays Intel.
"We'll keep growing as a company, but further action needs to be taken to protect consumers," Huang said.
Intel disputes this. "He's playing a trick of numbers, said Intel spokesman Chuck Mulloy. "He's giving you a $45 list price--that nobody pays--for a part and then a negotiated price (which is more realistic). He's mixing apples and oranges. We have scrubbed and continue to scrub our pricing practices as it relates to chipsets and processors. It's all above cost. And that meets the legal standard worldwide."
In Netbooks, Nvidia has made some headway this year; its Ion chipset has been used in Netbooks from Hewlett-Packard and Lenovo, among others--and Huang concedes this. But Peddie said Nvidia still faces a formidable challenge. "They're nibbling away it at. But it's a pretty big hill to climb," Peddie said.
In the second front of Nvidia's most hotly-contested feuds with Intel, the former has halted development of chipsets for Intel's new "Nehalem" processor technology (marketed as the Core i series of chips), following a complaint filed by Intel in February--which Nvidia then countered in March. Intel alleged in its motion for a declaratory judgment that the 4-year-old chipset license agreement with Nvidia does not extend to Intel's future-generation processors with "integrated memory controllers," which includes Intel's newest Nehalem Core i processors.
"It's meant to get Nvidia to cease and desist from citing that they have a license," Peddie said. "That's an interesting tactic because if the court rules in favor of keeping Nvidia from saying they have a license, it also creates the burden on the OEMs [PC makers] of not wanting to get in a crossfire between Nvidia and Intel," he said.
Intel again disputes this. "It's not seeking to prevent them from doing anything. For well over a year and including mediation, we argued with Nvidia about their rights under that agreement. And we tried multiple times to reach an agreement. And we could not," Mulloy said. "We asked the court to tell the parties what the agreement means. At the end of that process, we'll work with them and try to figure out what to do next."
Note: Mercury Research numbers were provided by Nvidia.
Now comes the hard part for Advanced Micro Devices. It has to compete with Intel on the merits of its products.
After settling with Intel and walking away with $1.25 billion, how competitive is AMD's silicon? Some experts weigh in.
Two analysts that follow Intel and AMD said separately that AMD won't be competitive until 2011--at the earliest.
"The only chance for reaching any kind of parity is in 2011. They don't have anything on the roadmap until then," said Ashok Kumar, an analyst at Northeast Securities. In the interim, AMD will get by with about one-fifth of the processor market, according to Kumar. But whether AMD can expand its market share beyond this and be profitable--like Intel--isn't clear. "Intel can leave 20 percent of the unit volume for AMD but (AMD) will have to come up with a business model where it can return to profitability based on this."
AMD may have a chance to expand into more profitable segments if it executes well in 2011, according to another analyst. "AMD believes it's on the cusp of another cycle where they will have strong product offerings compared with Intel. I think this happens in 2011," said Nathan Brookwood, the principal at Insight64. "The products are innovative and have tremendous potential," Brookwood said, referring to the particulars of new chip technologies that AMD disclosed at its analyst day on Wednesday.
But these are big ifs. AMD must close a yawning gap with Intel that's not going to get any smaller because of the legal settlement. "Technically, Intel now has a definitive advantage, which may widen," said Roger Kay, president of market researcher Endpoint Technologies. Kay believes that AMD will have trouble keeping up with the feverish pace, referred to as "cadence," that Intel sets as it moves to each successive generation of chip manufacturing technologies--which, in turn, allows Intel to quickly introduce performance and power efficiency improvements in its processors. "AMD tends to be six months to a year behind Intel," Kay said, citing a statement made by AMD CEO Dirk Meyer at the company's analyst meeting on Wednesday. AMD may begin to close the gap more in the future "but there's no telling whether that will happen," Kay said.
Will AMD's 'Fusion' lead to a resurgence?
(Credit: AMD)And if it doesn't happen, AMD becomes little more than a foil to keep Intel honest. "This settlement is actually proving the very point that Intel wants to keep AMD alive and able to compete at least in some small subset of the market, otherwise Intel will be faced with regulatory issues that they would rather avoid," said Avi Cohen, managing partner at Avian Securities.
AMD's best technology play to avoid this fate is "Fusion," Kay said, referring to a technology that combines the two key processors inside a PC: the main CPU processor and the graphics processor, or GPU. Fusion, however, isn't slated to come to market until 2011, according to the road map that AMD disclosed on Wednesday.
And what about today? Dan Ackerman, a senior editor at CNET Reviews and someone who regularly reviews AMD- and Intel-based laptops, makes an important point about the challenges AMD faces in the here and now: Intel-based laptops not only dominate the high end of the market but the low end, too. "Intel CPUs are found in almost all of the high-end systems (such as Core i7 laptops), and the low-end systems (Atom-powered Netbooks)," he said.
Ackerman said that AMD will be hard pressed to beat Intel head to head. "AMD has some room in to maneuver in the middle of the market--laptops from $600 to $900--but unless they can offer better performance for the same price, or a significant price discount to consumers, it'll be hard for the company to gain additional market share."
Rich Brown, a senior editor for desktops at CNET Reviews echoes Ackerman's sentiment: AMD competes by offering lower prices than Intel, not better performance. "From a tech standpoint, AMD's...desktop chips haven't been competitive since Intel launched Core 2 Duo. Instead, AMD has had to compete on price," Brown said.
The best action plan for AMD is to keep executing on key technologies and hope this eventually translates to market share gains. "AMD is rapidly developing a reputation for timely execution of marquee products/platforms," said Doug Freeman of Broadpoint AmTech in a research note. "AMD revealed that its newer platforms...are on track for [the first half of 2010]," he said, referring AMD's high-end server chip lines.
At the same time that Intel settled Advanced Micro Devices' antitrust lawsuit for $1.25 billion, the chipmaker settled another legal matter as well by hiring A. Douglas Melamed as its new top lawyer.
Melamed, who most recently worked as a partner at the law firm of WilmerHale, is expected to assume his new role this month, said a source familiar with the situation. Melamed has been based in Washington, D.C.
He has extensive antitrust experience, which could come in handy given Intel's remaining legal issues with the European Commission, the New York attorney general, and the Federal Trade Commission. From 1996 to 2001, he was acting assistant attorney general in charge of the Justice Department's Antitrust Division. Before that, he was the Justice Department's principal deputy assistant attorney general, where he was responsible for "civil non-merger and merger investigations and litigation involving most of the division's litigating sections; the division's appellate matters; policy matters involving, among others, the communications, electricity and tobacco industries; and international antitrust enforcement matters," according to WilmerHale.
Intel declined to comment on the matter. The Wall Street Journal reported the new hire Thursday.
Intel's previous general counsel, Bruce Sewell, left Intel to take the top legal job at Apple in September.
Even for a company as powerful as Intel, with $13 billion in cash on the books, $1.25 billion is a lot of money. So why drop that huge quantity of money in the lap of its biggest rival, Advanced Micro Devices?
The payment is, of course, to settle the antitrust suit AMD brought against Intel five years ago. AMD's stock surged 22 percent Thursday after the chipmakers announced the agreement, but Intel's share price dropped 1 percent, indicating which company the investors thought got the better deal.
Paul Otellini, speaking in September and holding a wafer of silicon chips
(Credit: Stephen Shankland/CNET)AMD does indeed come away with some serious perks--not just the cash, but also a new patent cross-license agreement that removes Intel's objections to AMD spinning off its chip-manufacturing business, enables multiple manufacturers to build AMD's chips, and eliminates the earlier patent agreement's payments to Intel. And it has Intel's agreement not to violate a list of restraints on its business practices.
But Intel gets something out of this, too.
Spend now, save later
Let's start with the money. Sure, shareholders likely frowned when they heard Intel's fourth-quarter expenses are expected to climb from $2.9 billion to about $4.2 billion. But Intel could have been out a lot more money if things had gone south.
In the European Union, Intel is wrestling with an antitrust case that produced a fine of 1.06 billion euros, or $1.6 billion at today's exchange rate. Intel appealed the European Commission fine, but it's a very concrete example of just how severe the Intel punishment could be.
There are other financial factors, too. Intel and AMD were set to begin their jury trial in March, and jury trials are famously unpredictable. Add on top of that risk the fact that antitrust suits can come with triple damages.
"It was a small multiple of the damage that could be awarded in a jury trial," Intel Chief Executive Paul Otellini said of the price tag in a conference call earlier Thursday.
Treble damages of the scale of just the European Commission fine would have been more than $4 billion, Technology Business Research analyst John Spooner observed. Facing that prospect, "Intel chose to control its own destiny and settle up front."
Taking commercial cases to a jury trial is indeed risky, said Richard Brosnick, who's involved in antitrust law at the firm of Butzel Long.
"Any complex commercial case going to the jury phase is challenging, and antitrust, given the economics, is probably more challenging," Brosnick said. "Trial is expensive overall, not in billions, but in terms of the risk you'll be able to explain these issues in a way that will be understood by and persuasive to a jury."
Goodwill in other antitrust cases
AMD's antitrust case isn't the only one Intel faces. It's also got the European Commission fine discussions, a new antitrust lawsuit from New York Attorney General Andrew Cuomo, and an antitrust investigation from the Federal Trade Commission.
The AMD settlement doesn't make those cases evaporate, but Intel hopes it'll help.
"We hope that having this major litigation settled with AMD would be viewed favorably by these regulatory bodies and eventually the cases would be dropped," Intel spokesman Tom Beerman said.
Certainly those regulators won't face as much of AMD's active prodding. Among the terms of the settlement is this, regarding all the regulatory actions AMD is involved in:
AMD agrees to promptly...notify in writing each authority...that except as provided in Section 3.5 AMD has resolved its disagreements with and complaints concerning Intel contained in that Administrative Complaint and believes that this Agreement provides AMD with fair compensation for any and all actual or alleged harm and damages that AMD did or may have suffered in connection with matters discussed in the Administrative Complaint. In addition, AMD agrees that it will not ghost-write or edit any other briefs, pleadings, or "friend of the court" or "friend of the tribunal" materials or briefs in any Administrative Action.
But whether Intel will actually get what it wants isn't certain.
"It's certainly possible that the public agencies will view this as a compromise they can live with, but it's equally possible not," Brosnick said.
One issue is Intel practices described in the section 3.5 mentioned above, where AMD and Intel still disagree. Brosnick said the governmental agencies still might be concerned about any of those practices--called "retroactive discounts," "accused bid bucket," and "accused end-user discounts" in the settlement.
Intel digging in its heels?
Though the agreement didn't preclude those practices as it did some others, it did agree not to defend them as hard as it might in settlement talks with the government organizations.
"Intel agrees that in the event it enters into voluntary settlement discussions with a government authority in the EC litigation, New York litigation, or the FTC investigation, and if such government authority proposes to include in a consent judgment or other governmental order a prohibition against Retroactive Discounts, Accused Bid Buckets or Accused End-User Discounts, Intel will not challenge such a prohibition as a general matter, although it may challenge the scope or specific language of the prohibition," the settlement agreement said.
Just how deeply Intel will dig in its heels in the other cases remains to be seen. Although it settled a big case, Otellini hardly sounded contrite. He reiterated on several occasions his belief that Intel didn't do anything illegal. He said airing the full context of seemingly incriminating e-mail would show Intel in a better light. And he vehemently attacked the New York case.
"We strongly disagree with the New York attorney general case and believe the complaint is entirely without merit," Otellini said. "Discounts and rebates are entirely fair business practices, and it's unfortunate the New York attorney general chose to distort the facts. We would have preferred to engage in a dialog with the New York attorney general."
Then again, Intel spoke in strong terms about the AMD trial. Perhaps Intel's pragmatic side will show in the other cases next.
Burying a very large hatchet in the computing industry, Intel has agreed to pay Advanced Micro Devices $1.25 billion as part of a settlement of a long-running antitrust case.
The pact, announced Thursday, resolves the private antitrust lawsuit AMD filed in 2004 and extends the companies' patent cross-licensing agreement. The new patent arrangement removes hindrances to AMD's effort to spin off its chip manufacturing business and to have other manufacturers build its processors.
In addition, Intel has agreed to "abide by a set of business practice provisions." Check below for a full list.
In turn, AMD says it will drop all pending litigation, including the case in U.S. District Court in Delaware and two cases pending in Japan, and will also withdraw all of its regulatory complaints worldwide.
AMD investors were delighted, sending the company's stock up 21 percent to $6.46 in morning trading. Intel's stayed flat at $19.84.
"While the relationship between the two companies has been difficult in the past, this agreement ends the legal disputes and enables the companies to focus all of our efforts on product innovation and development," the chipmakers said in a joint statement.
Government cases unaffected
Well, it probably won't end everything exactly. The settlement between the companies doesn't stop antitrust cases brought by governments.
After AMD filed its case in 2004, European regulators brought a separate case that led to a $1.5 billion fine, which Intel is now appealing. And last week, New York Attorney General Andrew Cuomo filed another antitrust suit against Intel.
"Those cases filed by those government regulators will continue," Intel spokesman Tom Beerman said. "We will continue at the same time to work with the regulatory bodies to work on those issues."
Added AMD's Drew Prairie, "We've notified the regulatory authorities of the settlement. They didn't have ongoing investigations because of us...That's a snowball rolling downhill."
Intel still must reckon with an investigation from the Federal Trade Commission, too. "Certainly we plan to review the settlement between Intel and AMD in their private litigation. The FTC has an ongoing independent investigation of Intel's practices so we cannot comment further at this time," FTC Chairman Jon Leibowitz said in a statement Thursday.
The European Commission didn't comment on whether Thursday's settlement would affect discussions about Intel's fine, but did say the agreement doesn't affect its regulatory scrutiny of the chipmaker.
"Intel has an ongoing obligation to comply with the Commission's May 2009 decision and with EU antitrust law," said spokesman Jonathan Todd. "The Commission continues to vigorously monitor Intel's compliance with its obligations under the May 2009 decision."
The cross-license agreement has been updated to reflect AMD's move to spin off its processor manufacturing business into a separate company, Globalfoundries, which currently is an AMD subsidiary. Under the updated agreement, AMD will be able to operate as a "fabless" processor company--one that relies on others to build its chips. In addition, Globalfoundries "is free to operate independently and go after third-party business without issues," Prairie said.
Another change: in the earlier patent cross-license agreement, AMD had to pay Intel royalties. Now neither company makes payments, Prairie said.
Intel: Settlement was 'practical'
Intel Chief Executive Paul Otellini didn't show much in the way of contrition in a conference call.
"We have competed fairly and legally," Otellini said, including the price discounts it offered computer makers as incentives to use Intel chips. In the United States, 98 percent of private antitrust cases are settled, he added. "It pains me to write a check at any time, but in this case it made a practical settlement. It was a good compromise between the two companies. In many ways it was a small multiple of the damage that could be awarded in a jury trial."
And Andy D. Bryant, Intel's chief administrative officer, said the restraints Intel agreed to don't really change Intel's behavior in practice, because it wasn't doing those things in the first place.
"AMD believes we have done business in some fashion they believe is inappropriate," such as punishing computer makers that don't buy a certain amount of chips from Intel. "We have said we don't do the acts they say we're doing...There are no changes to pricing practices as a result of this contract."
He did add that Intel changed some pricing practices as a result of the European Commission case.
Intel also said that as a result of the settlement, its fourth-quarter spending will increase from its earlier projection of $2.9 billion to about $4.2 billion; Intel is paying cash within 30 days. However, Intel's effective tax rate should decline from 26 percent to 20 percent for the quarter, Intel said.
A new relationship
The companies didn't agree to become best friends, but AMD and Intel are turning over a new leaf, moving toward "fierce but fair" competition, Tom McCoy, AMD's executive vice president of legal, corporate and public affairs, said in a conference call.
"With this agreement, we are trying to reset our relationship between AMD and Intel," McCoy said. That relationship has been "intense, emotional, and acrimonious for all too many years...We wanted to put this behind us. We didn't want pressures to build up. We wanted a healthy, normal relationship. Therefore we will see in the agreement, a thought-out procedure [through which] we will build trust and try to resolve our differences before spilling into the courts or into [the] public affairs domain."
Intel's Bryant said the agreement includes mechanisms for mediation and arbitration that provide "a very thorough ability to...resolve differences."
The constraints on Intel's practices caught the attention of Richard Brosnick, an attorney at Butzel Long who focuses on antitrust law.
"In settling a suit that arose from claims that steep discounts were anticompetitive, Intel has now agreed with its rival to a set of 'business practice provisions' that will presumably limit Intel's ability to compete with AMD on price," Brosnick said. "Of course any analysis would depend on the details of the deal, but as a general antitrust matter, I'd call that ironic to say the least."
Intel's restraints
According to AMD, Intel will refrain from these practices:
• Offering inducements to customers in exchange for their agreement to buy all of their microprocessor needs from Intel, whether on a geographic, market segment, or any other basis• Offering inducements to customers in exchange for their agreement to limit or delay their purchase of microprocessors from AMD, whether on a geographic, market segment, or any other basis
• Offering inducements to customers in exchange for their agreement to limit their engagement with AMD or their promotion or distribution of products containing AMD microprocessors, whether on a geographic, channel, market segment, or any other basis
• Offering inducements to customers in exchange for their agreement to abstain from or delay their participation in AMD product launches, announcements, advertising, or other promotional activities
• Offering inducements to customers or others to delay or forebear in the development or release of computer systems or platforms containing AMD microprocessors, whether on a geographic, market segment, or any other basis
• Offering inducements to retailers or distributors to limit or delay their purchase or distribution of computer systems or platforms containing AMD microprocessors, whether on a geographic, market segment, or any other basis
• Withholding any benefit or threatening retaliation against anyone for their refusal to enter into a prohibited arrangement such as the ones listed above.
Those constraints will benefit the chipmakers' customers, computer makers such as IBM, Hewlett-Packard, and Dell, McCoy said.
"When we aggregate all these things together, we believe we have delivered to [the] marketplace and to mutual customers something they've wanted, which is more freedom of action to choose," McCoy said.
Updated at 7:00 a.m., 7:30 a.m., 7:56 a.m., 9 a.m., and 10:50 a.m PST with further details and comments.
