The FTC wants Intel to grow up and start acting like a responsible company.
At least that's the goal behind the agency's lawsuit against the chipmaker. Filed on Wednesday, the FTC's suit charges Intel with a host of offenses, including using threats and rewards to convince PC makers not to buy chips from the competition, altering its compiler to weaken the performance of rival chips like those made by AMD, and preserving its CPU monopoly by stifling the market for GPUs (graphics processing units) made by Nvidia and other manufacturers.
On Wednesday, the FTC held a press conference in Washington in which it discussed why it launched the lawsuit now and what it hopes to gain.
Fielding questions from reporters, Richard Feinstein, director of the FTC's Bureau of Competition, explained that the allegations against Intel have been bubbling for the past 10 years. During that time, at each point in which Intel perceived a threat to its dominance, the company responded not by competing aggressively on its own merits but by behaving in a way that was exclusionary and detrimental to the competition and ultimately detrimental to consumers, said the FTC.
Federal officials said they chose now to file the suit in part because the allegations have continued and evolved over time, and also because many of the charges are fairly recent, such as Intel's perceived attacks on the GPU market.
Unlike other complainants against Intel, the FTC is not imposing any fines or financial penalties. Instead, the agency simply wants the company to try a little behavior modification. The government said it is looking for changes in Intel's conduct to help restore market competition.
In its complaint, the FTC provided a laundry list of remedies that it plans to impose on Intel if the company is found to have violated any laws.
The full list of 26 different dos and don'ts can be found in the FTC's complaint, but to name just a few:
- Intel can't directly or indirectly require customers to purchase only its CPUs or GPUs.
- Intel can't require a customer to buy a minimum or fixed number of processors from Intel.
- Intel can't withhold payments or other compensation to OEMs (original equipment manufacturers) just because the companies are not exclusively doing business with Intel.
- Intel can't directly price its processors so its customers pay below cost just to thwart the competition.
- Intel can't make hardware or software designed to inhibit processors made by competing companies.
- For customers who bought "defective" compilers, Intel must provide them with a working compiler at no cost and compensate them for the cost of recompiling their software using the new compiler.
- Intel can't coerce benchmarking organizations to adopt benchmarks that are deceptive or misleading.
- Intel must file periodic compliance reports with the FTC and for a period of time make available any advertisements, tests, reports, studies, and other documents that relate to the charges against it.
In charging Intel, Feinstein said that the FTC is relying on principles from Section 2 of the Sherman Act, which deals with monopolies, and Section 5 of the Federal Trade Commission Act, which covers deceptive or anticompetitive actions that affect consumers.
Section 5 also specifies that the outcome of the FTC's case can't be used to establish liability on Intel's part in any other antitrust actions. That may work in Intel's favor as its lawyers have certainly been putting in overtime dealing with the barrage of lawsuits against the company.
Intel recently closed the books on a 2004 antitrust lawsuit filed against it by AMD. As part of the settlement, the company agreed to pay its rival chipmaker $1.25 billion and promised to refrain from offering incentives to customers to keep them from doing business with AMD.
Intel is still appealing the record $1.45 billion fine imposed on it in May by the European Commission after the company was found guilty of violating European antitrust laws.
And in November, New York Attorney General Andrew Cuomo filed a federal lawsuit against Intel, accusing it of paying off computer makers like Dell with rebates to retain its monopoly and shove AMD out of the marketplace. Though this case is separate and distinct from the FTC's suit, Feinstein did acknowledge that he spoke to and compared notes with the state attorney general.
With Intel already facing severe financial penalties from these other lawsuits, Feinstein said he didn't feel another fine was essential for the FTC's case. But he said that in theory the FTC can go into federal court and seek financial penalties if necessary.
Last-minute allegations
In response to the FTC's action, Intel held its own conference call Wednesday in which the company discussed the allegations in greater detail..
Intel spokesperson Chuck Mulloy told CNET that substantial common ground had been reached in the discussions between the company and the FTC, especially after Intel settled its suit with AMD. But negotiations broke down because the commission raised certain last-minute allegations, such as the benchmarking issue and the GPU matter, and because Intel felt some of the suggested remedies were over the top.
Mulloy said that the benchmarking and GPU concerns had never been addressed in the two years that the FTC had been investigating Intel, both formally and informally, and were added a few weeks prior to the lawsuit being filed. He said the commission issued a subpoena to Intel requesting information on the GPU issue on December 8, about a week before the suit was launched, and did not wait for a response from Intel.
The chipmaker was also unhappy with a couple of the remedies proposed by the FTC. One sticking point in particular was the notion of compulsory licensing, in which the commission would have required Intel to license its x86 architecture to other companies, which includes those trying to make their own chips compatible with Intel processors. But Intel objected because it considers the technology to be its own intellectual property worth tens of billions of dollars.
Mulloy also said that talks broke down because Intel felt the FTC was trying to micromanage the company's pricing schemes--dictating how and under what circumstances it could offer discounts to certain customers. He added that Intel did make some proposals to the commission on discounting schemes, but this issue was never resolved.
Intel's view is that this is overreach on the part of the FTC, said Mulloy. He feels Intel was on track to settle and was disappointed that it couldn't get it done.
To move the case along quickly, the FTC decided to have it heard before an administrative judge rather than a slower federal court. The speedier process of the administrative court will begin with a trial in September, which Feinstein believes will conclude by the end of the year. Depending on the outcome, there may or may not be further proceedings before the FTC. But ultimately, the case would be reviewed by the FTC for a final decision. If the judge rules against Intel and the company appeals, that could take the case to the middle of 2011.
Ultimately, Feinstein believes that Intel's actions have deprived the marketplace of the vigorous competition it needs, affecting innovation, prices, and consumer choice. Despite the gains in the microprocessor market, Feinstein said he believes it's hard to know what the market might have done over the past 10 years had it not been for Intel's conduct.
Updated December 18, 5:45 a.m. PST with response from Intel
.The Federal Trade Commission announced Wednesday that it is suing Intel, claiming that the chip giant has illegally used its dominance to stymie competition and to strengthen its own monopoly.
In so doing, says the FTC, the company has robbed consumers of both choice and innovation in microprocessors, including those that outshone Intel's own: "Intel's anticompetitive tactics were designed to put the brakes on superior competitive products that threatened its monopoly in the CPU microchip market."
The agency's complaint alleges that Intel used a series of threats and rewards to convince top PC makers such as Dell, Hewlett-Packard, and IBM to not purchase computer chips from the competition. Intel also allegedly prevented computer manufacturers from marketing PCs with non-Intel processors.
In addition, the FTC contends that Intel secretly revamped its compiler to slow the performance of rival chips and simply told its customers that the software performed better on its own chips than on those of the competition.
"Intel has engaged in a deliberate campaign to hamstring competitive threats to its monopoly," said Richard A. Feinstein, director of the FTC's Bureau of Competition, in a statement. "It's been running roughshod over the principles of fair play and the laws protecting competition on the merits. The Commission's action today seeks to remedy the damage that Intel has done to competition, innovation, and, ultimately, the American consumer."
Intel responded Wednesday morning with a vigorous rebuttal, calling the FTC case "misguided" and ill-informed.
Intel has competed fairly and lawfully. Its actions have benefitted consumers. The highly competitive microprocessor industry, of which Intel is a key part, has kept innovation robust and prices declining at a faster rate than any other industry. The FTC's case is misguided. It is based largely on claims that the FTC added at the last minute and has not investigated. In addition, it is explicitly not based on existing law but is instead intended to make new rules for regulating business conduct. These new rules would harm consumers by reducing innovation and raising prices.
The chipmaker added that case should have been settled, not sent into litigation.
"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," Doug Melamed, Intel's newly appointed general counsel, said in a statement.
The FTC is now seeking an order to prevent Intel from using threats, bundled prices, or other offers to strike exclusive deals, shut out competition, or manipulate the prices of its chips. The regulatory agency is also considering an order that would prohibit Intel from stifling the sale of competitive chips or from making products to weaken their performance.
Past cases focused on Intel, Advanced Micro Devices, and central processing units (CPUs), but the FTC case adds a new element--graphical processing units, such as those from chipmaker Nvidia.
"Intel allegedly once again finds itself falling behind the competition--this time in the critical market for graphics processing units, commonly known as GPUs, as well as some other related markets. These products have lessened the need for CPUs, and therefore pose a threat to Intel's monopoly power. Intel has responded to this competitive challenge by embarking on a similar anticompetitive strategy, which aims to preserve its CPU monopoly by smothering potential competition from GPU chips such as those made by Nvidia," the FTC said in its statement. "As part of this latest campaign, Intel misled and deceived potential competitors in order to protect its monopoly. The complaint alleges that there also is a dangerous probability that Intel's unfair methods of competition could allow it to extend its monopoly into the GPU chip markets."
In November, Intel settled its antitrust dispute with AMD, in a deal that includes a $1.25 billion payment to AMD.
Updated at 7:55 a.m. PDT with FTC statement on graphical processing units and with Intel's response to the FTC lawsuit.
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PC processors are the latest tech segment bouncing back from the recession.
Third-quarter shipments of computer processors, or CPUs, climbed 23 percent over the second quarter of 2009, doubling typical growth and setting a record for sequential growth, according to an IDC report released Monday.
Revenue from processor sales also bounced back to hit $7.4 billion, a 14 percent gain over the second quarter, according to IDC's "Worldwide PC Processor 3Q09 Vendor Shares" report.
IDC viewed the record levels in shipments as a promising sign in economic recovery.
"Most meaningful about 3Q09 is that, since PC processor shipments overall just slightly exceeded shipments in 3Q08--which was itself a record quarter at the time--we know that the processor market is recovering," Shane Rau, IDC's director of semiconductors for personal computing research, said in a statement.
With the popularity of Netbooks, mobile processors such as Intel's Atom chip drove much of the growth. Shipments of the mobile CPUs jumped 35.7 percent over the second quarter, while desktop processor shipments rose 11.4 percent sequentially. Since mobile processors are cheaper than their desktop counterparts, their growth in revenue trailed the growth in shipments.
"The story about 3Q09 leads with Atom processors being sold in mini-notebooks (a.k.a. Netbooks) manufactured and sold in China," said Rau. "While Atom processors led the PC processor market to reach record unit shipments, on the revenue side, their low average selling price led to notable price erosion, more than 7 percent."
Among vendors, Intel kept its place at the top of the charts, enjoying an 81.1 percent share of the worldwide market for processor shipments. That left AMD with 18.7 percent and third-place Via Technologies with 0.2 percent.
By processor type, Intel captured 88 percent of the mobile PC processor market, leaving Advanced Micro Devices with 11.9 percent, and Via with the rest. For desktop CPUs, Intel's slice was smaller at 72.2 percent, while AMD grabbed a 27.4 percent chunk and Via held a 0.3 percent share.
Solid demand so far in the fourth quarter led IDC to raise its expectations for 2009. The firm is now eyeing more than 300 million shipments of processors for the year, a gain of 1.5 percent over 2008.
Still, since much of the growth came from low-cost mobile processors and certain areas of the economy remain sluggish, IDC is cautious about early 2010.
"The market's growth has been due to shipments of inexpensive Atom processors being sold into markets like China, which is being stimulated by government incentives there," Rau said. "The Chinese market can be very opaque--there are lots of places where inventories can hide. We have to be on the lookout for when China decides it can't consume more processors. Meanwhile, the U.S. market is still hamstrung by housing foreclosures and rising job losses."
Intel's share of the global CPU market hit a four-year high in the second quarter of 2009, says a report released Monday by market researcher iSuppli.
Thanks to a slight uptick in PC sales, Intel captured 80.6 percent of microprocessor revenue worldwide, growing from 79.1 percent in the first quarter of the year and 79.2 percent in the second quarter of 2008. This is the largest slice of the market Intel's had since its 82.4 percent share in 2005.
The gain in Intel's market share came at the expense of AMD, which saw its share sink to 11.5 percent from 12.8 percent in the first quarter and 11.9 percent in the year-ago quarter.
(Credit:
iSuppli)
"Intel benefited as the global PC market took a first small step toward recovery in the second quarter," said Matthew Wilkins, principal analyst of compute platforms for iSuppli. "AMD didn't benefit from the small sequential rise in PC sales because its average microprocessor pricing was lower than that from the first quarter."
Intel saw gains in its CPU market share across all segments, including desktops, notebooks, and servers. But the notebook sector was the only one to grow, climbing 13 percent over the second quarter of 2008. Both the desktop and server segments declined year over year.
The sluggish economy still took its toll. Overall, CPU sales shrunk for both Intel and AMD, since shipments were down from a year ago.
Helped by demand for Intel's Atom chip, microprocessor shipments shot up 10.1 percent in the second quarter of the year, according to research released Thursday by market firm IDC.
The second-quarter gain from the first quarter compared with a drop of 10.9 percent from the fourth quarter of 2008 to first quarter of 2009. However, the year-over-year comparison with 2008's second quarter showed a drop of 7 percent.
The growth from the first quarter of 2009 to the second quarter was driven largely by manufacturers replenishing their chip inventory, rather than any boost in consumer demand for PCs, said IDC.
The Atom processor also played a role. Second-quarter 2009 shipments of Atom, which has found a home in Netbook PCs, grew 24 percent over the first quarter. The chip accounted for around 25 percent of Intel's processor shipments and 8.1 percent of the company's mobile processor sales in the quarter, estimated IDC.
Overall, Intel's second-quarter PC processor shipments jumped 12.5 percent over the first quarter, while AMD's inched up 1.8 percent for the same period.
"The percentage of Intel's revenue earned in Asia/Pacific grew from 51% in 1Q09 to 55% in 2Q09," Shane Rau, director of Semiconductors: Personal Computing research at IDC, noted in a statement. "This fact, combined with the significant sequential 'snap-back' rise in Intel's overall processor shipments--particularly Atom shipments--while AMD's overall shipments were about flat, indicate that the PC processor market didn't recover in 2Q09."
Overall market revenue rose 7.9 percent from the first quarter of 2009 to the second, but second-quarter revenue was down 15.3 percent compared with the year-ago quarter.
With the Atom chip and inventory refresh driving second-quarter growth, the processor business is still weak, said IDC. And a definitive recovery is not yet in sight.
"Going forward, IDC believes that (original design manufacturers) and (original equipment manufacturers) have balanced out their inventories and so we can't rely on inventory replenishment to drive market improvements," said Rau. "Instead, we can only rely on what actual end demand really is, and that means we have to be cautious not to be over-exuberant that, say, the traditional back-to-school PC buying season will materialize into a bullish second half. It won't."
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Update at 1:50 p.m. PST, with information from American Guarantee's lawsuit against Intel in the Delaware Chancery Court.
Intel has filed a $50 million lawsuit against insurance carrier American Guarantee and Liability Insurance, alleging breach of contract.
The alleged breach involves the insurance firm's failure to pay for Intel's legal defense related to antitrust lawsuits filed by rival Advanced Micro Devices and consumers.
Intel, in the lawsuit filed last week in the U.S. District Court for Northern California, alleges that American Guarantee did not step up to the plate and begin paying for the chip giant's legal costs after it had exhausted $66 million in insurance policies provided by two other insurance carriers. (To read the entire lawsuit, click here for a PDF.)
Click on the image for a PDF of the entire lawsuit.
(Credit: Intel)The chipmaker, which holds a $50 million policy with American Guarantee, purchased several layers of comprehensive liability insurance from a variety of insurance companies from April 2001 through April 2002. Beginning in mid-2005, chip rival Advanced Micro Devices and consumers filed lawsuits against Intel, alleging that the chipmaker engaged in anticompetitive conduct and unfair business practices in the sale, promotion, and marketing of its microprocessors.
According to Intel's lawsuit, Old Republic Insurance provided $16 million in comprehensive liability insurance as the first line of defense, and XL Insurance America provided a second layer of $50 million in coverage under a commercial umbrella policy.
American Guarantee, Intel alleges, had an obligation to begin paying toward Intel's defense costs once the other two policies were exhausted. Intel's policy with American Guarantee calls for $50 million in total defense and or indemnity coverage.
In Intel's lawsuit against American Guarantee--referred to below as AGLI--the chip giant states:
The complaints in the AMD litigation, allege, among other things, that during the AGLI policy period of 2001 to 2002, Intel engaged in unfair business practices and anticompetitive conduct in its sale, promotion, and marketing of its microprocessors. Accordingly, these allegations trigger the potential for coverage under the "Advertising Liability" provision of the AGLI policy.
The chip giant further notes in its complaint:
Despite the clear potential of covered liability presented by the AMD litigation, AGLI summarily denied coverage leaving Intel to defend itself in the AMD litigation without the benefits owned under the AGLI Policy.
Intel is asking the court to find that American Guarantee has a duty to defend Intel in the AMD litigation, as well as pay out $50 million in damages plus interest.
American Guarantee declined to comment.
But in a lawsuit American Guarantee filed in the Delaware Chancery Court last week against Intel and the other insurance carriers, American Guarantee alleged:
In response to Intel's tender, American Guarantee sent multiple letters to Intel seeking information necessary to assist in its evaluation of Intel's coverage claim. Although Intel has supplied certain information to American Guarantee, most of the information requested has not been provided
Upon information and belief, Intel has also tendered the AMD Actions to certain of the Defendant Insurers. American Guarantee has requested that Intel provide it with the coverage positions of all other Defendant Insurers but does not know whether Intel has provided full and complete information in response to this request.
A trial date in AMD's lawsuit against Intel is set for February 2010. The two parties currently have depositions under way, said representatives for both Intel and AMD.
Considering the vast majority of civil cases ultimately reach a settlement, the Intel and AMD case has the potential of following a similar path.
However, it is likely too early in the game for an immediate settlement, given that the parties are gathering more information via depositions.
"Settlements usually happen when all the chess pieces are on the table and everyone knows what they're looking at," said Chuck Mulloy, an Intel spokesman.
An AMD spokesman said his company is looking for more than a check from Intel.
"Any settlement we would consider would have to include an end to any business practices that are at the heart of our case," said Michael Silverman, an AMD spokesman. "A check is not enough."
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