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
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Best Buy, Samsung, Westinghouse, and JVC are among 14 consumer electronics companies named in a copyright infringement lawsuit filed Monday in New York by the Software Freedom Law Center.
According to the complaint (PDF), the defendants sold products containing software application BusyBox in violation of the terms of its license, the GNU General Public License version 2 (GPLv2).
The entire list of companies named in the suit is as follows: Best Buy; Samsung; Westinghouse; JVC; Western Digital; Robert Bosch; Phoebe Micro; Humax USA; Comtrend; Dobbs-Stanford; Versa Technology; Zyxel Communications; Astak; GCI Technologies.
Read more of "Best Buy, Samsung, Westinghouse, 11 more named in GPL lawsuit" at ZDNet's Between the Lines.
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eBay is criticizing a French court's ruling that orders the company to pay a $2.55 million fine to European conglomerate LVMH.
The auction giant and its European unit were fined 1.7 million euros on Monday by the Commercial Court of Paris, which ruled that the company violated a 2008 court order by not preventing the sale of legitimate LVMH perfumes and cosmetics. LVMH's brands include Christian Dior, Guerlain, and Givenchy perfumes.
In June 2008, the Commercial Court fined eBay $61 million in a lawsuit filed by the conglomerate, which is officially known as LVMH Moet Hennessy Louis Vuitton. LVMH had asserted that eBay had not done enough to stamp out the sale of fake LVMH goods on its site. The court went a step further, ruling that eBay-traded LVMH products--even authentic ones--were not being sold by an authorized reseller. As a result, eBay was ordered to remove all listings of these products.
eBay criticized the ruling then, saying it was an attempt by LVMH to "protect uncompetitive commercial practices." eBay likewise condemned the new ruling.
"Today's outcome hurts consumers by preventing them from buying and selling authentic items online," Alex von Schirmeister, general manager of eBay in France, said in a statement. "The injunction is an abuse of 'selective distribution.' It effectively enforces restrictive distribution contracts, which is anti-competitive."
Despite its objections, eBay argued that it has complied with the 2008 court order. The company said it has used state-of-the-art filtering software to check millions of listings each day, making thousands of authentic LVMH products invisible or inaccessible to French eBay users.
eBay also discounted the proof brought against it, claiming that LVMH offered details on only 1,341 listings out of 200 million posted on the auction site each day. eBay believes those listings were deliberately posted by people to sneak past the filters. In 1,091 of the listings targeted by LVMH, the seller did not accurately describe the item, using misspelled brand names, no brand names at all, or only pictures to describe the product.
As a result, eBay asserts that both the fine and ruling are unjustified. The fine itself is disproportionate given that eBay complied with the injunction," said von Schirmeister. "It is out of step with our legal victories in France, U.K., Germany, Belgium and the U.S."
eBay plans to appeal the new ruling and two other cases tied to LVMH. "We believe that the higher courts will overturn this ruling and ensure that e-commerce companies such as eBay will continue to provide a platform for buyers and sellers to trade authentic goods," said von Schirmeister.
eBay has been in and out of U.S. and European courtrooms for years, sued by companies trying to clamp down on the sale of fake versions of their legitimate products. It's faced courtroom battles with several European powerhouses, winning cases against L'Oreal and Tiffany, but losing suits filed by LVMH.
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.
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New York Attorney General Andrew M. Cuomo filed a federal antitrust lawsuit Wednesday against Intel that accuses it of paying computer makers rebates to illegally maintain its monopoly power, the newest among several such attacks that have dogged the chipmaker in recent years.
"Intel has engaged in a systematic worldwide campaign of illegal, exclusionary conduct to maintain its monopoly power and prices in the market for x86 microprocessors," the suit asserts. "By exacting exclusive or near-exclusive agreements from large computer makers in exchange for payments totaling billions of dollars, and threatening retaliation against any company that did not heed its wishes, Intel robbed its competitors of the opportunity to challenge Intel's dominance in key segments of the market. This illegal behavior was highly detrimental to consumers, competition, and innovation."
The suit "seeks to bar further anticompetitive acts by Intel, restore lost competition, recover monetary damages suffered by New York governmental entities and consumers, and collect penalties," Cuomo said in a statement.
The suit (click for PDF) makes the state the newest party to go after the dominant chipmaker. Intel also is in the midst of an antitrust suit brought by top rival AMD in 2005 and appealing a massive $1.5 billion fine from the European Commission from a later case in the European Union.
New York Attorney General Andrew M. Cuomo
(Credit: New York Office of the Attorney General)Intel will defend itself, Intel spokesman Chuck Mulloy said in response to the New York suit.
"We disagree with the New York attorney general. Neither consumers--who have consistently benefited from lower prices and increased innovation--nor justice are being served by the decision to file this case now," Mulloy said.
Of e-mails the attorney general quoted as evidence Intel abused its position, all already emerged in earlier cases, he added. "It is the AMD case filed 4.5 years ago. It's the same case the EU brought. There's nothing significant or new here that hasn't been discovered," Mulloy said.
According to the suit, computer makers "frequently decided, when faced with the array of incentives and threats which Intel brought to bear, to collaborate with Intel in restricting their purchases from AMD."
"In a February 27, 2003 internal Dell document, for example, it was assumed that 'aggressive' purchases by Dell from AMD could result in '(r)etaliatory (rebate) reductions (by Intel that) could be severe and prolonged with impact to all LOBs (lines of business),'" the suit said. "Another Dell document from March 2003 concluded that '(a)nticipated Intel response wipes out all potential opinc (operating income) upside from going with AMD.'"
And an unnamed IBM executive said in a 2005 e-mail that balancing business interests against Intel's response was hard. From the suit:
I understand the point about the accounts wanting a full AMD portfolio. The question is can we afford to accept the wrath of Intel if we do the AMD full portfolio? It is a very hard question to deal with. On the one hand, having Intel help us has been one element of why we are doing better in the market. If they start to sell against us again I am afraid that we would be in a very difficult spot. On the other hand, if we leave Sun and HP an opening with AMD we will (be) very exposed on that side of things.
Cuomo's office said it began investigating the case in January 2008, "reviewed millions of pages of documents and e-mails and took testimony from several dozen witnesses."
Updated 9:43 a.m. PST with further details from the lawsuit.
SCO Group, whose 6-year-old legal case arguing Linux infringes its Unix copyright hasn't been enough to keep it from bankruptcy court, nevertheless won an important victory in its case Monday.
A skeptical federal judge earlier had ruled that Novell had retained Unix copyrights when it sold its Unix business to the Santa Cruz Operation, a company whose Unix assets SCO Group later acquired. But the appeals court overturned that decision, based in part on a close reading of the Unix asset purchase agreement, sending the matter to trial for a decision. The appeals court did uphold a ruling that SCO owed Novell royalty payments, though, according to a 55-page filing.
SCO Group Chief Executive Darl McBride, who's been demonized by the Linux faithful, was happy with the decision. "Today is not the end of the war but it certainly is a key battle that we've won," he said in a statement in the Salt Lake Tribune. "Now it's time to move on to the next series of battles with our victory in hand."
Nvidia is readying silicon that would work with Intel's newest processor design, according to a report. Intel claims Nvidia does not have the legal rights to make companion chips for its newest processors.
In February, Intel alleged in a lawsuit that the 4-year-old chipset license agreement with Nvidia does not extend to Intel's future-generation processors with "integrated" memory controllers, such as its "Nehalem" Core i series of processors.
A chipset is companion silicon to the main processor. Integrated memory controllers are built into the processor itself to increase performance between the processor and memory.
According to a report on Chinese-language Technology Web site HKEPC, Nvidia is planning to bring out a MCP99 chipset that supports Nehalem processors and Intel's Direct Media Interface, or DMI. Nvidia cited DMI back in February as a technology that Intel was trying to prevent it from using.
Despite the report's claims, it is not clear yet whether Nvidia would in fact bring out a chip before the legal matter is settled with Intel.
Nvidia had no comment on the report.
Nvidia's current 9400M Intel-compatible chipset, which is used with Core 2 architecture-based processors, has been successful. It is used in Apple's MacBook and Toshiba's Qosmio lines, for example, and in Netbooks that use the Atom processor.
During Nvidia's July 26 earnings conference call, in response to an analyst's question about building chipsets for Intel's Nehalem processors, Nvidia CEO Jen-Hsun Huang said: "We're not necessarily building chipsets for future Intel buses. We've not commented anything on that and so you are just going to have to wait to see what we come up with," he said. "Our company is...pretty darn clever. There is a lot of ways to skin the cat," he said.
Intel said the matter is being left to the courts. "We tried many times to resolve the conflict but we couldn't resolve it. So we asked the courts to," said Intel spokesman Chuck Mulloy. "By the time something comes to market, hopefully we'll have some resolution," Mulloy said.
The corporate soap opera between Data Domain and potential suitors NetApp and EMC has a new episode.
Two law firms have launched class action suits against the board of Data Domain, alleging that the process used to accept NetApp's offer may not have been fair and open.
Attorneys at Bernstein Litowitz Berger & Grossmann filed suit in Delaware on June 12 on behalf of the Police and Fire Retirement System of the city of Detroit and "similarly situated shareholders of Data Domain," according to the firm's press release.
The suit contends that Data Domain's board breached its responsibility to shareholders by refusing to negotiate with EMC and for agreeing to sell Data Domain to NetApp without taking steps to maximize the price paid to Data Domain's shareholders.
"Data Domain's board of directors violated their fiduciary duties by approving the original and the restructured deals with NetApp, both of which give NetApp an improper bidding advantage in the form of a termination fee, a no-shop/no-talk provision and matching rights," said the Bernstein Litowitz Berger & Grossmann law firm in a statement. "The board granted each of these deal protections before any value-maximizing process took place, in a blatant effort to ensure that their favored merger partner is Data Domain's ultimate acquirer."
The firm has asked the court to issue an injunction preventing Data Domain and NetApp from consummating their merger.
Separately, law firm Levi & Korsinsky filed its own suit in California last week against Data Domain's board, with similar allegations.
"Under the terms of the proposal, Data Domain's shareholders would receive $30 to be paid in a combination of cash and NetApp stock," said Levi & Korsinsky in a statement. "In addition, NetApp offered positions on its board to certain Data Domain officers and there are rumors that the Data Domain CEO Slootman could be the next CEO of NetApp. This raises questions as to whether the sales process conducted by the board was fair and open."
A spokesperson at Data Domain contacted by CNET News said the company had no comment on the lawsuits.
The battle for Data Domain started on May 20 when NetApp offered $25 a share to acquire the company. On June 1, EMC jumped in with a $30-per-share bid. NetApp then countered with a similar offer. Since then, the market has speculated on why Data Domain is in such hot demand, causing these financial fireworks.
IBM says that if its former head of mergers and acquisitions, David Johnson, were to depart for Dell it would be a violation of his contract, and last week sued Johnson in federal court.
IBM says it is concerned that Johnson working at Dell would cause him to divulge IBM trade secrets to Dell. Johnson worked for 27 years at IBM, most recently as vice president of corporate development, responsible for overseeing mergers and acquisitions. The papers filed in the U.S. District Court for the Southern District of New York on May 21 show IBM is specifically concerned because Dell competes with IBM in the enterprise server market.
"Mr. Johnson has possession of valuable confidential information and cannot undertake a senior strategy position at Dell without violating his obligations to IBM," an IBM spokesperson told Bloomberg News Wednesday. Johnson received "significant compensation" by agreeing not to work for competitors, IBM said.
In court papers, IBM says Johnson knows exactly what companies and technologies IBM plans to invest in and when, as well as what businesses or technologies it plans to divest itself of. IBM believes Johnson has accepted the position of senior vice president of strategy at Dell.
When reached for comment on the suit, Dell spokesman David Frink would only confirm that the Texas-based PC maker has offered Johnson a position in the company. He refused to say what that role is and called descriptions of what that position may be "speculative." He added, "Without exception, Dell respects the trade secrets and intellectual property of others."
This is the second time in less than a year that IBM has proved territorial about departing executives. Last year, the company sued Mark Papermaster to keep him from joining Apple. The lawsuit claims were nearly identical, with IBM charging that Papermaster's joining Apple would cause him to divulge trade secrets and was a violation of the non-compete clause to which he agreed. IBM and Papermaster settled after three months, and Papermaster finally started working at Apple three months after that.
