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 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'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.
... Read MorePerhaps the next time Brad Smith heads to Brussels, it will be for a vacation.
After years of wrangling with Microsoft, the European Commission announced an accord with the software giant Wednesday on several fronts that seems poised to put an end to its antitrust concerns with Redmond.
Brad Smith
(Credit: Microsoft)In the wake of the announcement, I spoke to Smith, Microsoft's general counsel, about the decision, what it means for the future of Windows, and whether the company sees its spot on the antitrust hot seat now being taken up by other companies, including Google.
Here's an edited transcript of our conversation:
Q: Is this really it as far as Europe is concerned?
Smith: This is definitely a major milestone for Microsoft. Today's announcement reflects a broad set of agreements that really address a wide array of issues. At the same time, we obviously need to keep our eye on the ball. Antitrust issues will continue to be important for us, just as they are going to continue to be important for a number of other leaders in our industry. We're going to have to do an excellent job implementing these agreement. We are going to have to do an excellent job addressing any new issues that arise in the future. Having said all that, I also think it is fair to say, as Commissioner [Neelie] Kroes did when she spoke in Brussels, this does represent the closing of one chapter and gives us the opportunity to open a new chapter. We're definitely enthused about that opportunity and we're committed to ensuring the next chapter is a positive and constructive one.
One of the things that Steve Ballmer talks a lot about in terms of antitrust issues is getting legal clarity on what one can and can't do. Do you feel like you now have that understanding with the EU?
Smith: I think this gives us a great deal more clarity. I think it gives the industry as a whole more clarity. It's perhaps most helpful in the area of interoperability because it really implements a new framework. It applies to a broad array of Microsoft products--Windows, Windows Server, Exchange, SharePoint--and for all of these products it has certain principles that we have to adhere to. It addresses the way we implement file formats.
At the same time, no advance on any single day can ever answer all questions for all companies for all time.
Essentially the EU has said through its very objections that you can't put a media player in Windows and you can't put a browser in Windows. What do you feel Microsoft can include in future versions?
Smith: There are two things to think about. First is what gets included in Windows, and second, what's the right way to address something that is included.
Our basic approach is to include in Windows, software that has APIs (application programming interfaces) that will be beneficial for other applications to call on and use. The browser is definitely an example of that. It's quite probably even more important in that role today than it was, say, when the browser issues first arose in the 1990s. The media player plays a similar role in terms of some broad APIs that are used by a wide variety of other applications.
There are other things that we have put in Windows in the past that don't necessarily involve the same role. A good example of that is Windows Live Messenger. We had Windows Messenger in Windows XP. It's not in Windows Vista or Windows 7 We're trying to make thoughtful decisions about what is included.
Then the second question that arises is how do things get included. How do we document APIs that our browser is using so that other browsers can use them as well? That's part of the U.S. consent decree.
How do we ensure that [computer makers] have flexibility to offer competing choices? How do we ensure that consumers are aware of competing choices and can use them if they wish. That latter part is an area where different governments have chosen different approaches at different times. The U.S. Department of Justice chose one approach in its consent decree. The Korean Fair Trade Commission chose a second approach. The European Commission in the media player case in 2004 chose a third approach. Today's announcement on the browser reflects the European Commission choosing a fourth approach.
Some people have the opinion that as a result of these different antitrust issues, Microsoft really finds itself with one hand tied behind its back as it competes in the battles of today. Do you believe Microsoft in the current antitrust environment competes on an even footing with some of the other Internet giants?
Smith: I do believe it is very important for all technology leaders in our industry to follow the same laws and obey the same rules. The rules don't necessarily apply in the same way when a company has a small market share as it does when a company has a large market share. But there are a number of companies that have large market shares for very important products. We've taken a number of steps to get into line with new legal rules in this field. The law has evolved and we've needed to evolve to address these new obligations.
We do believe our competitors need to play by the same rules. They've often been at the forefront of asking regulators to evolve the law in new directions. Now that the regulators have done so, we believe they need to pay attention as well.
Do you anticipate a period of time over the next few years where Microsoft is more likely to be the subject of antitrust inquiries or the company on the other side of the table for a change?
Smith: I think that we have addressed a very wide array of issues. Perhaps, in part because we were the first company to have to go through these inquiries, at least since the dawn of the PC era. We've probably had to go farther and sooner than other companies have had to do. We're now in an era where a different company seems to be in the headlines for competition law issues, if not every day, at least every month.
I think that what we are going to see in the next decade is this field of law being applied to a wide number of technology leaders that have high market share. We're going to see that, not only in Washington and Brussels, but we're likely to see that in more countries around the world simply because the global economy has evolved.
Have you expressed concerns specifically to Europe or Washington, D.C., about some of Google's behaviors?
Smith: We were very transparent last year when Google entered into its agreement with Yahoo. We felt that that was an illegal agreement that Google had entered into for the sole purpose of preventing Microsoft from becoming a more successful competitor, together with Yahoo, in the search space.
It was only when the Department of Justice informed the parties that it was on the verge of filing suit that Google decided to drop that agreement. We have not been shy about raising concerns when we have them.
It was only a couple hours after you guys settled with Brussels that we heard from D.C. with regards to Intel. When you initially heard that the FTC was filing suit against Intel, did you have feelings of empathy toward what their lawyers are going through, or what were your initial reactions?
Smith: I obviously know from a lot of firsthand experience the challenges that arise when a company needs to address these kinds of issues. Our road was a long one and it had its share of difficult moments. Antitrust issues are never easy for company to address.
This isn't a case where Microsoft has taken a public stance or even voiced to the regulators a position, is it?
Smith: We have not taken any public or nonpublic positions on the issues.
Are you guys looking to reach an agreement with Plurk? You guys said that you used code you shouldn't have? I'm curious if you are trying to negotiate some sort of settlement with them?
Smith: I wouldn't want to say anything that goes beyond the public statement we put out.
It does seem when I look at any particular issue with regards to the Internet, Microsoft tends to have a much more cautious approach. It seems like it is tough to compete when others are bundling more than you.
Smith: I think our goal is to be thoughtful but also fast-moving. As we look at the Internet today, it is increasingly a regulated space. That wasn't the case a decade ago. I think a thoughtful company needs to really think through how its products and services are going to comply with the regulations that are going to be enforced or likely to be applied in many different countries around the world. At the same time, one cannot let that get in the way of moving forward quickly. I think it's striking that balance that is really quite important. One needs to move fast. One shouldn't move faster than speed of thought and yet one shouldn't be so thoughtful that one simply analyzes problems and fails to solve them.
Do you think Microsoft has erred a little too much on side of caution in recent years?
Smith: I don't know that we've erred too much on the side of caution, but I do think it's extremely important we move quickly. This is a very dynamic space it is certain to remain a very dynamic space. Customers are interested in deploying new products and services, whether it is on the client, on the server, or on the cloud. The real key is to develop the capability to be both thoughtful and fast moving.
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.
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.
Federal prosecutors have charged a prominent hedge-fund manager and five others with securities fraud resulting from insider trading involving some of the tech industry's best-known companies, including Intel, Google, and IBM.
Raj Rajaratnam of Galleon Group was arrested Friday in New York according to various reports and charged with 13 counts of securities fraud and conspiracy following a FBI investigation into Galleon Group's trading patterns. Also charged in the complaint, filed in U.S. District Court for the Southern District of New York, were co-conspirators Rajiv Goel of Intel and Anil Kumar of McKinsey, which provided consulting services to AMD.
A separate complaint charges two employees of New Castle Partners, another hedge fund, with insider trading along with IBM executive Robert Moffat, senior vice president and group executive for IBM's Systems and Technology Group. Danielle Chiesi and Mark Kurland of New Castle Partners allegedly exchanged information with Rajaratnam regarding the negotiation process surrounding AMD's decision to spin off its chip-making arm and receive outside investment, and obtained other insider information for the purpose of trading in Akamai and Sun Microsystems.
Galleon Group told CNBC that it was unaware of the investigation but planned to cooperate with authorities.
An Intel representative confirmed that Goel works in the treasury department of Intel's finance organization, and has been "placed on administrative leave as we look into this matter." Intel said it was never contacted by authorities regarding the investigation.
McKinsey said in a statement that it was "distressed" about Kumar's involvement in the case and was "looking into the matter urgently. AMD said it was looking at the complaints and had no further comment. IBM declined to comment.
A representative for Akamai did not immediately return a call seeking comment.
According to the complaint, Rajaratnam obtained information about strategic investments that Intel and others were about to make in Clearwire from Goel, and details about AMD's proposed fab spinoff from Kumar and Chiesi. Galleon Group and New Castle Partners then allegedly used that information to trade in shares of Clearwire and AMD, resulting in millions of dollars in profits.
Moffat is also said to have provided details about AMD's GlobalFoundries spinoff, which required IBM's approval due to an extensive technology-sharing partnership between the two companies. In addition, Moffat allegedly gave the traders information related to upcoming earnings announcements from IBM and Sun, which IBM was considering acquiring in early 2009.
Rajaratnam also had hired an individual identified in the complaint only as a "confidential witness" who has been cooperating with the FBI since November 2007 after agreeing to plead guilty to securities fraud and conspiracy. The witness had insider contacts at Polycom and a company called Market Street, which helps publicly traded companies--such as Google--prepare earnings reports.
The FBI said Galleon Group was able to learn through its Market Street contacts that Google's second-quarter 2007 earnings results were going to miss analyst expectations, which would usually send the stock down the following day. Before Google's earnings were released, Galleon Group purchased put options and sold Google's stock short in hopes of turning a profit, which, of course, they did, to the tune of $8 million.
Shares of Polycom and Hilton Hotels were also involved in the insider trading, according to the complaint. The FBI said it obtained its information by placing a wiretap on several phones--including Rajaratnam's mobile phone--as well as the participation of confidential witnesses.
Rajaratnam was named to Forbes' 2009 list of the world's billionaires, with an estimated net worth of $1.3 billion. He is a former employee of Needham & Co., an investment bank.
Updated 4:05 p.m., with comment from Yahoo.
A Department of Justice probe into hiring practices among high-tech firms appears to have stretched out to include some of the best-known names in the industry.
The Washington Post first reported the story on Tuesday evening, listing Apple, Yahoo, Google, and Genentech as among the companies that were being looked at. Microsoft and Intel are also believed to have received requests for information, according to sources as well as to a New York Times report.
to The issue is believed to center on whether certain companies agreed not to hire from one another.
Microsoft, Apple, Google, and Intel all declined comment. Late on Wednesday, Yahoo confirmed it had received an inquiry from the government "a while ago."
"We have been contacted (by the DOJ), and we are cooperating," A Yahoo representative said.
Word of the probe took some in the tech industry by surprise, given several prominent cases of tech firms suing one another over worker poaching. Two of the companies said to be involved in the probe--Microsoft and Google--waged a fierce, multistate court battle after Microsoft executive Kai-Fu Lee was hired by Google. (The two sides eventually settled.)
More recently, Apple and IBM duked it out after Apple hired IBM executive Mark Papermaster. He eventually took up work at Apple, but only after a lawsuit and eventual settlement. IBM also sued over a recent Dell hire, David Johnson.
CNET News' Tom Krazit contributed to this report.
There's no question that the European Commission's $1.45 billion antitrust fine against Intel is a lot of money. But don't expect Wednesday's antitrust enforcement move to radically change what you see when it's time to buy your next PC.
Antitrust actions can have a dramatic effect when a decision breaks a company into pieces, but the biggest factors in the rivalry between Intel and AMD--and increasingly Nvidia, too--is technology. So while AMD can be pleased with the European Commission's conclusion, it's got bigger worries.
AMD investors cheered the European Commission's antitrust fine against Intel on Wednesday.
(Credit: Google)"They have a marketing problem. They need to increase size of their voice," said Technology Business Research analyst John Spooner. "And they've got to run faster than Intel. They've got to have products that really are better and provide more value."
AMD has been tirelessly agitating for antitrust actions against its larger rival, and it's made some headway. Japan and South Korea have come down against Intel, and the Federal Trade Commission in the United States is involved in its own Intel investigation--not its first. AMD also has its own private antitrust suit under way in Delaware.
But when it comes to taking on Intel, a far bigger factor has been technology--not just processor designs, but also manufacturing skill and capacity that means chips can be priced competitively while still being profitable.
Market share changes
Indeed, AMD made its biggest recent inroads against Intel when AMD's Opteron and Athlon processors could outgun Intel's Xeon and Pentium models, which used an outdated architecture. But Intel reclaimed that share once it modernized its designs at the same time AMD stumbled with its own manufacturing problems.
AMD CEO Dirk Meyer
(Credit: AMD)AMD's troubles continued into 2008, when it installed Dirk Meyer as the new CEO and undertook a plan to spin off its manufacturing business.
But Wednesday's decision gave AMD a new cause for optimism, including the hope it will materially improve sales.
"We are hopeful that it will. When we have products people want to buy we won't be in position that's artificially constrained by payments competitors are making to exclude us," said Harry Wolin, AMD's senior vice president of legal affairs. He did add, though, that technology and business practices remain important: "We still have to deliver fine products to our customers and treat our customers and partners well. We have to manufacture products with our partners."
Antitrust actions can change behavior, to be sure. Microsoft was largely unscathed by the U.S. Justice Department's antitrust suit that began in the 1990s. But its legacy arguably lives on: the company is exercising some self-restraint when it comes to how strongly it promotes its online services through dominant widely used products such as Windows and Internet Explorer, and it's not because Microsoft doesn't fiercely want a stronger online presence.
But in a conference call with reporters, Intel Chief Executive Paul Otellini argued that the overall market dynamic isn't changing: technology still is king when computer makers decide whether to buy AMD or Intel chips.
"Most customers buy from both suppliers today. Most customers buy more or less from each supplier depending on the quality of the product, the competitiveness of the product, and the pricing...that dynamic hasn't changed in my career at Intel, which is 35 years. I don't expect it to change," Otellini said. "I don't think a customer is going to put him or herself at a disadvantage by buying an inferior or more costly products, just to try to walk a line that may be artificial."
Intel CEO Paul Otellini
(Credit: Intel)
Antitrust headaches
The European Commission's Wednesday conclusions and fine certainly didn't make life any easier for Intel's sales force, though. It concluded that Intel used partially or completely hidden rebates to ensure computer makers would use Intel chips exclusively or nearly so. It also concluded Intel paid computer makers to cancel or delay the introduction of products using rival chips.
"My experience with salespeople is they'll say anything to get a sale. Intel now has to put some constraints on sales reps that would not be there if they had less than 70 percent market share in the European Union," said Gartner analyst Martin Reynolds. But that won't be enough to hobble Intel. "Intel's biggest challenge is not getting rid of competition, it's making sure of market growth."
The European Commission's move could further other actions against Intel, too, Reynolds said.
AMD's private antitrust case also alleges Intel rebates conditioned on exclusivity or near exclusivity and Intel payments conditioned on delaying AMD-based products, Wolin said--and any settlement awards or damages that Intel might end up paying in that case would go to AMD, not wronged taxpayers. That case is scheduled to go to trial in March 2010.
Though AMD's Wolin wouldn't comment on it, the Justice Department's new antitrust leader, Christine Varney, promised tougher enforcement of antitrust regulations, too.
Intel strongly denied any wrongdoing and is appealing the European Commission ruling. Otellini said the EU wouldn't accept some contrary evidence and suggested that its lack of written proof was lack of evidence, not of Intel operating in secret.
Overall, though, just as Intel's successes won't be erased by the fine and ruling, AMD's problems won't be fixed by it. The lawyers may be paid well, but engineers still are at the heart of the microprocessor market.
WASHINGTON--Intel President and CEO Paul Otellini announced on Tuesday a $7 billion investment in U.S.-based manufacturing facilities, telling a crowd of Washington elites that the current economic recession gives the nation an opportunity to make once-in-a-lifetime changes and investments for the future.
"For nations like the United States, absolutely nothing about the future is inevitable or guaranteed--not jobs, not leadership, not our standard of living," Otellini told the Economic Club of Washington here. "How we deal with these changes can lead us to new heights--or they will define the beginning of a downward spiral."
It will take both public and private investments, Otellini said, for the United States to remain the world's leading innovator as well as retain its manufacturing economy.
"We need to focus on industries of the future," he said. "Ones in which we can command a competitive advantage."
For Intel, that means a $7 billion, two-year investment in existing factories in New Mexico, Arizona, and Oregon to manufacture silicon wafers with 32nm process technology. The investment is expected to support 7,000 high-wage jobs at those factories and support thousands of contract jobs for technicians and construction workers.
The investment is Intel's largest ever in a single process technology.
"As a global company, we have made a conscious decision to expand these factories here because we believe that investing in the future of American discovery isn't just the right thing to do," Otellini said, "it is an essential business decision if we want the United States to continue to be the engine of new ideas and technical leadership."
Intel CEO Paul Otellini spoke in front of the Economic Club of Washington on Tuesday.
(Credit: Stephanie Condon/ CNET News)Making the investment during the recession puts Intel at a competitive advantage, he said. The company is at least two years ahead of the competition in this process technology, and his sense, Otellini said, is that the company will extend that lead with the investment announced Tuesday.
"This technology we're investing in right now is the most amazing thing I've seen in my three and a half decades at Intel," he said.
Intel's $15 billion in cash on hand makes the company less susceptible to the current credit crisis, Otellini said.
When the audience jokingly asked if Intel would consider its own Troubled Asset Relief Program, Otellini quipped that he didn't see anything "invest-able."
Even while acknowledging Intel's cash advantage, Otellini called for other companies to make investments that will help secure America's future as an economic and innovation leader.
"Make some investments, build out data centers," he said. "The memory industry and the hard drive industry need to make sure they don't stop innovating. At the end of it, new products is what sells."
However, the future of the technology industry will depend on more than private investment, Otellini said. He called the country's neglected education system the biggest threat to the industry.
"I do see the quality of graduate education improving in China," he said. "They're getting better and better every year. I'm not smart enough to know when there will be a crossover, but that day will happen."
The government, he said, has an opportunity through its current attempts at legislating economic recovery to make long-overdue investments in schools, health care, and other sectors.
Otellini told President Barack Obama last night that he supports the so-called "stimulus" plan in development.
"There are many elements I could get behind," Otellini said. "Health IT, broadband investments, funding for the NSF--those things I think are spectacular."
Obama called the CEO to congratulate him on Intel's investment, and "he reminded me he sees the Intel logo every morning when he opens his laptop," Otellini said.
Intel is also beginning a year-long initiative with the nonprofit Aspen Institute "to bring together some of the world's best minds in business, entrepreneurial circles, academia, the media, and government to lead a discussion on how technology investment can help grow the economy and create jobs," Otellini said.
More details of the initiative will be announced soon, he said.
- prev
- 1
- next
