Agreement Would Resolve Commission's Complaint that World's Largest Microprocessor Manufacturer Cut Off Customers in Order to Stifle Competition and Impede Innovation
The Federal Trade Commission today announced approval of a settlement of charges that Intel Corporation, the world's largest manufacturer of microprocessors, used its market power to maintain its dominance over the microprocessor market. The agency had issued a complaint in June 1998, charging that Intel illegally used its market power when it denied three of its customers continuing access to advance technical information and product samples necessary to develop computer systems based on Intel microprocessors. The complaint alleges that Intel withheld information from these three companies - Digital Equipment Corporation, Intergraph Corporation, and Compaq Corporation - as a means of coercing them into licensing their patented innovations to Intel. Under the settlement, which is subject to public comment, Intel would be prohibited from withholding or threatening to withhold advance technical information, or otherwise making product supply decisions, as a means of compelling intellectual property licenses. The settlement order would protect Intel's rights to withhold its information or microprocessors for legitimate business reasons.
"The heart of the Commission's complaint against Intel was the principle that a monopolist cannot withhold products or information about products in order to retaliate against customers who find themselves in an intellectual property dispute," said FTC Chairman Robert Pitofsky. "We recognize that there is an essential balance to be struck between protecting the incentives of smaller rivals to innovate and unduly constricting a dominant firm's conduct of its business. The settlement would fully resolve those competitive concerns without interfering with Intel's legitimate business activities. This is the result that the staff would have sought after a full and successful trial."
Intel, based in Santa Clara, California, has worldwide sales of approximately $20.8 billion. The company designs, manufactures and sells a variety of semiconductor products, including a line of microprocessor products that are generally known, marketed and sold under the trade names Pentium, Pentium with MMX, Pentium Pro, Pentium II and Pentium III.
The FTC complaint outlining the charges against Intel alleges that Intel has monopoly power in the market for general purpose microprocessors. Intel's market dominance is reflected in a market share approximating 80 percent of dollar sales, together with high entry barriers.
A microprocessor is the central processing unit of a computer system. Often described as the "brains" of a computer system, the microprocessor serves the essential functions of processing system data and controlling other devices integral to the system. According to the FTC, advance technical information about new microprocessor products is essential to Intel's customers, who design and sell computer system products. Intel provides this information about its new products in advance of their commercial release, subject to formal nondisclosure agreements. This process makes it possible for computer makers to have computers based on new Intel microprocessors ready to sell at the time of the official commercial release of the microprocessors.
The complaint charges that Intel suspended its traditional commercial relationships with three of its customers - Digital, Intergraph, and Compaq - by refusing to provide advance technical information and product samples of its microprocessors. Intel cut off these three customers, the agency alleged, in retaliation for the companies having sought to protect or assert patent rights in microprocessor-related technologies or refusing to license such rights to Intel. By exercising its market power in this way, Intel sought to compel customers to license their patented technology to Intel, the agency charged. These practices, according to the complaint, diminish the incentives of these and other firms to compete with Intel, thereby reducing competition and maintaining Intel's market dominance.
The proposed settlement order would remedy all of the concerns outlined in the complaint. The proposed order would prohibit Intel from withholding or threatening to withhold certain advance technical information from a customer or taking other specified actions with respect to such information for reasons related to an intellectual property dispute with that customer. The order also would prohibit Intel from refusing or threatening to refuse to sell microprocessors to a customer for reasons related to an intellectual property dispute with that customer. According to the Commission, these provisions are designed to prevent Intel from restricting access to microprocessor products, or advance technical information relating to such products, as leverage in an intellectual property dispute against a customer that is receiving the information from Intel at the time the dispute arises.
The Commission noted that within the bounds of other applicable law, Intel is free to decide in the first instance whether it chooses to provide or not provide information to customers, and whether to provide more information or earlier information to specific customers in furtherance of a joint venture or other legitimate activity.
The proposed order would identify specific circumstances where Intel is not obligated to supply product or advance technical information. For example, supply would not be required:
- where a customer is receiving information and is seeking to enjoin Intel from selling the products to which that information relates (the proposed order would reserve to such customer all rights to pursue compensation, damages, and any other legal or equitable remedies in an intellectual property dispute);
- where a customer has breached an agreement regarding the disclosure or use of the information;
- where the information or product is not being provided to other customers; or
- where the information would be used to design competing microprocessors.
Under the proposed settlement, Intel would not be prohibited from seeking legal or equitable remedies based upon its own intellectual property, provided that it continues to supply advance technical information to the customer.
The proposed order also would set out various procedural requirements, such as notice to affected persons and annual compliance reporting. The order would permit Intel to provide notice of the order to recipients of advance technical information through a posting on its World Wide Web site.
The Commission vote to accept the proposed consent agreement for public comment was 3-0 with Commissioner Orson Swindle not participating because of medical reasons. In a statement, Commissioner Swindle said he expected to be able to express his views about the proposed consent agreement during the 60-day public comment period. Commissioner Mozelle Thompson issued a statement in which he said, "By eliminating the possibility of anti-competitive withholding of products and information, the Agreement preserves the benefits of competition while creating a climate for new ideas. This creative solution will benefit consumers and industry alike."
A summary of the proposed consent agreement will be published in the Federal Register shortly. The agreement will be subject to public comment for 60 days, after which the Commission will decide whether to make it final. Comments should be addressed to the FTC, Office of the Secretary, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580. Two paper copies of each comment should be filed, and should be accompanied, if possible, by a 3½-inch diskette containing an electronic copy of the comment.
NOTE: A consent agreement is for settlement purposes only and does not constitute an admission of a law violation. When the Commission issues a consent order on a final basis, it carries the force of law with respect to future actions. Each violation of such an order may result in a civil penalty of $11,000.
Copies of the complaint, proposed consent order, and an analysis of the proposed consent order to aid public comment are available from the FTC's web site at: http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-FTC-HELP (202-382-4357); TDD for the hearing impaired 1-866-653-4261. Consent agreements subject to public comment also are available by calling 202-326-3627. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.
(FTC Docket No. 9288)
Office of Public Affairs
Bureau of Competition
Richard G. Parker
Bureau of Competition