IN THE MATTER OF INTEL CORPORATION
DOCKET NO. 9288
We join our colleague Commissioner Swindle in welcoming comments during the public comment period. To facilitate that comment, we briefly recapitulate the precedent, legal and economic reasoning, and judgment that led us to accept the settlement for public comment.
The Complaint alleged that Intel has monopoly power in the worldwide market for general purpose microprocessors, and that it sought to maintain that monopoly power by coercing customers into licensing to it certain patented innovations. Intel carried out this coercion, according to the Complaint, by refusing to provide advance technical information about Intel microprocessors, withholding product samples, and creating uncertainty in the marketplace about the customer's future source of supply. Advance technical information about new microprocessor products is essential to Intel's customers, so it is alleged, because one cannot achieve the effective integration of components such as microprocessors, memory components, core logic chips, graphics controllers, and various input and output devices without information such as the electrical, mechanical, and thermal characteristics of the microprocessor.
The conduct is alleged to reinforce Intel's domination of the general purpose microprocessor market in at least three ways. First, the conduct gives Intel preferential access to the technologies of other firms. To the extent that competitors cannot obtain comparable access to technology, it would be more difficult for them to challenge Intel's dominance. Second, coercion that forces customers to license away patent rights on unfavorable terms tends to diminish the incentives to develop such technologies. Finally, a computer maker's inability to enforce its patent rights makes it more difficult to develop and maintain a brand name based on superior technology, because the patent owner is forced to share its technology with all computer makers. In turn, a weakened brand identification tends to make it more difficult for that computer manufacturer to find consumer acceptance for computers using non-Intel microprocessors.
These are allegations, not proven facts, and Intel would have had a full opportunity to respond to these allegations had there been a trial. But the allegations are consistent with our knowledge of the industry and with common sense, and the proposed remedy is consistent with both of those as well as with Intel's representations as to its own legitimate business needs.
Some have raised questions about a few of the factual predicates of the case. But those questions are of a type that one would litigate at trial, not use as a basis to reject a settlement. It is in the nature of any settlement before trial that the facts are not fully known. Were we to demand certainty, no case could ever be settled. Complaint Counsel would have had an opportunity to present its evidence with respect to each of the points that we have heard raised, and its pretrial brief promised to do so.(1)
Some have also questioned the practicalities of enforcing the order. But courts weigh facts and circumstances and make determinations about the purposes motivating challenged conduct every day, both within and outside the antitrust field. Certainly the order could have been made more certain in its application by, for example, requiring Intel to deal with all comers on identical terms, regardless of circumstances or the credit-worthiness or other characteristics of would-be customers. Such an order would have been far more burdensome on Intel and would have deterred a wide range of efficient conduct. Both the Commission and a respondent share a common interest in an order that is well-tailored to the violation and to the competitive circumstances -- even, sometimes, at the expense of bright-line clarity.
In short, in welcoming public comments on the proposed order, we remain of the view that Complaint Counsel and Intel have done a commendable job of crafting a remedy that addresses serious potential competitive harm without significantly hindering Intel's legitimate business activity. Moreover, this important balance supports the climate of innovation that benefits both industry and consumers.
1. As to monopoly power, Complaint Counsel said it would offer evidence that the sub-$1000 segment was a small and relatively unprofitable portion of the market (CCBr. at 13), and that at the high-end, many computer manufacturers have been abandoning their proprietary microprocessor designs in favor of Intel's (CCBr. at 11-12). In the market as a whole, Complaint Counsel contended that Intel's share had grown, not shrunk, and was in the range of 80% or more. (CCBr. at 9 n.6.) Complaint Counsel also represented that it would prove the existence of formidable barriers to entry and expansion -- including large sunk costs, long development lead times, economies of scale, network effects, intellectual property rights, and reputational barriers. (CCBr. at 15.)
As to whether Intel's actions affected actions taken against customers rather than competitors, these customers had microprocessor or related technology that Intel, the alleged monopolist, desired. Moreover, the Supreme Court has repeatedly condemned both monopolists and cartels that strike at their customers in order to injure competitors. See, e.g., Lorain Journal Co. v. United States, 342 U.S. 143 (1951); Blue Shield v. McCready, 457 U.S. 465 (1982).
As to the customers in question being "litigious," one could alternatively characterize the customers as firms attempting to resist inappropriate demands to turn over their constitutionally-derived patent rights. If monopoly power could be used to force an end to litigation, in such a Hobbesian world the strong would always vanquish the weak, regardless of the underlying merits. Such an outcome is the antithesis of civil society. Nor would forbidding such conduct necessarily condemn parties to lengthy and expensive litigation. Non-monopolists settle disputes all the time, even though they do not have the powerful weapon of monopoly power to wield.
As to whether Intel's conduct harmed consumer welfare, Complaint Counsel acknowledged the burden of proving that Intel engaged in "conduct, other than competition on the merits or restraints reasonably 'necessary' to competition on the merits, that reasonably appear[s] capable of making a significant contribution to creating or maintaining monopoly power." CCBr. at 5-6, quoting Barry Wright Corp. v. ITT Grinnell Corp., 724 F.2d 227, 230 (1st Dir. 1983) (Breyer, J.) (quoting 3 P. Areeda & D. Turner, Antitrust Law ¶ 626 at 83 (1978).