Intel Settles Claim That It Tried to Stifle Competition

source:http://www.nytimes.com/2010/08/05/technology/05chip.html?partner=rss&emc=rss

By EDWARD WYATT and ASHLEE VANCE

Published: August 4, 2010

WASHINGTON — The Federal Trade Commission and Intelannounced on Wednesday that they have agreed to settle charges of anticompetitive behavior that the agency claimed stifled competition in the market for computer processing and graphics chips.

The settlement prohibits Intel from the practice of paying customers to buy its computer chips exclusively or to refuse to buy chips from other manufacturers. It also prohibits Intel from redesigning its chips purely to harm a competitor. Intel also agreed not to retaliate against computer makers if they do business with non-Intel suppliers.

In addition, the settlement requires Intel to modify agreements with other chipmakers giving them the freedom to merge or form joint ventures without the threat of being sued by Intel for patent infringement. Intel is also required to maintain for at least six years a feature that will not limit the performance of graphics processing chips made by others, and to disclose that its computer compilers might discriminate between its chips and those of other companies, and therefore not might register all of the features of non-Intel chips.

The trade commission brought its suit in December, claiming that Intel, the world’s leading computer chipmaker, for at least a decade has illegally used its dominant market position to stifle competition and strengthen its monopoly.

The agency has no legal authority to assess fines, although it can bring a civil suit for future violations of its settlement order. And the settlement requires Intel to establish a $10 million fund to help business customers re-formulate their software products if they were misled by Intel.

Jon Leibowitz, the chairman of the F.T.C., said that the settlement “provides ‘fencing-in’ protection to ensure that Intel doesn’t come up with new ways to undermine competition.”

“Just as important, it provides this relief right away, so it helps consumers now, which is critical in a dynamic industry such as this one,” Mr. Leibowitz said.

The commission will now seek public comment before the settlement is finalized.

In a statement, Intel’s general counsel, A. Douglas Melamed, said the settlement allowed the company “to put an end to the expense and distraction of the F.T.C. litigation.”

"This agreement provides a framework that will allow us to continue to compete and to provide our customers the best possible products at the best prices," Mr. Melamed said. In agreeing to the settlement, Intel did not admit to any wrongdoing or that the accusations were true.

The agency brought its claims under Section 5 of the F.T.C. Act, a law that is broader than the antitrust laws and that also affords Intel a measure of protection against private lawsuits that could subject it to stiff financial penalties.

Unlike an antitrust violation, a violation of Section 5 cannot be used to establish liability for plaintiffs to seek triple damages in private litigation against the same defendant.

Advanced Micro Devices, Intel’s main rival, settled its own antitrust claims against Intel in November with Intel agreeing to pay $1.25 billion. The state of New York still has litigation pending against Intel.

Intel has spent years squaring off against regulators in Asia, Europe and the United States over charges tied to anticompetitive business practices. Last May, the European Commission hit Intel with a record $1.45 billion fine, concluding that the company hampered competition in the market for PC and computer server chips.

Most of the previous actions against Intel focused on claims that the company used rebates and other payment programs to keep computer makers and retailers from selling products with A.M.D.’s chips.

From about 2003 to 2006, A.M.D. offered a line of chips that analysts and many computer makers hailed as superior to Intel’s products. Executives from A.M.D. contended that Intel blunted the adoption of these chips through its financial arrangements.

The F.T.C.’s complaint tread familiar ground but also raised questions about Intel’s behavior in the graphics chip market, which is dominated by Nvidia and A.M.D. Since the agency aired its complaints, Intel has tempered an effort to enter the market for standalone graphics chips that go into home and business computers. Instead, Intel has declared its intention to focus on competing against Nvidia and A.M.D. through a niche chip designed to handle scientific and industrial applications.

The various legal actions against Intel, based in Santa Clara, Calif., have brought to light numerous unflattering e-mails exchanged between the company’s top executives and customers.

In particular, communications between Intel and Dell have shown executives talking about rebates bestowed on Dell for its decision to abstain from A.M.D.’s products. In one such exchange, Paul S. Otellini, the chief executive at Intel, described Dell as “the best friend money can buy.”

Last month, Dell paid $100 million to settle accounting fraud charges leveled by theSecurities and Exchange Commission tied to the rebates it received from Intel.

Intel has recovered well from a severe drop off in sales during the heart of the recession and has posted record results in recent quarters. A.M.D. has spent the last couple of years trying to restructure its business and improve its financial performance. The company pulled out of the expensive chip manufacturing business and now concentrates on designing chips.

Luke Sharrett/The New York Times

Jon Leibowitz, the chairman of the Federal Trade Commission, held up a microchip at the press conference announcing the settlement.