Analysis: FTC action against Intel will set precedents

According to papers filed on Monday, Intel has violated US antitrust laws by trying to coerce computer makers into handing over their best technical ideas free of charge. In exchange, Intel would continue to supply technical information needed to build computers compatible with Intel's microprocessors.

To prove his argument, FTC competition bureau director William Baer told reporters that in each of three cases, Intel had no legitimate business reason to deny the computer makers the information it held back from them. Instead, he said, there was only one reasonable explanation for what Intel did: A desire to destroy its rivals - behaviour explicitly banned under antitrust law. "It's illegal under antitrust laws for a monopolist to wield its monopoly power to lock others out of the market," Baer said." That means less competition, higher prices and reduced choice."

As far as that goes, Baer has an argument. But he'll need legal precedent to back up what he says. On that score, antitrust specialists say, the record is mixed.

"This isn't like Microsoft," says Robert Lande, professor of law at the University of Baltimore and a former counsel to Microsoft. "This is less clear."

Though they don't explicitly refer to the case in the complaint, FTC lawyers evidently rely on the case of Aspen Highland Skiing vs. Aspen Skiing for much of their reasoning. In that case, Aspen Highland sued Aspen Skiing after the larger company backed out of a joint ski-lift ticket arrangement. The tickets allowed skiers to ski at both resorts for the price of one. The two companies sold joint tickets since neither could do as well selling tickets to its own resort.

Since Aspen Skiing owned the lion's share of the slopes in the high-end ski town, Aspen Highland benefited more from the deal, and ended up going under after its competitor backed out of the deal. Aspen Highland sued under the antitrust laws and won, as Aspen Skiing, which now owned virtually all the slopes in Aspen, could show no legitimate reason for its actions apart from putting its rival out of business.

Intel shares some characteristics with Aspen, Lande says. Intel, after all, had already been cooperating with Digital, Intergraph and Compaq before it began withholding information. Intel, likewise, was allegedly threatening to cut off its own distributors in order to keep them from competing against it.

"A rational Intel would say 'I want to give you this information so you can sell more of my chips,'" Lande said.

Nonetheless, "Aspen is not a widely-liked case," he said.

Lower courts, often favour the view of antitrust law found in Berkey Photo vs. Eastman Kodak. In that case, a court ruled that Kodak - a monopolist in photo finishing as well as film manufacturing - had no obligation to give rivals advance data to help develop Kodak film, even though Kodak clearly controlled the market.

"If you take it as a given you don't have a general obligation to co-operate with your rivals, what does it matter if you start and then stop?" Lande asked.

Bill Kovacic, professor of Law at George Mason University and a conservative on antitrust matters, gave the FTC a "one-in-five" chance of winning.

"I think the commissioners are going to have a tough time on this one," Kovacic said.

To prevail, commissioners will have to show that Intel intended to keep competitors out by discouraging research and development and by killing off competitive efforts once they had started.

But the companies the FTC cites as competitors are also customers. And customers aren't protected by antitrust law, Kovacic said.

In 1980, for instance, the Second Circuit ruled that Official Airline Guides, publisher of airline schedules nationwide, did not violate antitrust laws by giving commuter airlines less prominent play in their publications. Though the court agreed that commuter airlines did less well than major carriers in the guides, OAG was not a competitor of the commuter airline companies and could not be sued for antitrust violations, despite its lock on the market for airlines schedule publishing.

"To the extent they're not competitors, the law takes a hands-off approach. Here they say 'oh no, Intel really is a prospective competitor,'" said Kovacic.

Christine Varney, an attorney at Hogan & Hartson in Washington and a former FTC Commissioner, said the case would prove important nonetheless. "It's entirely appropriate to examine the practices of a company with the market share that Intel has," Varney said.

Though detractors may question precedent backing the FTC examination, Varney said the Intel case deals with issues that have never been broached before, the relationships among high-tech companies that aren't always easily defined as "competitor" or "customer."

"An administrative proceeding is really the right venue to examine the intersection between antitrust law and intellectual property law," she said. Since FTC rules allow for a more exhaustive investigation than ordinary civil suits, "what you get is a very robust development of the law," she said.