Intel Corp.; Analysis To Aid Public Comment and Commissioner Statements

SUMMARY: The consent in this matter settles alleged violations of

federal law prohibiting unfair or deceptive acts or practices or unfair

methods of competition. The attached Analysis of Proposed Consent Order

to Aid Public Comment describes both the allegations in the complaint

that the Commission issued in June 1998 and the terms of the consent

order--embodied in the consent agreement--that would settle these

allegations. This document also contains the Statement of Chairman

Pitofsky and Commissioners Anthony and Thompson, and the Statement of

Commissioner Swindle.

DATES: Comments must be received on or before May 24, 1999.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,

Room 159, 600 Pennsylvania Avenue, NW, Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: John Horsley or Richard Parker, FTC/H-

3105, 600 Pennsylvania Avenue, NW, Washington, DC 20580. (202) 326-2648

or (202) 326-2574.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal

Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Sec. 3.25(f) of

the Commission's rules of practice (16 CFR 3.25(f)), notice is hereby

given that the above-captioned consent agreement containing a consent

order to cease and desist, having been filed with and accepted, subject

to final approval, by the Commission, has been placed on the public

record for a period of sixty (60) days. The following Analysis of

Proposed Consent Order to Aid Public Comment describes the terms of the

consent agreement, and the allegations in the complaint. This document

also contains (1) the Statement of Chairman Pitofsky and Commissioners

Anthony and Thompson, and (2) the Statement of Commissioner

Swindle.1 An electronic copy of the full text of the consent

agreement package can be obtained from the FTC Home Page (for March 17,

1999) on the World Wide Web, at ``http://www.ftc.gov/os/

actions97.htm.'' A paper copy can be obtained from the FTC Public

Reference Room, Room H-130, 600 Pennsylvania Avenue, NW Washington, DC

20580, either in person or by calling (202) 326-3627.

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\1\ The Analysis and other Commissioner Statements were

published in the Federal Register on March 24, 1999, and the public

comment period began at that point. See 64 FR 14246 (March 24,

1999).

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Public comment is invited. Comments should be directed to: FTC/

Office of the Secretary, Room 159, 600 Pennsylvania Avenue, NW,

Washington, DC 20580. Two paper copies of each comment should be filed,

and should be accompanied, if possible, by a 3\1/2\-inch diskette

containing an electronic copy of the comment. Such comments or views

will be considered by the Commission and will be available for

inspection and copying at its principal office in accordance with

Sec. 4.9(b)(6)(ii) of the Commission's rules of practice (16 CFR

4.9(b)(6)(ii)).

Analysis of Proposed Consent Order To Aid Public Comment

The Federal Trade Commission has accepted for public comment an

Agreement Containing Consent Order with Intel Corporation (``Intel'')

to resolve the matters charged in an administrative Complaint issued by

the Commission on June 8, 1998. The Agreement has been placed on the

public record for sixty (60) days for receipt of comments from

interested members of the public. The Agreement is for settlement

purposes only and does not constitute an admission by Intel that the

law has been violated as alleged in the Complaint or that the facts

alleged in the Complaint, other than jurisdictional facts, are true.

I. The Complaint

The Complaint alleges that Intel has monopoly power in the

worldwide market for general purpose microprocessors. According to the

Complaint, Intel's market dominance is reflected in a market share

approximating 80 percent of dollar sales, together with high entry

barriers including large sunk costs of design and manufacture,

substantial economies of scale, customers' investments in existing

software, the need to attract support from software developers, and

reputational barriers.

The Complaint alleges that Intel sought to maintain its dominance

by, among other things, denying advance technical information and

product samples of microprocessors to Intel customers (``original

equipment manufacturers'' or ``OEMs'') and threatening to withhold

product from those OEMs as a means of coercing those customers into

licensing their patented innovations to Intel.

A microprocessor is an integrated circuit that serves as the

central processing unit (or CPU) of computer systems. Microprocessors

are sometimes described as the ``brains'' of computers because they

perform the major data processing functions essential to computer

systems. Advance technical information about new microprocessor

products is essential to Intel's OEM customers, who design, develop,

manufacture, and sell computer system products such as servers,

workstations, and desktop and mobile personal computers. Computer

design and development require the effective integration of multiple

complex microelectronics components (including microprocessors, memory

components, core logic chips, graphics controllers, and various input

and output devices) into a coherent system. To achieve such system

integration, a computer OEM requires product specifications and other

technical information about each component, such as the electrical,

mechanical, and thermal characteristics of the microprocessor. OEMs

also need advance product samples, errata, and related technical

assistance in order to perform system testing and debugging, thereby

assuring the high performance and reliability of new computer products.

Intel promotes and markets its microprocessors by providing

customers with technical information about new Intel products in

advance of their commercial release, subject to formal nondisclosure

agreements. Such information sharing has substantial commercial

benefits for Intel and its OEM customers. Customers benefit because the

information enables them to develop and introduce new computer system

products incorporating the latest microprocessors as early and

efficiently as possible. Intel benefits because a larger group of OEMs

can sell new computer systems incorporating Intel's newest

microprocessors as soon as the new microprocessors are introduced to

the market.

The Complaint charges that Intel suspended its traditional

commercial relationships with three established customers--Digital

Equipment Corporation, Intergraph Corporation, and Compaq Computer

Corporation--by refusing to provide advance technical information

about, and product samples of, Intel microprocessors. Intel did so,

according to the Complaint, to force those customers to end disputes

with Intel concerning the customers' asserted intellectual property

rights and to grant Intel licenses to patented technology developed and

owned by those customers. In at least one of the cases,

[[Page 20135]]

the Complaint alleges that Intel also acted to create uncertainty in

the marketplace about the customer's future source of supply of Intel

microprocessors.

The computer industry is characterized by short, dynamic product

cycles, which are generally measured in months. Time to market is

crucial. Indeed, the denial of advance product information is virtually

tantamount to a denial of actual parts, because an OEM customer lacking

such information simply cannot design new computer systems on a

competitive schedule with other OEMs. An OEM who suffers denial of such

information over a period of months will lose much of the profits it

might otherwise have earned even from a successful new computer model.

Continued denial of advance technical information to an OEM by a

dominant supplier can make a customer's very existence as an OEM

untenable.

As a result of the commercial pressure exerted by Intel's conduct,

Compaq and Digital quickly entered into cross-license arrangements with

Intel. Intergraph was able to resist that pressure because it succeeded

in obtaining a preliminary injunction from a federal district court

requiring Intel to resume and continue supplying Intergraph with

advance product information, part samples, and other technical support

pending a judicial resolution on the merits of the claims in the

lawsuit.

The alleged conduct tends to reinforce Intel's domination of the

general purpose microprocessor market in at least three ways. First,

the alleged conduct tends to give Intel preferential access to a wide

range of technologies being developed by many other firms in the

industry. To the extent that firms desiring to compete with Intel are

unable to obtain comparable access to such a wide range of technology,

they can be seriously disadvantaged, thus making it more difficult for

them to challenge Intel's dominance. Second, because patent rights are

an important means of promoting innovation, coercion that forces

customers to license away rights to microprocessor-related technologies

on unfavorable terms tends to diminish the customers' incentives to

develop such technologies, and thus harms competition by reducing

innovation. Finally, Intel's conduct tends to make it more difficult

for an OEM to serve as a platform for microprocessors that compete with

Intel's. Intel's actions ensure that Intel can act as a conduit for

technology flows from one OEM to another. That is, an OEM that seeks to

enforce its intellectual property rights against other Intel customers

may face retaliation from Intel, as the Complaint alleges Compaq did

when it sued Packard-Bell for patent infringement. The result is that

OEMs find it more difficult to differentiate their computer systems

from their competitors through patented technology. As a result, an OEM

seeking to use non-Intel microprocessors is less able to offset the

lack of an Intel microprocessor by the strength of its own reputation

for offering superior technology in other areas. For all of these

reasons, continuation of this pattern of conduct would likely have

injured competition by entrenching Intel's dominant position.

The Complaint also alleges that Intel's exclusionary conduct was

not reasonably necessary to serve any legitimate, procompetitive

purpose.

Exclusionary conduct by a monopolist that is reasonably capable of

significantly contributing to the maintenance of a firm's dominance

through unjustified means has long been understood to give rise to

serious competitive concerns. See, e.g., Lorain Journal Co. v. United

States, 342 U.S. 143, 154 n.7 (1951); Eastman Kodak Co. v. Image

Technical Services, 504 U.S. 451, 483 & n.32 (1992); Aspen Skiing Co.

v. Aspen Highlands Skiing Co., 472 U.S. 585, 596 n.19 (1985); United

States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966); Barry Wright

Corp. v. ITT Grinnell Corp., 724 F.2d 227, 230 (1st Cir. 1983) (Breyer,

J.) (citing 3 P. Areeda & D. Turner, Antitrust Law, para. 626 at 83

(1978)).

Such conduct harms consumers, not only because competition brings

lower prices, but also because competition is a powerful spur to the

development of new, better, and more diverse products and processes.

Unjustified conduct by a monopolist that removes the incentive to such

competition by depriving innovators of their reward or otherwise

tilting the playing field against new entrants or fringe competitors

thus has a direct and substantial impact upon future consumers.

In the absence of a legitimate business justification that

outweighs these concerns, such conduct constitutes a violation of

Section 2 of the Sherman Act, 15 U.S.C. 2, and therefore Section 5 of

the Federal Trade Commission Act, 15 U.S.C. 45. In issuing the

Complaint, the Commission found reason to believe that such a violation

had occurred.

II. Terms of the Proposed Consent Order

The Proposed Order would remedy all of the concerns embodied in the

Complaint. The substantive prohibition, Section II.A., prohibits 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 relating to an intellectual

property dispute with that customer. It also prohibits Intel from

refusing or threatening to refuse to sell microprocessors to a customer

for reasons related to an intellectual property dispute with that

customer. This provision is 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 advance technical

information from Intel at the time the dispute arises. The Proposed

Order does not impose any kind of broad ``compulsory licensing'' regime

upon Intel. So long as it is otherwise lawful, 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. Moreover, the Order is limited to

the types of information that Intel routinely gives to customers to

enable them to use Intel microprocessors, not information that would be

used to design or manufacture microprocessors in competition with

Intel.

In short, Paragraph II.A. secures to Intel customers the right to

seek full and fair value for their intellectual property, free from the

risk of curtailment of needed advance technical information or product.

With one exception, Intel will be required to continue providing

information and product while the customer seeks any of a range of

legal and equitable remedies available to it, such as damages (trebled

or otherwise increased in appropriate cases), reasonable royalties, and

attorneys fees and costs. These remedies will generally be sufficient

to protect the customer in its exercise of its intellectual property

rights.

The exception involves situations where a customer maintains the

right to seek an injunction against Intel's manufacture, use, sale,

offer to sell or importation of its microprocessors. The Order

contemplates that Intel may request a customer to waive that remedy and

give the customer a reasonable opportunity to make a simple written

statement to that effect. If the customer refuses, Intel will not be

required by this Order to continue providing information or product

with respect to the microprocessors that the customer is seeking to

enjoin.

[[Page 20136]]

This part of the Order strikes an appropriate balance, on a

prospective basis, between the interests of Intel and its customers. If

a customer chooses to seek an injunction against Intel's

microprocessors, it cannot, under the provisions of this Order, be

assured of continuing to receive advance technical information about

the very same microprocessors that it is attempting to enjoin. If an

Intel customer nevertheless wishes to seek injunctive relief against

Intel's manufacture, use, sale, offer to sell or importation, it

remains free to do so, but without the protections in this Order. In

all other circumstances, Intel is required to continue supplying

technical information and product under the Proposed Order.

The Proposed Order contains a number of other definitions and

provisos to ensure that it will achieve its purposes while not sweeping

more broadly than needed to remedy the competitive concerns alleged in

the Complaint:

``Advance Technical Information'' (or ``AT Information'')

is defined in Paragraph I.C. to encompass all information necessary to

enable a customer to design and develop, in a timely way, computer

systems incorporating Intel microprocessors. The Proposed Order

establishes a rebuttable presumption that the provision of AT

information six months before the commercial release date of a

microprocessor is sufficient to enable the customer to design and

develop new systems based on that microprocessor in a competitive and

timely way. AT Information does not include detailed microprocessor

design information or other information not generally provided to

Intel's customers.

``Intellectual Property Dispute'' is defined in Paragraph

I.D. to include not only situations in which a customer directly or

indirectly asserts or threatens to assert patent, copyright or trade

secret rights against Intel, but also to situations in which a customer

asserts such rights against another Intel customer, or where a customer

has refused a request by Intel to license or otherwise convey its

intellectual property rights.

Paragraph II.B.1. states that the Proposed Order does not

prohibit Intel from seeking legal or equitable remedies based upon its

own intellectual property, provided that it continues to supply AT

Information to the customer.

Paragraph B.2. and B.3. make clear that the Proposed Order

does not prohibit Intel from withholding AT Information or making

decisions about product supply based on otherwise lawful business

considerations unrelated to the existence of the intellectual property

dispute. For example, Intel retains the right to withhold information

from a customer that has breached an agreement regarding the disclosure

or use of the information.

Paragraph B.4. provides that the Proposed Order does not

require Intel to provide AT Information or microprocessors to

facilitate the design or development of a type of system that the

customer has not designed or developed or demonstrated plans to design

or develop within the preceding year.

Paragraph B.5. makes clear that the Proposed Order does

not prohibit Intel from restricting the use of AT Information to the

customer's design and development of computer systems that incorporate

the microprocessor to which the AT Information pertains. For example,

if a recipient of AT Information is in the business of designing

competing microprocessors, the Proposed Order would not prevent Intel

from using reasonable firewall provisions to prevent that recipient

from using the information in that competing business.

Paragraph B.6. provides that the Proposed Order does not

require Intel to disclose information or supply microprocessors that

are not otherwise available for disclosure or supply to Intel's

customers. If the information or product is not being provided to other

customers, then the refusal to provide it to a customer with which

Intel has an intellectual property dispute does not provide the kind of

leverage that the challenged conduct provides.

Paragraph B.7. makes clear that, apart from the specific

requirements and prohibitions, the Proposed Order does not otherwise

limit Intel's intellectual property rights.

In light of the rapidly changing nature of the industry, Intel's

obligations under the Proposed Order would terminate in ten years. The

Commission appreciates that this same industry dynamic makes it

important for it to address disputes over Intel's compliance with the

Order expeditiously, should any such disputes arise.

Parts III, IV, and V of the Proposed Order set out various

procedural requirements, such as notice to affected persons and annual

compliance reporting. Paragraph III.A. permits Intel to provide notice

of the Order to recipients of AT Information through a conspicuous

notice placed, for thirty days after final entry of the Order, as the

first item on the ``In the News'' portion of the ``developers'' page of

Intel's World-Wide Web site. Because recipients of AT Information must

frequently visit that area of Intel's Website in order to receive

information needed in their business, a notice displayed at that

location will ensure notice to all affected persons. After the initial

thirty day period, Intel will maintain a link from the ``developers''

page to the Order, so that new customers will also have access to the

Order. The other provisions of these paragraphs are standard provisions

of the type typically included in Commission orders of this kind.

III. Opportunity for Public Comment

The Proposed Order has been placed on the public record for 60 days

in order to receive comments from interested persons. Comments received

during this period will become part of the public record. After 60

days, the Commission will again review the Agreement and comments

received, and will decide whether it should withdraw from the Agreement

or make final the Order contained in the Agreement.

By accepting the Proposed Order subject to final approval, the

Commission anticipates that the competitive issues described in the

complaint will be resolved. The purpose of this analysis is to invite

and facilitate public comment concerning the Proposed Order. It is not

intended to constitute an official interpretation of the Agreement and

Proposed Order or in any way to modify their terms.

By direction of the Commission.

Donald S. Clark,

Secretary.

Statement of Chairman Robert Pitofsky and Commissioners Sheila F.

Anthony and Mozelle W. Thompson

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

[[Page 20137]]

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\

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\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 (191); 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 he underlying merits. Such an

outcome is the antithesis of civil society. Nor would forbidding

such conduct necessarily condemn parties to lengthy an 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, Compliant

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 para.

626 at 83 (1978).

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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.

Statement of Commissioner Orson Swindle

In the Matter of Intel Corporation

Docket No. 9288

When the Commission accepted the consent agreement with Intel

Corporation last month, I said that I would take the opportunity to

express my views about it following my medical leave. In this statement

I will address issues arising from both the consent agreement and the

administrative complaint, from whose issuance I dissented last June.

Since we do not have the benefit of a trial record here 1--

and because the information in hand does not allay the misgivings I

have had since the outset--I hope that public comment on the consent

agreement will provide helpful guidance on how to vote once the

agreement comes off the public record.

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\1\ Were we considering this matter at the conclusion of an

adjudicative proceeding, I would of course base my analysis strictly

on information in the adjudicative record. In the absence of such a

record, I am compelled to rely on other sources of information.

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In essence, the complaint consists of an allegation that Intel has

monopoly power in general-purpose microprocessors (complaint Paras. 4-

10, 38 2); an allegation that Intel engaged in exclusionary

conduct toward several customers by cutting off key technical

information and microprocessor prototypes in order to coerce those

customers to license certain of their intellectual property to Intel

(Paras. 11-37, 39); and concluding allegations that, through its

exclusionary behavior, Intel has both illegally maintained its monopoly

power in general-purpose microprocessors and attempted to monopolize

current and future generations of such microprocessors, in violation of

Section 5 of the FTC Act (Paras. 40-42).

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\2\ Unless otherwise indicated, all further citations to

paragraph numbers refer to the administrative complaint.

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In the first place, there is no doubt that Intel has long bestrode

the market for general-purpose microprocessors, but there has also been

reason to ask whether Intel's position in the market is as unassailable

as the complaint suggests. It is widely recognized that Intel is facing

vigorous competition in supplying microprocessors to the segment

consisting of personal computers costing less than $1000--a segment

toward which a good deal of consumer demand appears to have been

shifting lately. Although Intel has not

[[Page 20138]]

faced challenges of the same magnitude in the midrange and high-end

segments of the business, some have also questioned the durability of

the firm's dominance of those segments as well. In the absence of a

full-blown adjudicative record that might have proved what Paragraph 38

alleges, available information has not dispelled my questions about

whether Intel has monopoly power--as opposed to just an extremely large

market share--in general-purpose microprocessors.3

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\3\ In their statement, my fellow Commissioners--citing

complaint counsel's pretrial brief as support--assert that

``Compliant Counsel said it would offer evidence that the sub-$1000

segment was a small and relatively unprofitable portion of the

market * * * and that at the high-end, many computer manufacturers

have been abandoning their proprietary microprocessor designs in

favor of Intel's * * * Moreover, according to my colleagues, ``[i]n

the market as a whole, Compliant Counsel contended that Intel's

share had grown, not shrunk, and was in the range of 80% or more.''

Statement of Chairman Robert Pitofsky and Commissioners Sheila F.

Anthony and Mozelle W. Thompson at 2 n.1. I do not disagree that

these propositions that complaint counsel aimed to establish. My

point is simply that I have not yet been persuaded by the evidence

in the Commission's possession--as distinguished from complaint

counsel's representations and contentions--that Intel possesses

monopoly power in the relevant market.

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Second, even if one were to assume Intel's monopoly power, I have

misgivings about the theory of violation underlying the complaint. The

complaint claims that Intel took action against three customers--firms

whose primary significance to the case, according to the Commission's

own documentation, lies in their being manufacturers of PCs, not in

their being competitors of Intel in the microprocessor

market.4 What action did Intel take against those customers,

and for what reasons?

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\4\ Of course, both Digital (the developer of the Alpha

microprocessor) and Intergraph (which developed the Clipper chip

prior to 1993) were not only Intel's customers but also--at least to

the extent that they were able to chisel away at Intel's alleged

monopoly--its competitors in the microprocessor market. The

Commission's complaint, however, is couched almost entirely in terms

of Intel's allegedly anticompetitive behavior toward three victims

that needed Intel technical information and prototypes so that they

could build computers. And although press releases do not

necessarily reflect the official views of the Commission (in the

sense that the complaint does), both the June 8, 1998, FTC press

release that announced the issuance of this complaint as well as the

March 17, 1999, release announcing the Commission's acceptance of

this consent agreement spoke almost entirely in terms of Intel's

conduct toward its customers. Even if Digital and Intergraph can be

characterized as Intel's present or erstwhile competitors--thereby

giving this matter more of the character of a traditional

monopolization case--the Commission has consistently placed far

greater emphasis on the supplier/customer relationship between Intel

and its alleged victims.

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The Commission's complaint says that Intel cut off the supply of

technical information and microprocessor prototypes to Digital

Equipment, and demanded the return of information and prototypes

already in Digital's possession, after Digital sued Intel for patent

infringement (Paras. 18-19). Intel took similar actions against

Intergraph, a customer focused largely on workstations and servers,

after Intergraph spurned Intel's demand for a royalty-free license to

certain Intergraph microprocessor-related technology (Paras. 26-29).

Finally, Intel cut off technical information to Compaq Computer, which

had earlier sued Packard Bell Electronics on the theory that certain

Packard Bell computer systems used Intel microprocessors that infringed

Compaq's patents--a lawsuit in which Intel felt an obligation to

intervene on behalf of the defendant (Paras. 34-35). According to the

complaint, Intel's purpose in taking these actions was to ``forc[e]

those customers to grant Intel licenses to microprocessor-related

technology developed and owned by those customers' (para. 13). The

alleged effects of Intel's behavior were ``to diminish the incentives

of those three Intel customers--as well as other firms that are Intel

customers or otherwise commercially dependent upon Intel--to develop

new innovations relating to microprocessor technology'' (para. 14) and

to ``entrench[] [Intel's] monopoly power in the current generation of

general-purpose microprocessors and reduce[] competition to develop new

microprocessor technology and future generations of microprocessor

products' (para. 39).

At this point I do not have sufficient information to be confident

that complaint counsel would have proved these rather dramatic charges.

My vote against pursuing the case last June, especially as regards

Intel's conduct toward Digital and Compaq, rested in part on my sense

that the Commission had not sufficiently considered the grounds on

which even a putative monopolist is entitled to withhold aid and

comfort from another company that threatens serious harm by suing it or

suing a third party on whose behalf the monopolist is obligated to

intervene. It was my judgment then, and it remains so now, that one

could plausibly view Intel's conduct in precisely such an exculpatory

light. If the Commission intended to broadcast some kind of general

admonition that a monopolist in these circumstances cannot resort to

``self-help'' (by, e.g., withdrawing and withholding technical

information and prototypes) but must instead hire lawyers and take its

disputes through lengthy and expensive litigation, then that is a

message to which I most assuredly do not subscribe. On the other hand,

if the complaint was meant to tell a narrower, more traditional

antitrust story based on harm to competition and consumers--in this

case, harm to innovation in a high-technology industry--I remain unsure

whether even that more modest edifice can rest on Intel's decision to

withdraw assistance from a handful of customers who were litigious or

otherwise flouted Intel's wishes.5

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\5\ My colleagues characterize Intel's conduct as ``coercion

that forces customers to license away patent rights on unfavorable

terms'' (Statement of Chairman Pitofsky and Commissioners Anthony

and Thompson, supra n.3, at 1), which begs the important question

whether Intel was truly engaged in such coercion or was instead

defending against attacks by its alleged victims. Regarding my

doubts about whether Intel's alleged conduct (and its

anticompetitive effects) could have been proved, my colleagues state

that these allegations ``are consistent with our knowledge of the

industry and with common sense * * *'' Id. It bears repeating that

my concerns arise from the state of the evidence underlying the

Commission's allegations. I take little comfort from--indeed, I am

not sure I fully understand--the notion that monopolization

allegations are ``consistent with our knowledge of the industry and

with common sense.'' I do not--as my colleagues suggest (id.)--

''demand certainty'' about the facts at issue, but I do look to the

strength of the evidence rather than to what a litigant's pretrial

brief might promise to deliver (id. at 2).

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Before I turn to the order, I wish to address one other

consideration concerning issuance of the complaint against Intel.

Regardless of how one characterizes the dealings between Intel and its

three customers--i.e., regardless of whether one accepts the

complaint's claim that Intel used its monopoly power to unfairly gain

access to intellectual property developed by those customers--I do not

believe that the complaint spells out an especially coherent theory of

how those dealings harmed consumers. Consumer welfare is the touchstone

of antitrust enforcement, and the ``public interest'' standard of

Section 5 of the FTC Act embodies considerations of consumer welfare.

In the absence of clear evidence of how Intel's dealings with Digital,

Intergraph, and Compaq could have adversely affected consumers, one can

question the very basis for issuing this complaint--and for injecting a

government agency into the dynamic workings of a fast-moving, high-

technology industry.6 I look forward to any public comments

that deal with the likely harm to consumers stemming from the

misconduct alleged in the Commission's complaint.

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\6\ I note that to the extent this case is depicted as involving

harm to Intel's competitors (rather than to its customers), that

would tend to attenuate further any theory that Intel's conduct

threatened harm to consumers.

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Regarding the proposed order itself, some observers have

characterized it as

[[Page 20139]]

having achieved whatever objective prompted the Commission's suit

against Intel. I am not so sure, in part because of my uncertainty

(discussed earlier) over what message the complaint was meant to

communicate and in part because of the very terms of the order. In

fact, given my reservations about the merits of the complaint, I would

be more concerned about the order--comprising a difficult-to-enforce

mandate to ``sin no more,'' with a major proviso and some significant

exceptions--if it seemed likely to impose real and significant

restrictions on Intel.

I expect the proposed order to present possible enforcement

difficulties because, among other things, its basic prohibition (order

para. II.A) commands Intel not to take certain adverse actions against

microprocessor customers with regard to ``Advance Technical

Information'' ``for reasons related to an Intellectual Property

Dispute'' 7 and not to ``base[ ] any supply decisions for

general purpose microprocessors upon the existence of an [Intellectual

Property] Dispute.'' No matter what may motivate Intel's future

decisions whether to furnish technical information and microprocessor

prototypes to customers, it is extremely doubtful that Intel is going

to create any kind of record that will enable the Commission to

ascertain whether such a decision is ``for reasons related to'' or

``base[d] * * * upon'' the one ground made impermissible by the order--

an intellectual property dispute. Exacerbating the impact of Paragraph

II.A's subjective language are two further paragraphs that allow Intel

to withhold advance technical information from customers (order para.

II.B.2) or make product supply decisions (order para. II.B.3) based on

``business considerations unrelated to the existence of the

[Intellectual Property] Dispute''--further verbiage that appears to

make order enforceability hinge on difficult inquiries into the state

of mind of Intel decision makers. I hope that my pessimism is

unwarranted, but the key terms of the order seem destined to enmesh the

Commission in expensive, and perhaps intractable, enforcement

proceedings if Intel is ever suspected of violating it.8

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\7\ All italics in this paragraph are added.

\8\ Presumably in response to my point about the difficulty of

order enforcement in this case, my fellow Commissioners note that

``[c]ertainly 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.''

Statement of Chairman Pitofsky and Commissioners Anthony and

Thompson, supra n. 3, at 2. There is nothing in my statement to

suggest that I would favor an order drafted along such rigid,

mechanical lines. My point was that, in its current form, the order

against Intel could present formidable enforcement problems.

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I end where I began--searching for information to help me decide

whether I now have reason to believe that Intel violated the law and,

if so, whether I can support this consent order. I genuinely look

forward to receiving public comments both supportive and critical of

the settlement and the underlying theory of violation. I

hope that the considerations spelled out in this statement will be

helpful to those preparing to submit comments to the Commission.

[FR Doc. 99-10252 Filed 4-22-99; 8:45 am]

BILLING CODE 6750-01-P