Intel joins Microsoft under courtroom spotlight for abuse of market power

Even as executives of Microsoft squirm in one Washington courtroom, another titan of the high technology industry is preparing to face charges that it too has abused its market power to quash competition.

On March 9th, Intel, the world's largest chipmaker and Microsoft's long-time partner in the personal computer market, is scheduled to appear on antitrust charges before a judge appointed by the Federal Trade Commission (FTC).

That two of the best known companies in the high-tech sector will be simultaneously on trial, just across the road from each other, maybe a coincidence in timing. Yet it is clear that US antitrust enforcers are determined to demonstrate that this rapidly growing sector of the economy is not untouchable.

"Applying the antitrust laws to high-tech industries is important in order to secure for consumers the benefits of the innovation that drives economic growth," Mr William Baer, director of the FTC's Bureau of Competition, told a recent gathering of lawyers in San Francisco.

"Neither the rate of innovation in those industries nor the pervasiveness of intellectual property rights is an argument for antitrust enforcers to withdraw."

Indeed, intellectual property rights are at the heart of the FTC's case against Intel. The chipmaker stands accused of using its dominance in the microprocessor market to bully three large customers into handing over valuable technology in related fields to Intel. Disputes between Intel and Intergraph, Compaq Computer and Digital Equipment (now owned by Compaq) are the nub of the issue. These companies each filed lawsuits against Intel and in each case the chipmaker retaliated by threatening to withdraw early access to information about its future microprocessor products.

The FTC charges that this amounted to an abuse of Intel's market power because computer makers need information about the next generation of Intel chips if they are to design them into new computer products and remain competitive. However, Intel will argue that it has the absolute right - protected by nothing less than the US constitution - to share its technology secrets with whoever it chooses, acting in the interests of the company and its shareholders.

The lawsuits threatened Intel's ability to profit from its intellectual property, its lawyers say, so the company was justified in its actions.

Witnesses for the FTC include several current and former executives from the three computer companies as well as executives from rival chipmaker Advanced Micro Devices and former Intel employees, some of whom now work for Intel competitors.

For its part, Intel has submitted a list of about 20 potential witnesses including Mr Andrew Grove, chairman, and Mr Craig Barrett, chief executive, and several other senior executives. But in a twist that signals Intel's defence strategy, the chipmaker will also present witnesses from its rivals in the microprocessor market including AMD, IDT and the Cyrix division of National Semiconductor.

Intel's goal is to demonstrate that its actions toward Intergraph, Compaq and Digital did not harm its competitors. Indeed, Digital, for example, turned to competing chipmakers for its microprocessor supplies when it fell out with Intel.

The FTC must prove Intel's actions harmed competition, rather than harming its customers, says Mr Peter Detkin, Intel general counsel. The government must also demonstrate Intel is a monopolist. Intel says there is healthy competition in the microprocessor market.

Price wars between Intel and its rivals have helped to drive down the prices of "basic" PCs to well under $1,000 (€1,103) over the past year, and nine out of the top 10 PC manufacturers buy some of their microprocessor chips from Intel competitors.

However, the FTC points to Intel's high profit margins to suggest that the company does not face effective competition. Moreover, the government agency will argue that Intel's market dominance has dissuaded other companies from attempting to compete, thus harming the "microprocessor innovation market".

In contrast to the Microsoft antitrust trial, where embarrassing e-mail records and unflattering videotaped depositions have undermined its credibility, the Intel trial is likely to come down to an argument over points of law. "Intel does not write the same kind of e-mails that Microsoft does," said one lawyer close to the case. The FTC insists the Intel trial will be much more narrow in its focus than the Justice Department's lawsuit against Microsoft.

Agency officials also contend that their case addresses Intel's conduct, rather than the structure of the industry or the company - as in the Microsoft case. And with the judge being appointed by the agency, they may well score a hit until Intel can take the matter to a higher court.

However, the case does have broad implications for the high technology sector because it may redefine how dominant companies can use their intellectual property to competitive advantage.

Overall, the FTC has deep concerns about Intel's entrenched position within the computer industry and its "broad" investigation of Intel's business practices is continuing. Mr Robert Pitofsky, FTC chairman, is particularly alarmed by the prospect of "bottleneck monopolies" which could restrict access to new markets and establish a stranglehold on future innovation.

By charging Intel with antitrust violations the FTC also wants to win the trust of the industry to encourage whistle-blowers in case of future transgression.

For the FTC the case against Intel marks a line in the sand.