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The FTC's Lawsuit Against Intel: A Review of the Issues

written by: M.S. Smith•edited by: M.S. Smith•updated: 1/14/2010

The FTC is the latest of numerous agencies around the world which have filed a suit against Intel over anti-competitive practices. The FTC's suit, however, is ground-breaking. It differs from previous suits against Intel in ways which could have a long-lasting impact on Intel.

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    Intel's Dominance

    For two decades Intel has been the thousand pound gorilla of the PC processor industry. Intel has consistently kept a market share of about 80% for many years with no sign of weakness.

    Today, it is easy to say that Intel was able to do this on the strength of its products. Intel's processors are generally superior to those of AMD, and they have been for some time. In addition, Intel's chipsets are, with the exception of Intel's GPU weakness, very capable. And to top this core business off, Intel has been doing well in the new business of solid state hard drives.

    But Intel has had its weaknesses. The K6 processors from AMD were extremely competitive for years, but this never resulted in a increase in market share for AMD. AMD claims this is because of Intel's shady dealings. Courts in several areas of the world, including the European Union, have agreed and already found Intel guilty under anti-trust laws and slapped Intel with large fines.

    However, the FTC's new suit against Intel isn't just the same old bag. It incorporates both old accusations and new ones, and has broader implications for Intel than any other suit against the company thus far.

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    The Old Bag

    The FTC's suit against Intel can be basically broken into two parts. The first part consists of older complaints which stem from Intel's competition against AMD. The complaints claim that Intel has "been running roughshod over the principles of fair play and the laws protecting competition on the merits."

    The heart of this accusation stems from the way Intel has delt with various computer hardware vendors and computer manufacturers, including companies like Dell. The FTC alleges that Intel kept a high market share in spite of competition from AMD by threatening other companies with supply shortfalls or higher prices. These threats prevented companies from engaging with AMD has they normally would because they were afraid that working with AMD would cause Intel to effectively blacklist them. As one can imagine, this would be disastrous for most PC companies.

    In addition, the FTC suit alleges that Intel coerced PC manufacturers into keeping AMD out of the majority of their computers through the use of rebate programs designed so that the rebates would be revoked if too many AMD processors were purchased. One of the more famous allegations made by AMD is that they were at some points unable to even give away processors because doing so would cause certain PC manufacturers to lose their rebates from Intel.

    These allegations are not new, and the term allegations should be considered lightly. While they have not been proven in this case, they have already been proven in previous cases in other courts, including the European Union. It seems unlikely that Intel will have much success defending themselves against the FTC on these points.

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    It was unexpected that the FTC would sue Intel. The FTC usually sues companies because of active complaints. However, the FTC suit against Intel came after AMD and Intel came to a settlement. So, what has the FTC sued Intel? The reason seems to be that the FTC has a number of new complaints against Intel which have never been explored before. In other words, the FTC has sued Intel not just over its behavior against AMD, but over a number of other issues.
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    New Allegations

    Up to now, suits against Intel have focused on the above points. However, the FTC suit also includes several points which have not been previously brought against Intel.

    These new allegations focus on the GPU market. It is impossible to say how these will unfold as they are new and untested in previous cases, however, they seem to be similar to the allegations which surround Intel's CPU business and competition against AMD. One example is the Intel Atom and its associated chipsets. Nvidia has been attempting to give Intel competition in the netbook market by offering the Ion chipset, which incorporates a GPU far superior to what Intel offers. However, Intel has allegedly been giving discounts to vendors who purchase the Atom processor with a chipset rather than the Atom processor alone. As a result, it is actually cheaper to purchase the Atom with a chipset than without, obviously making it difficult for Nvidia's Ion.

    There are probably other points which will be covered by the FTC, however. I suspect that Intel's move towards integrating GPU functions into their processor worries the FTC, as it could lead to Intel having a monopoly on yet another important computer component. As anyone looking for an Intel computer with integrated graphics knows, there simply are not any new Intel chipset motherboards available without Intel graphics. The FTC's wording is very aggressive, stating that "as part of this latest campaign, Intel misled and deceived potential competitors in order to protect its monopoly." It seems that FTC is attempting to act proactively in order to prevent Intel from becoming stronger than it already is.

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    While the new allegations are important, the most dramatic way the FTC suit differ from previous anti-trust legislation against Intel is not in what it alleges Intel has done, but rather in what the FTC wants to do to Intel. Until now, successful suits against Intel have resulted in large fines. While fines obviously have an effect on Intel's bottom line, they don't necessarily mean that Intel has to change its ways.

    The FTC suit, however, is not seeking a fine of any type. Instead it seeks "an order which includes provisions that would prevent Intel from using threats, bundled prices, or other offers to encourage exclusive deals, hamper competition, or unfairly manipulate the prices of its CPU or GPU chips." In other words, the FTC suit is aimed at stopping Intel's alleged anti-competitive practices once and for all.

    That is a severe consequence, but given the FTC's new allegations it is a sensible one. The FTC is essentially stating that Intel is using the same methods it used against AMD in the CPU market against AMD and Nvidia in the GPU market. This would indicate that Intel has not been swayed by the fines leveled against it and has chosen to continue with monopolistic practices, fines or no.

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    The Court Date

    Like most cases of this type, it won't be over soon. The first court date has been set for September 15, 2010, and the case will undoubtedly drag on for many years. It is hard to say how successful the case will be, as the FTC's intent to effectively change Intel's business practices is one that Intel will argue against vehemently. No matter who wins the case, it will have a significant impact on the computer hardware industry over the next decade.