[Federal Register Volume 64, Number 56 (Wednesday, March 24, 1999)]
[Notices]
[Pages 14246-14249]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-7211]


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FEDERAL TRADE COMMISSION

[Docket No. 9288]


Intel Corporation; Analysis to Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: The consent agreement in this matter settles alleged 
violations of federal law prohibiting unfair or deceptive acts or 
practices or unfair methods of competition. The attached Analysis 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.

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 3.25f), 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 to Aid 
Public Comment describes the terms of the consent agreement, and the 
allegations in the complaint. 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.
    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 
section 4.9(b)(b)(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.

[[Page 14247]]

    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, 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 in to 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 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 .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 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

[[Page 14248]]

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.
    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 requirement, 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

[[Page 14249]]

the Agreement and Proposed Order or in any way to modify their terms.

    By direction of the Commission.
Donald S. Clark,
Secretary.

Statement of Commission Mozelle W. Thompson in the Matter of Intel 
Corporation

    The Commission has accepted for public comment an Agreement 
Containing Consent Order (the ``Agreement'') that settles the charges 
made by the Commission against Intel in an administrative complaint 
(the ``Complaint''). The Complaint alleged that Intel unlawfully used 
its monopoly power in the market for general microprocessors, to coerce 
computer and other peripheral manufacturers to license intellectual 
property rights to Intel. The Complaint further alleged that Intel 
engaged in this conduct in order to maintain its monopoly position.
    On June 8, 1998, I voted to issue a Complaint in the above-
captioned action because I was concerned that these allegations, if 
true, threatened to harm competition and opportunity for innovation in 
the general microprocessor market. This threatened harm would thereby 
deprive consumers of the price and innovation benefits of a truly 
competitive marketplace. Today, I vote to accept the Agreement for 
public comment because I believe the Agreement can address these 
concerns by preserving competition and providing opportunities for 
innovation by preventing Intel from using intellectual property 
disputes to limit access to advance technical information or 
microprocessor products that it routinely provides customers.
    I particularly wish to commend the Commission staff and Intel for 
working together to craft an agreement that effectively serves the 
public interest in the context of the important characteristics of the 
high technology computer industry. By eliminating the possibility of 
anti-competitive withholding of product and information, the Agreement 
preserves the benefits of competition while creating a climate for new 
ideas. This creative solution will benefit consumers and industry 
alike.

Statement of Commissioner Orson Swindle in the Matter of Intel 
Corporation

    As is already widely known, one of the Federal Trade Commission's 
most significant antitrust adjudications in years was resolved on the 
eve of trial with the signing of a consent agreement by complaint 
counsel and respondent Intel Corporation. A hospitalization for major 
surgery since March 5 has precluded me for the present from considering 
the settlement of this important case on its merits. I would have 
strongly preferred to have been able to evaluate it and to participate 
in the Commission's vote.
    Nevertheless, I fully expect to have an opportunity to formulate 
and communicate my views on the consent agreement, and I anticipate 
issuing those views--as an aid to public comment on the settlement--as 
soon as possible during the 60-day comment period. When my statement is 
ready for issuance, I will ask the Commission's Office of Public 
Affairs to release it and will also post it on the Commission's website 
(www.ftc.gov).

[FR Doc. 99-7211 Filed 3-23-99; 8:45 am]
BILLING CODE 6750-01-M