[Federal Register Volume 64, Number 78 (Friday, April 23, 1999)]
[Notices]
[Pages 20134-20139]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-10252]



[[Page 20133]]

_______________________________________________________________________

Part VII





Federal Trade Commission





_______________________________________________________________________



Intel Corporation; Analysis To Aid Public Comment and Commissioner 
Statements; Notice

  Federal Register / Vol. 64, No. 78 / Friday, April 23, 1999 / 
Notices  

[[Page 20134]]



FEDERAL TRADE COMMISSION

[Docket No. 9288]


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

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement: Publication of commissioner 
statements.

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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.

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    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