FTC’s Suit Against Intel: What Will Be the Impact on the Silicon Valley?

The Federal Trade Commission ("FTC") just filed suit against Intel this week, on the grounds that Intel's "anti-competitive tactics have stifled innovation and harmed consumers."

The FTC's press release on the suit states as follows:

"The FTC's administrative complaint charges that Intel carried out its anti-competitive campaign using threats and rewards aimed at the world's largest computer manufacturers, including Dell, Hewlett-Packard, and IBM, to coerce them not to buy rival computer CPU chips. Intel also used this practice, known as exclusive or restrictive dealing, to prevent computer makers from marketing any machines with non-Intel computer chips.

In addition, allegedly, Intel secretly redesigned key software, known as a compiler, in a way that deliberately stunted the performance of competitors' CPU chips. Intel told its customers and the public that software performed better on Intel CPUs than on competitor's CPUs, but the company deceived them by failing to disclose that these differences were due largely or entirely to Intel's compiler design. . . .

[Intel has now embarked] on a similar anti-competitive strategy, which aims to preserve its CPU monopoly by smothering potential competition from GPU chips such as those made by Nvidia, the FTC Complaint charges. As part of this latest campaign, Intel missed and deceived potential customers in order to protect its monopoly. The complain alleges that there also is a dangerous probability that Intel's unfair methods of competition could allow it to extend its monopoly into the GPU chip markets.

According to the FTC's complaint, Intel's anti-competitive tactics violate Section 5 of the FTC Act, which is broader than the antitrust laws and prohibits unfair methods of competition, and deceptive acts and practices in commerce. . . . The complaint also alleges that Intel engaged in illegal monopolization, attempted monopolization and monopoly maintenance, also in violation of Section 5 of the FTC Act. "

So, what is this suit all about?

Based on some of the commentary, it appears that the crux of the argument is as follows: Intel pressured computer companies into exclusive deals and manipulated data to make its chips appear better than its rivals. As a result, Intel kept the prices higher than they would have otherwise been if the rivals had been able to compete in the space.

I am not an antitrust expert, so it's unclear to me at the moment how strong the FTC's case is against Intel, but I think the more interesting question is what the FTC's action means to the Silicon Valley.

A Marketwatch story today looked at the issue, and quoted several Silicon Valley commentators who had concerns about the potential impact of FTC action on innovation in the Silicon Valley.

I think the article raises some interesting points, but I wonder if the concerns about the impact of this one case aren't a little exaggerated. It is hard to accept that any one suit could have such a detrimental impact on Silicon Valley innovation. After all, we have a tremendous amount of talent in the high tech industry here, and no single case can just turn that talent off.

On the other hand, certainly, everyone in the Valley will be watching to see whether or not the FTC prevails and what the consequences are for Intel, in order to gauge what this one action means for how Silicon Valley companies can operate in the future. Obviously, there were likely patents on all this technology, which would give Intel as the patent owner the right to license out its technology. The question will be how the two bodies of law intersect here: patent, which gives monopolies, and antitrust, which tries to prevent monopolies.

As for Intel itself, this case adds one more antitrust suit to its plate, in addition to the antitrust legal troubles it already had in Europe, Korea, and in New York State, by its attorney general. I am sure this is not what Intel needed in a bad economy which has hit both the Silicon Valley and the technology industry in general hard.

We will keep you posted at the Silicon Valley IP Licensing Law Blog on the developments in this case as they arise.