When the second half of what has been called the Wintel duopoly was served its antitrust suit papers this week, there was a knee-jerk tendency to lump the two cases together into one file, titled "Uncle Sam v. alleged Rockefeller-esque Companies."
But the Federal Trade Commission's action against Intel Corp. (INTC) is set on a smaller stage than the extravaganza being carried on between the Justice Department and Microsoft Corporation (MSFT). By the sounds of things at this preliminary phase, in fact, there's likely to be no public soap opera, but instead, perhaps, a settlement.
"This complaint is extraordinarily limited. It says to Intel: 'Don't retaliate against your licensees.' So, if Intel loses, it really changes nothing," said Ian Feinberg, an attorney at Gray Cary Ware Freidenrich who represents clients in cases brought by the FTC.
"It makes sense for them to settle," said Feinberg. "They just look like bullies, even more than Microsoft, because they are [accused of] retaliating against people who assert rights against them."
The FTC suit alleges that Intel withheld key technical information from Digital Equipment Corp. (DEC), Intergraph Corp. (INGR), and Compaq Computer Corp. (CPQ), which have been dependent on Intel technology for their products. The commission says that Intel also tried to strong-arm the computer-makers into sharing valuable patents that could otherwise have led to the development of competing microprocessors.
"As a monopolist, Intel can compete by producing better, cheaper, and more attractive products," said William J. Baer, director of the FTC's Bureau of Competition, in a statement. "It cannot act to cement its monopoly power by preventing other firms from challenging its dominance. Intel has acted illegally. It has used its monopoly power to impede innovation and stifle competition."
Intel says it will fight the suit.
"We intend to fully work [with] the administrative process and avail ourselves of every opportunity to convince the administrative law judge of our position," said Intel spokesman Chuck Malloy. He cast the charges as some newfangled legal theory the FTC cooked up that don't follow the norms of antitrust law.
Intel's position, from a company press release, is that, "Although the key legal requirement of an antitrust claim is harm to competition, the FTC is unable to show harm to competition in any market. Under the FTC's theory, a company with high market-segment share like Intel cannot use its intellectual-property rights even against a company that threatens its core business and even when there is no harm to competition."
Regardless of whether the FTC has a solid legal basis for an antitrust case, lawyers and analysts expect this suit will remain narrower than the Justice Department's full-on investigation of Microsoft. And, they say, Intel will probably settle out of court.
"It's a very different case right now [from Microsoft]," said Gary Reback, an attorney at the Silicon Valley law firm Wilson Sonsini Goodrich & Rosati, who made a name for himself representing Microsoft competitors. "No one is suggesting that Intel could control media or bias consumer preferences to Slate as opposed to Wired News [as Microsoft could]. The scope of the damage [Intel] can do to the economy is more limited, [and] it is not clear that the FTC will take the next step" of broadening its charges.
Perhaps it comes down to a difference in genres. As a software company, Microsoft allegedly has a better opportunity to move quickly into different product arenas.
"It's a difference of night and day in terms of the businesses [in which] they compete -- hardware and software," said Rick Vellante, an analyst at International Data Corp. "Intel can only move so fast. It has to make huge capital expenditures. "Copying hardware is a lot easier than copying software -- AMD and Cyrix are still viable whereas, in the case of Microsoft, you don't see any scenario where a PC spreadsheet company could come back and take 10 to 15 percent of the market share," he said.
Still, a source working on the states' case against Microsoft said that the states are closely following the FTC action against Intel.
And for now, the Intel litigation is on a slow track. Reback said that the only reason the Microsoft case is moving along is because the Justice Department filed for an injunction. That case took on a sense of urgency when the Justice Department demanded that Microsoft be fined US$1 million a day for violating its 1995 consent decree and asked that Microsoft be kept from packaging its browser with its operating system.
Experts say that the FTC's typically dragged-out antitrust process can be so frustratingly slow as to urge the most stubborn companies into reconsideration. The litigation is handled internally, through hearings before an administrative law judge. The defendant can appeal the decision, but the appeal is made to the FTC, which, technically speaking, is the same body that brought the charges in the first place.
"The FTC is both prosecutor and judge at the same time," said Joe Sims, a Washington, DC-based antitrust lawyer. "It's got more of the flypaper aspect to it. Once you get in it's harder to get out."
And although Microsoft shows no signs of backing down from its stance with the Justice Department, Intel has a reputation -- both in Washington and in general business practices -- for taking a low-profile approach.
"Whereas Microsoft will take a refuse-to-lose posture, Intel's situation is much more sensitive to the court of public opinion," said IDC's Vellante, emphasizing that Microsoft has a much stronger hold on the software market than Intel does in chips. "They will make concessions if they have to. A long, drawn-out case with the government will do much more damage to Intel's business. Microsoft has a monopoly, it is secure. The question is, will they get another monopoly. The question for Intel is how will it hold onto its existing monopoly."
Indeed, as of late the microprocessing giant has had a hard time maintaining its mammoth marketshare. Plummeting PC prices and cheaper chips from rivals Advanced Micro Devices and Cyrix Corp. are hurting Intel's profit margins. Intel's new low-end Celeron chip has yet to be proven. And the company has been forced to make price cuts more often than usual. In April, Intel reported a 36 percent drop in quarterly earnings and plans to cut 3,000 jobs -- its biggest layoff in more than a decade. The last thing the company may need is more bad press.
Then again, hardship could work in Intel's favor.
"It's a bit of an awkward time to be asserting that they are the omnipotent force in the microprocessor sector," said William Kovacic, a professor of antitrust law at George Mason University, who worked in the FTC's Bureau of Competition.
