Antitrust Lawyer Blog Commentary on Current Developments

FTC Settles with Intel

On August 4, 2010, the Federal Trade Commission (“FTC”) entered into a settlement agreement with Intel Corp. resolving its administrative lawsuit alleging that Intel had abused its monopoly position in microprocessor chips to harm competition.

The FTC filed suit against Intel on December 16, 2009, under Section 5 of the FTC Act, for alleged unfair trade practices in the microprocessor market. While the FTC complaint contains multiple references to Intel’s monopoly power and the effects of its conduct on competition, the complaint was not brought under the Sherman or Clayton Acts. The filing of the case is noteworthy because Section 5 is broader than the Sherman and Clayton Acts and prohibits “unfair methods of competition” and “unfair or deceptive acts or practices.” 15 U.S.C. § 45.

Congress left this language intentionally vague to give the FTC the leeway to address new and creative attempts to circumvent existing antitrust law, and the courts have consistently held that the Commissioners may use Section 5 to combat conduct that could fall outside the scope of the Sherman or Clayton Acts. Section 5 was designed to supplement the traditional antitrust laws enforced by the Antitrust Division of the Department of Justice, giving the Commission broader authority while limiting the remedies available to it.

In practice, the FTC has traditionally used Section 5 to prosecute behavior that fell within either the letter or the spirit of the Sherman Act. In the Intel complaint, however, the FTC alleged a stand-alone claim for unfair methods of competition under section 5, which for the first time indicates that the FTC believes its enforcement authority under section 5 is entirely independent of the limits of the Sherman and Clayton Acts.

The FTC complaint alleged that Intel entered into anticompetitive vertical agreements with computer manufacturers, offered selective discounts, redesigned its compilers and libraries specifically to reduce their performance with competing central processing units (“CPUs”), and took other action designed to make it more difficult for competitors to enter the market either for CPUs or for graphics processing units (“GPUs”). The FTC also alleged that Intel went as far as punishing its own customers for using its rival’s products.

The FTC claims that the lawsuit and settlement resulting from it goes beyond the terms applied to Intel in previous actions against Intel and will help restore competition that was lost as a result of Intel’s alleged past anticompetitive tactics. The settlement applies to CPUs, GPUs and chipsets and prohibits Intel from using threats, bundled prices, or other offers to exclude or hamper competition or otherwise unreasonably inhibit the sale of competitive CPUs or GPUs. The settlement also prohibits Intel from deceiving computer manufacturers about the performance of non-Intel CPUs or GPUs. Under the settlement, Intel will be prohibited from: conditioning benefits to computer makers in exchange for their promise to buy chips from Intel exclusively or to refuse to buy chips from others; and retaliating against computer makers if they do business with non-Intel suppliers by withholding benefits from them. The settlement prohibits Intel from using certain rewards and threats to induce computer makers to buy only Intel chips or to refuse to buy chips from others. It cannot alter its chip design with the intent of hampering competitors. In addition, Intel must alter license agreements that it has with other manufacturers. The settlement imposes no cash penalties on Intel but requires the company to pay a small amount ($2 million) for experts to monitor Intel’s compliance during the settlement’s ten-year duration.

As Commissioner J. Thomas Rosch made clear in his published statement on the Intel case, the FTC’s renewed interest in Section 5 in Intel is in part a reaction to recent decisions by the federal courts that the Commissioners see as “‘shrinking’ the ambit of the Sherman Act both procedurally and substantively.”

The lawsuit and the settlement agreement are important because the move to using Section 5 signals that the FTC is becoming more enforcement oriented and is willing to extend beyond the antitrust laws despite the past twenty years or so of court precedent which has narrowed private antitrust enforcement. The Commissioners’ Statement provided along with the complaint explicitly states that in light of these recent developments, it is more important than ever that the Commission actively consider whether it may be appropriate to exercise its full Congressional authority under Section 5. This means that cases like Intel, which might have previously been litigated under the Sherman Act, are more likely to be enforced by the FTC under a broader unfair competition law. The Intel case thus sends a message that the FTC will take action against the use of intellectual property rights to limit competition, even if the conduct does not violate the Sherman Act. Accordingly, the new willingness of the FTC to bring cases under Section 5 means that antitrust advice based solely on the Sherman Act are no longer sufficient. As the Intel case demonstrates, the FTC’s expansive view of Section 5 requires companies with significant market shares to review their loyalty discount programs, bundled products programs, and product designs.

Andre Barlow

(202) 589-1834
abarlow@dbmlawgroup.com