24 March 1999
[Federal Register: March 24, 1999 (Volume 64, Number 56)]
[Notices]
[Page 14246-14249]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24mr99-70]
=======================================================================
-----------------------------------------------------------------------
FEDERAL TRADE COMMISSION
[Docket No. 9288]
Intel Corporation; Analysis to Aid Public Comment
AGENCY: Federal Trade Commission.
ACTION: Proposed consent agreement.
-----------------------------------------------------------------------
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:
<bullet> ``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.
<bullet> ``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.
<bullet> 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.
<bullet> 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.
<bullet> 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.
<bullet> 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.
<bullet> 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.
<bullet> 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