In the Matter of Intel Corporation, FTC Docket No. 9341, File No. 061 0247 (filed Dec. 16, 2009).
On December 16, 2009, the Federal Trade Commission sued Intel Corp., the world’s leading computer chip maker, charging that the company has illegally used its dominant market position for a decade to stifle competition and strengthen its monopoly. In its complaint, the FTC alleges that Intel has waged a systematic campaign to shut out rivals' competing microchips by cutting off their access to the marketplace. In the process, Intel deprived consumers of choice and innovation in the microchips that comprise the computers' central processing unit (CPU).
According to the complaint, Intel’s anticompetitive tactics were designed to stop superior competitive products that threatened its monopoly in the CPU chip market. Over the last decade, this strategy has succeeded in maintaining the Intel monopoly at the expense of consumers, who have been denied access to potentially superior, non-Intel CPU chips and lower prices.
The FTC’s complaint charges that Intel carried out its anticompetitive 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 manufacturers from marketing any machines with non-Intel computer chips.
The complaint further alleged that 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 competitors’ CPUs, but the company deceived them by failing to disclose that these differences were due largely or entirely to Intel’s compiler design.
Having succeeded in slowing adoption of competing CPU chips over the past decade until it could catch up to competitors like Advanced Micro Devices, Intel allegedly once again finds itself falling behind the competition – this time in the critical market for graphics processing units, commonly known as GPUs, as well as some other related markets. These products have lessened the need for CPUs, and therefore pose a threat to Intel’s monopoly power.
Intel responded to this competitive challenge by embarking on a similar anticompetitive strategy, which aims to preserve its CPU monopoly by smothering potential competition from GPU chips such as those made by Nvidia. As part of this latest campaign, Intel misled and deceived potential competitors in order to protect its monopoly. The complaint 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 complaint, Intel’s anticompetitive 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. Critically, unlike an antitrust violation, a violation of Section 5 cannot be used to establish liability for plaintiffs to seek triple damages in private litigation against the same defendant. 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.
To remedy the damage alleged in the complaint, the FTC seeks an order which includes provisions that would prevent Intel from using threats, bundled prices, or other offers to encourage exclusive deals, hamper competition, or unfairly manipulate the prices of its CPU or GPU chips. The FTC also may seek an order prohibiting Intel from unreasonably excluding or inhibiting the sale of competitive CPUs or GPUs, and prohibiting Intel from making or distributing products that impair the performance — or apparent performance — of non-Intel CPUs or GPUs.
In June 2010, the FTC announced a settlement with Intel that aims to prevent the recurrence of Intel’s exclusionary and deceptive conduct without stifling its ability to innovate and compete fairly. Notably, the proposed settlement does not seek to strip Intel of its chip monopoly; rather, it provides relief designed to restore the competition lost as a result of Intel’s past conduct, such as requiring Intel to maintain an open interface on certain CPU platforms for six years. Coupled with provisions that prevent Intel from engaging in similar conduct in the future, these requirements open the door to fair and vigorous competition in chip markets in the coming years.