By Peter Whoriskey
Washington Post Staff Writer
Saturday, June 7, 2008
The Federal Trade Commission has opened a formal probe into whether Intel, the world's largest chipmaker, has used its dominance to illegally stifle its few competitors.
The move follows years of complaints from smaller chip rival Advanced Micro Devices, and more recently, related investigations by Japan, South Korea and the European Union.
The outcome of the U.S. case will be closely watched because the chips are a fundamental building block of the computer industry, and Intel has long dominated the field for personal computers.
At the center of the investigations in Asia and Europe is the allegation, also likely to arise in the U.S. probe, that Intel has offered discounts and other payments to computer makers who boycott or limit their purchase of AMD processors.
"It's illegal for a monopoly to keep its customers from doing business with its competitors, and that's what the issue here is," Tom McCoy, Advanced Micro Devices executive vice president and chief administrative officer, said in an interview.
The two companies account for almost all personal computer-processor sales, though Intel is many times larger, holding 80 percent of the microprocessor market.
Intel issued a statement yesterday saying "its business practices are well within U.S. law," and that it is cooperating with the probe.
The Silicon Valley company also said it had already turned over to the FTC a "considerable amount of information and thousands of documents." In a sign that suggests the chip market remains competitive, Intel said, prices for microprocessors declined by 42.4 percent between 2000 and 2007.
"The evidence that this industry is fiercely competitive and working is compelling," Intel said in the statement.
The FTC has been reviewing Intel's business practices off and on for years, and the move to open a formal investigation follows a political shift in the commission's leadership. Deborah Platt Majoras stepped down as FTC chairman in March and was replaced by William E. Kovacic, who has served in several capacities in his long career at the FTC.
Some observers said the investigation marks a divergence from the Bush administration's general reluctance to weigh in on antitrust matters.
"You have a new chairman who is widely respected," said Ed Black, president of the Computer and Communications Industry Association, a group that pushes for open markets in technology. "This was sitting on the backburner. I think he looked at it and it would have been very hard not to open an investigation."
David Balto, who was the FTC policy director from 1997 to 2001, said the Intel matter was reviewed during that time.
"We didn't sue, but we should have," he said.
He said that the Microsoft antitrust case broadened the definition of illegal anti-competitive behavior.
"AMD has accumulated very credible evidence that but for Intel's practices we would have seen more price competition and greater innovation," he said. "They harm consumers by denying them products that are more efficient and less costly."
The commission did open an informal inquiry into Intel in 2006, but in a signal that a formal investigation is underway, the FTC on Wednesday issued subpoenas in the case.
The issuance of subpoenas requires approval by a majority of the commission.
In 2007, the European Commission, which oversees antitrust issues for the European Union, accused Intel of unfairly squelching competition. A judgment is pending.
In January, New York Attorney General Andrew M. Cuomo issued subpoenas in an investigation into whether Intel coerced "customers to exclude its main rival, Advanced Micro Devices, from the worldwide market for x86 computer processing units."
This week, South Korean regulators fined Intel $25 million for offering rebates to prevent customers from buying AMD chips.
McCoy said that while these cases are important to his company, they are also critical to the computer industry as a whole, with many companies facing economic threats if they consider purchasing chips that are not Intel's.
The industry "wants the ability to transact business without risking retaliation," he said.