By Cecilia Kang and Steven Mufson
Washington Post Staff Writers
Thursday, December 17, 2009; A01
The Obama administration sued chip giant Intel on Wednesday over a decade-long run of actions allegedly designed to stifle competition, opening a new front in the battle that big technology firms have been waging for years against antitrust challenges in Asia and Europe.
The Federal Trade Commission lawsuit resembles past cases brought against Intel by Japanese, Korean and European Union regulators over rival Advanced Micro Devices, and it adds new allegations that Intel rigged its microprocessors in a way that made it difficult for a competitor, Nvidia, to provide consumers with superior graphics abilities for computer games and video.
Intel denied the allegations, saying that it "competed fairly and lawfully" and that "its actions have benefited consumers."
The lawsuit marks a major step for President Obama toward fulfilling his 2008 presidential campaign promise to "reinvigorate antitrust enforcement." At the time, he criticized the Bush administration for "what may be the weakest record of antitrust enforcement of any administration in the last half century."
Other key antitrust tests lie ahead. The power of Google, Comcast's proposed takeover of NBC, and the market share of the makers of mobile phone handsets are all under examination by the Justice Department, the Federal Communications Commission or the FTC.
The technology industry, which has also been wooed by Obama, has been striving to resolve a string of antitrust actions in the United States and abroad. On Wednesday, the European Union ended its decade-long antitrust investigation of Microsoft after Microsoft agreed to market rival browsers as well as its own Internet Explorer. On Nov. 12, Intel paid $1.25 billion to rival AMD to drop antitrust and patent lawsuits as well as complaints filed with agencies, including the FTC. Many technology analysts were also cheered by the administration's decision to let software giant Oracle acquire Sun Microsystems, despite Oracle's dominant position in business software.
But the FTC on Wednesday alleged that Intel had used bullying tactics and payments to get computer makers such as Dell and Hewlett-Packard to use Intel chips instead of those made by AMD. The FTC complaint, the culmination of a one-year investigation, said "that Intel fell behind in the race for technological superiority in a number of markets and resorted to a wide range of anticompetitive conduct, including deception and coercion, to stall competitors until it could catch up."
The agency added that "Intel's anticompetitive tactics were designed to put the brakes on superior competitive products that threatened its monopoly."
The FTC isn't seeking monetary damages from Intel. "We are frankly more focused on conduct," Richard Feinstein, director of the FTC's bureau of competition, said in a news conference. Such remedies could include forcing Intel to share intellectual property with competitors.
The case could become a key test of antitrust law. Forged during the Progressive Era a century ago, antitrust legislation was designed to tame steel and oil monopolies, and was later applied to shoe and beer makers.
But under the influence of University of Chicago economists and others, courts began to worry about the harm antitrust enforcement actions could do to innovation and ultimately to the consumers they were supposed to protect. Over the past 15 years, federal courts have made it harder to show abuse of monopoly power and to win suits for treble damages. Judges taking a more skeptical view of antitrust actions have ranged from federal appeals court judges Richard A. Posner and Frank H. Easterbrook to Supreme Court Justice Stephen G. Breyer.
Applying antitrust to the tech sector has been particularly thorny because of falling prices, constant innovation and technology that often changes faster than it takes to litigate an antitrust case. Yet rarely have so few companies stayed so dominant in their fields as Microsoft, Intel, Oracle and now Google.
"Concern over class actions, treble damages awards, and costly jury trials have caused many courts in recent decades to limit the reach of antitrust," FTC Chairman Jon Leibowitz and commissioner J. Thomas Rosch said in a statement. "The result has been that some conduct harmful to consumers may be given a 'free pass.' "
The Intel lawsuit relies on the rarely used Section 5 of the law that established the FTC in 1914. Antitrust lawyers saw this as an effort to speed up the litigation and sidestep obstacles federal courts have erected in recent years.
Unlike lawsuits filed by the Justice Department's antitrust division, which are tried by juries, the FTC suit goes to an administrative judge and cannot be used by private plaintiffs seeking treble damages. The FTC said it expects the Intel trial to start in nine months and conclude within 20 months.
Three years ago, Leibowitz, then an FTC board member, argued for resurrecting the use of Section 5. At the time, Joe Sims, an antitrust lawyer at Jones Day, wrote that reviving the use of Section 5 "would benefit no one other than antitrust lawyers." He said it "would signal the potential for a retreat to the antitrust of the past or, perhaps, the rather less bounded 'competition' policy that is applied by many non-U.S. regulators less constrained by statutes and case law (and sometimes common sense)."
But on Wednesday, Leibowitz reasserted that Section 5's "broad reach is beyond dispute."
The case is also important to Intel, whose stock fell 42 cents, or 2.1 percent, to close at $19.38 a share on Wednesday.
The FTC case "shows that the strategy being followed by Intel applies not only to AMD but to Nvidia," said Albert A. Foer, president of the American Antitrust Institute. "A small competitor in a highly concentrated market comes up with a new technology that looks better than Intel's, so Intel comes up with strategies using primarily pricing, including loyalty discounts, but also deception to hurt the competitor as much as possible and at least delay it from having success with its new technology until Intel can catch up."
He said the FTC could force Intel to license its processors to anyone willing to pay for it. "That would be a bombshell remedy that could open up the global market in computers," Foer said.
Intel said "the highly competitive microprocessor industry . . . has kept innovation robust and prices declining at a faster rate than any other industry." Intel General Counsel Doug Melamed said in a statement that "this case could have, and should have, been settled." He said the FTC insisted on "unprecedented remedies" that "would make it impossible for Intel to conduct business."