Keeping competition, and Intel's prices, in check

Sunday, December 27, 2009

IT IS too early to tell whether the Federal Trade Commission's complaint against Intel is justified. But certainly the agency's actions are aggressive and potentially worrisome.

The FTC alleges that Intel, the leading computer chipmaker, essentially bribed and intimidated customers and sabotaged competitors to maintain its dominance in the market for computer microchips. The agency's timing is curious, given that European regulators and private parties have already raised or settled such claims. The agency goes beyond allegations made by others by arguing that Intel used similar tactics to gain and keep a stronghold on the market for graphics chips.

Traditionally, the FTC has targeted companies that allegedly have violated the Sherman Act and other antitrust laws. The commission argues, however, that it must be more creative in going after miscreants. "Concern over class actions, treble damages awards, and costly jury trials have caused many courts in recent decades to limit the reach of antitrust," Chairman Jon Leibowitz said in a statement accompanying the Intel lawsuit. "The result has been that some conduct harmful to consumers may be given a 'free pass' under antitrust jurisprudence."

Section 5 of the Federal Trade Commission Act does give the agency the power to go after behavior that does not violate antitrust laws, and the Supreme Court has recognized that authority. But the few courts that have weighed in on the FTC's specific uses of Section 5 have rebuffed the agency's efforts as excessive. Now the agency is again looking to toughen and broaden its reach. Herein lies the possible danger.

It is unclear how far the FTC intends to go this time and whether it will target corporate behavior that until now has been considered within bounds. If it prevails, the FTC's proposed remedies for Intel's alleged abuses are disconcertingly intrusive, including controlling what Intel may charge for its chips and dictating the kinds of deals and discounts it may offer to large customers. Such actions could perversely result in higher prices.

In a speech last year about the use of Section 5, Mr. Leibowitz rightly noted that the FTC should not become a "national nanny" that interferes in all market disputes. "Our powers to restrict unfair methods of competition . . . should only extend to those anticompetitive schemes or practices that harm consumers," he said.

The chip market is highly concentrated, and Intel has long been the dominant force. Yet year after year, consumers have benefited from more powerful and cheaper computers. The FTC is right to keep a close eye on the industry and on Intel, in particular, but it must use its power wisely and with restraint.

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