William Baer wants to bring Intel to heel

The FTC is accusing the Californian company of using its monopoly power to bully its customers and competitors.

The agency's top litigator, William Baer, said Intel withheld key technical information from three leading computer makers - Digital Equipment, Intergraph and Compaq - to stifle competition and impede innovation.

William Baer: Intel abused its market power

Mr Baer said the case "the commission is bringing today seeks to prevent Intel from repeating this conduct in the future.

He alleged that Intel had forced the three companies to share valuable patents they held that could otherwise have led to the development of competing microprocessors. Mr Baer listed three separate cases where Intel "used its market to cut off these customers who had asserted their own patent rights ... that rivalled Intel's technology."

William Baer: Intel is a monopolist, but has wielded its power illegally

The FTC is now seeking an order which would ban Intel from withdrawing technical information from it customers without cause. Mr Baer said the commission would seek a court hearing against Intel in the fall.

The FTC is putting the pieces into place

Under FTC rules the hearing can not last longer than one year. The eventual ruling can be reviewed by the FTC. Once the commission has completed its review, Intel could appeal the ruling to a federal court.

In a statement released after the complaint was filed, Intel said it believed the complaint was based upon a mistaken interpretation of the law and the facts and that it would appeal to a higher court if it should lose the case.

Intel vice president and general counsel, Thomas Dunlap, said in a statement the company "... for more than 10 years ... has taken unprecedented steps to ensure that all of our activities and policies are in full compliance with existing law." He alleged the FTC wanted "to change the very laws upon which we've based our policies."

On New York's main market for technology shares, Nasdaq, Intel shares had lost just over 2%, trading down 1-11/16 at 68-1/8. However, the FTC action is not likely to lead to a major new decline in Intel shares. Wendy Abramowitz, a technology analyst with Argus Research, said the charges had been factored previously into the stock price.

Intel inside

Intel makes the microprocessors that power four out of five PCs.

The company is one of two dominant companies on the PC market - the other is Microsoft, which is already facing charges of anti-competitive behaviour.

One of the three cases the FTC is examining focuses on Intel's relationship with Infograph, a personal computer-maker that uses Intel chips in its machines.

The micro chip giant is said to have cut off vital information Intergraph needed, during a dispute between the companies.

Andrew Grove: Founder of Intel

There were similar allegations made about the way Intel acted towards computer parts maker Digital Equipment.

It was accused of threatening to stop supplying chips to Digital after the company took it to court for allegedly infringing Digital patents in the design of Pentium chips.

The dispute was settled in April, when Intel agreed to purchase Digital's microprocessor assets.

Intel meanwhile argues it had to protect its intellectual property from legal foes.

"If the disputes are contained within that relationship, they have no significant competitive impact," Richard Gilbert, an economics professor at the University of California.

"The conduct that is alleged is not unusual in a licensing arrangement. The question is whether it affects competition generally, and I have not heard anyone make a good case yet."

Monopoly claims

Intel will argue that individual transactions with its microprocessor customers have not harmed the competition and that its customers are free to buy the chips from its rivals.

Bill Gates: Microsoft is already facing an antitrust action

The firm admits it has a dominant position in the marketplace, but is likely to maintain that unlike a monopoly it does not control prices.

The FTC will try to suggest that Intel does control the market through its technology, which is a standard in the PC industry.

Intel chips and Microsoft Windows operating system software form the "Wintel" combination found in the vast majority of PCs.

SoundView Financial analyst Scott Randall said, "there is a doctrine called crucial technology.

"If you have significant control over the market and there are crucial technologies that you control, that can prevent competitors from entering."

Tough times

Ironically, the lawsuit comes at a time when Intel is going through one of its toughest times in over a decade.

The company's profit margins are under pressure from tumbling PC prices and it has been forced to cut prices more often to compete in a cut-throat PC market.

It has announced plans to cut 3,000 jobs, its biggest job cuts in over a decade.

The company forecast flat revenues for the second quarter, but analysts have been worried the company will not meet Wall Street expectations due to the sluggish PC market.