Many in the computer industry never thought they'd see the day. This week, microprocessor giant Intel was summoned by the US Federal Trade Commission to face charges that it suppressed competition in the computer chip market it dominates. That means that both planks of the powerful "Wintel", or Microsoft Windows/Intel partnership, are in the dock, facing antitrust lawsuits in the United States.
The two are undeniably the big boys - and many claim the bully boys - of the tech industry. With the decline of Apple (which uses non-Intel chips), and threats (by Windows NT) to high-end operating systems like Unix, the world is finding it increasingly difficult to avoid Microsoft and Intel products. Microsoft is estimated to run 90 per cent of computer desktops, while Intel chips provide the brains for 80 per cent of the hardware.
Intel, like Microsoft, is well known for playing hardball with customers and competitors. Intel co-founder Mr Andy Grove's famous motto, "only the paranoid survive", has served the company well through phenomenal growth. The corporate legal team is known as one of the most aggressive in the industry.
No one - particularly not the two companies themselves - is arguing that they aren't the dominant players, even monopolists, in their fields. What the FTC is intent on proving is that dominance has metamorphosed into a crushing monopoly that Microsoft and Intel can rein in the competition by placing illegal pressure on rivals, and in Microsoft's case, by leveraging dominance in one sector (say, computer operating systems) into dominance in another (Internet browsers).
Unlike the Microsoft lawsuit, the FTC's case against Intel is quite narrow and specific. It claims that Intel withheld crucial technical information, and sometimes microprocessor supplies, from computer builders Compaq, Digital and Intergraph.
Through such "advanced proprietary information", Intel customers receive details of upcoming technical innovations to Intel chips. They can then design the computers which will take advantage of the chips, and be ready to market with product as the chips are released. In the fast-changing computer world, advanced information is essential for computer-makers to survive. The FTC asserted that withholding such information was "the equivalent of withholding an automobile how-to manual".
All three companies filed lawsuits against Intel between 1994 to 1997, when the FTC lawsuit claims Intel's allegedly repressive tactics were used. Digital and Compaq, which are to merge pending FTC approval, settled with Intel. The Intergraph case is still live Intel filed an appeal to a preliminary injunction on Tuesday. But as far as the FTC is concerned, those settlements do not neutralise any wrongdoing.
The FTC case alleges that Intel withheld advanced technical information in order to force the three customers into handing over licences to their own patented technologies. Such "intellectual property" of the companies could be used to compete against Intel, said Mr William Baer, the director of the FTC's Bureau of Competition. "Intel can compete by producing better, cheaper and more attractive products," he said in a statement. "It cannot act to cement its monopoly power by preventing other firms from challenging its dominance. Intel has acted illegally."
But the case isn't quite that straightforward. Companies which partner to produce products routinely have reciprocal licensing agreements, in which they agree to divulge their patented technologies to each other. Intel Ireland spokesman, Mr Liam Cahill, pointed out this week that this is a standard way of doing business in the technology industry. In addition, few would claim that any of the three companies is a serious Intel rival. Only Digital, for example, has a competing chip in the market. A key element of US antitrust law is that harm to competition must be proved.
The FTC's carefully-structured charges, which run to nine pages, seem set to argue a new precedent that doing business with a company which has a monopoly must be viewed differently from trading with a routine partner. Analysts argue that the upside-down economics of the technology industry, where innovation is often spectacularly rapid and spectacularly rewarded, particularly might require such a new interpretation. Yet a decision against Intel would, realistically, barely dent the behemoth. The FTC is only seeking a ban on such allegedly restrictive practices. Products and the structure of the company would remain unchanged. Intel took a blustering stance in opposition to the case this week, but it must be far more worried by wobbles in the chip market, flat profits, and the rumour of the FTC's intention to launch a much wider antitrust case against it in coming months.
A decision must be reached in the case in three to 12 months, but it's likely to be appealed if the FTC wants a precedent through the appropriate judicial layers, perhaps to the Supreme Court. If you're looking for the real antitrust fireworks, stick to watching the Microsoft case.
Karlin Lillington is at klillington@irish- times.ie
