Online NewsHour: Intel vs. FTC -- June 8, 1998

DUE PROCESSOR

June 8, 1998

The NewsHour with Jim Lehrer Transcript

The Federal Trade Commission voted today three-to-one to file a complaint against the microprocessor giant Intel. They accused the corporation of abusing its monopoly and retaliating against rival companies. Following a background report on the case, the director of the FTC's Bureau of Competition and a former attorney for Intel discuss the case in separate interviews.

A RealAudio version of this segment is available.
NEWSHOUR LINKS:
June 8, 1998:
A former Intel attorney defends the companies practices.
May 18, 1998:
A report on the Microsoft antitrust case.
March 3, 1998:
Leaders of the computer industry testified against Microsoft.
January 14, 1998:
The search for a faster microprocessor.
January 13, 1998:
Microsoft's antitrust battle with the Department of Justice.
October 21, 1997:
The Justice Department charges Microsoft with building an illegal monopoly.
Browse the NewsHour's coverage of cyberspace and business.
OUTSIDE LINKS:
Intel
U.S. Federal Trade Commission

JIM LEHRER: The Federal Trade Commission's antitrust lawsuit against Intel. Spencer Michels begins our report.
SPENCER MICHELS: The suit against Intel accuses the chipmaker of bullying computer manufacturers by denying those companies essential product data needed to design the new machines.
The chip that built the world.

Intel is the world's largest maker of microprocessors, the chips that run computers. Gordon Moore—shown here at Intel headquarters in Santa Clara, California, founded Intel, along with Robert Noyce, in 1968.
In 1971, Intel received its first big break when IBM chose to use Intel's microprocessors in its personal computers. Today, Intel's chips—like the Pentium II—powered nearly 90 percent of the world's personal computers. Over the past five years, Intel's sales have risen 34 percent annually to $25 billion last year.
Intel's legal and business problems.
But Intel's dominance has provoked several recent legal challenges. In a civil suit filed last November, Intergraph Corporation of Huntsville, Alabama, makers of high-end computer work stations accused Intel of withholding information about its Pentium II processor after a dispute over patent rights. Last month Intergraph won a preliminary injunction requiring Intel to continue supplying it with access to advanced product information. Intel was also sued by Digital Equipment Corporation in May of 1997. It accused Intel of infringing on Digital patents in the design of some of its Pentium chips. Intel then reportedly threatened to stop supplying its chips to Digital. A settlement was reached in this case last year, which included the sale of Digital's semiconductor manufacturing plant.
This year, Intel has also faced other challenges. A drop in demand for personal computers, the Asian economic crisis--which decreased overseas sales, and increased competition from other chip manufacturers like Advanced Micro Devices and Cyrix, which has lowered the price of chips.
Intel's stock has been hovering well below its 1998 high of $94 and fell even further today. The suit against Intel is the government's second recent antitrust suit filed against a computer industry giant, following actions against Microsoft last month.
JIM LEHRER: Phil Ponce has more.
PHIL PONCE: Late this afternoon Intel put out a statement saying the FTC's decision was a "mistaken interpretation of the law and the facts." Joining us first to lay out the case against Intel is William Baer, Director of the Bureau of Competition at the Federal Trade Commission. Mr. Baer, welcome.
WILLIAM BAER, Federal Trade Commission: Thank you, Phil.
What did Intel do wrong?

PHIL PONCE: What exactly was Intel doing wrong?
WILLIAM BAER: Intel today -- if I could show you a little prop here -- is the dominant -- the monopolist supplier of the microprocessor used in computers throughout the world. This is a Pentium II chip, one of their high end chips. They have almost --
PHIL PONCE: But the whole thing is not the chip, just the --
WILLIAM BAER: This is the motherboard in which --
PHIL PONCE: In which the chip sits. Because Intel is a monopolist it has power over its customers that no other competitor has. What it has done on three different occasions is gone to customers, who are developing different ideas, ideas that potentially would compete with Intel and said, if you want to continue to get the information you need to use our product, if you potentially want to continue to get our product at all, you've got to surrender up those ideas, license them to us. They've gone outside the judicial system, using their monopoly power as a club to get an advantage in the marketplace. That discourages these firms and other firms from potentially innovating with -- against Intel if they know eventually their invention is going to have to be surrendered up to the dominant firm.
PHIL PONCE: So the harm that was being done then to these -- to these three companies was what?
WILLIAM BAER: The harm is -- first of all, the harm done to companies is to punish them as customers for trying to compete. The harm done to the marketplace is a signal it sends that if you try to compete with Intel, you'll be punished. That means less innovation, less competition. It's competition which has gotten Intel to where it is today. Less competition means fewer good ideas, less pricing competition, and generally a bad situation for consumers on a going-forward basis.
PHIL PONCE: Late this afternoon Intel issued a statement saying that the FTC cannot show any harm to competition in any market, so your response to that is…
WILLIAM BAER: Our response is first Intel says they really didn't even try to harm these three firms. All they did was put a speed bump in their way. But the high-tech industry is a very fast race track and if there's one firm that can go out there and strategically lay speed bumps in the path of anybody trying to compete, they're going to harm those companies, but also they're going to harm competition on a going-forward basis. People need to know that if they're going to invest in the R&D needed to compete with a company like Intel, but they potentially can reap rewards of that investment.
PHIL PONCE: The research and development.
WILLIAM BAER: That's right. If they know at the end of the day that they're going to have to license up that technology to Intel, they may not even start the race. And that means Intel, which got to its current position, because it had a better product, will be able to stay there, not because it has a better product, but because it was unfairly able to exclude potential rivals.
"What Intel has is a weapon nobody else has. It has the weapon of monopoly power."

PHIL PONCE: Isn't it common practice and is it not acceptable for companies to exchange information? As part of the flow of business, you give me this information, I'll give you that, you don't give me that information, I won't give you this?
WILLIAM BAER: Cross-licensing happens all the time. And patent disputes happen all the time. But there's a judicial forum, a judicial process where patent disputes can and should be resolved. What Intel has is a weapon nobody else has. It has the weapon of monopoly power. And it can say to somebody who dares to compete, dares to assert its intellectual property rights, I'm going to disadvantage you in the marketplace as a customer, you won't get the technical information you need to make my chip work properly, you may not even get that chip at all. And, furthermore, I'm going to go tell all your customers that you're somebody who can't be counted on as a reliable computer maker, because you may not be in a favored situation with Intel anymore. That's abuse of their monopoly position.
PHIL PONCE: So you're not saying that having a monopoly position is in itself illegal, in this case Intel controls 80 or 90 percent of the market. It's how that company uses its dominant position. Is that what you're saying?
WILLIAM BAER: That's right, Phil. The law is clear that someone who gets to a large market share, because they have a better product, or there are more vigorous competitors, is a monopolist, but a monopolist the right way. What we're saying is now that Intel is there it's begun to take conduct that doesn't relate to competing fairly on the merits, but it's injuring its rivals in a way that will cement its dominant position and prevent it from having to face the sort of competition it had to fight to get to the position it's in today.
What does the FTC want?

PHIL PONCE: So what is it you want Intel to do, the FTC?
WILLIAM BAER: What the commission's order would do is basically prevent Intel from using its monopoly club in order to get intellectual property from competitors.
PHIL PONCE: By intellectual property, you mean ideas that companies have generated to do business with?
WILLIAM BAER: Patents. That's right. DEC is a good example. DEC has a chip called the alpha chip, which is a terrific product, probably better than just about anything Intel has on the market today. And what Intel did was said you can't get the information you need to make the Pentium work, Intel's product work, unless you surrender up the intellectual property rights, the patent rights, on the alpha chip.
Microsoft and Intel: "These are both two firms that have become dominant in various segments of the computer industry and in both cases the government has alleged they've abused that dominant position."

PHIL PONCE: Mr. Baer, how was this tied in with the Microsoft lawsuit? Is there a connection?
WILLIAM BAER: There's a connection only in the sense that these are both two firms that have become dominant in various segments of the computer industry and in both cases the government has alleged they've abused that dominant position.
PHIL PONCE: And there are reports that the investigation could ultimately be broader, you could bring additional charges. Is there anything you can tell us about that?
WILLIAM BAER: I'm afraid I can't to the extent that there's anything else going on. At the commission these days, it's non-public and the commission acts when the five-member commission votes as it did today to bring a complaint.
PHIL PONCE: And very last question. Some people worry that if Intel implements the kinds of things that you want, the company could conceivably be hurt, and the country could lose an innovative, influential company. How do you respond to that?
WILLIAM BAER: That's the farthest thing from anybody's mind over at the FTC. All we're saying is that there's a narrow range of conduct that potentially unfairly cements you as a monopolist. You're still free to compete vigorously in the marketplace, but you can't abuse your position to prevent other people from having a fair chance to compete with you.
PHIL PONCE: Mr. Baer, thank you for being with us.
WILLIAM BAER: Thank you.

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