Are the antitrust regulators out hunting blue targets again?
I remember going out to Washington, D.C., to cover the Intel antitrust trial in 1999. The Federal Trade Commission had accused Intel of using the power of withholding information from its partners as a club to preclude competitors from making any headway. But the FTC and Intel settled that suit on the day the trial was supposed to start. They just shook hands, and Intel said it wouldn’t do anything nasty again. I went to a bar and watched as an Intel representative hugged an FTC person (they were happy no reporters found out about the settlement talks). Then I trudged back in the snow to my hotel and packed my bags for home.
Today, the New York Times is reporting that Intel is back under the microscope at the FTC. Citiing lawyers and government officials, the Times reported that the FTC has started sending out subpoenas to Intel, its rival Advanced Micro Devices, and computer makers that buy Intel’s chips. There’s a new chairman, William Kovacic, who apparently has reversed the decision of his predecessor Deborah Majoras, who had been blocking a formal inquiry for months. She left two months ago to be the top lawyer at Procter & Gamble.
The heat is turning up. South Korean antitrust regulators fined Intel $25 million this week for providing anticompetitive rebates to PC makers Samsung Electronics and Trigem. That’s probably about an hour’s worth of revenue for Intel. It was a complete slap on the wrist, but a likely indicator of how little evidence had been dug up by the Koreans. Japan and Europe have also been active.
Intel issued a statement confirming it received a subpoena on June 4 related to its business practices in the microprocessor market. It said that since 2006 it has been working closely with the FTC on an informal inquiry, supplying considerable data to the FTC’s staff in the form of thousands of documents. By moving to a subpoena, the FTC can now get data from other parties besides Intel.
Intel said it would cooperate, adding, “The company believes its business practices are well within U.S. law. The evidence that this industry is fiercely competitive and working is compelling. For example, prices for microprocessors declined by 42.4 percent from 2000 to end of 2007. When competitors perform and execute the market rewards them. When they falter and under-perform the market responds accordingly.”
AMD, which has a private antitrust suit against Intel due to go to trial in February 2010, also issued a statement: “Intel must now answer to the Federal Trade Commission, which is the appropriate way to determine the impact of Intel practices on U.S. consumers and technology businesses. In every country around the world where Intel’s business practices have been investigated, including the decision by South Korea this week, antitrust regulators have taken action.”
Bob Lande, a law professor at the University of Baltimore and director of the American Antitrust Institute, said he considers the Intel antitrust investigation to be critical to the information economy.
“Intel’s market is a tremendous $30 billlion market,” he said. “If they reduce AMD to irrelevance, prices will go up and innovation will stall. There is so much at stake, it’s scary. If the Microsoft antitrust case was considered World War 3, this would be World War 4.”
No one yet knows what the regulators will focus on. In cases around the world, AMD has found fault with Intel’s “first party discounts.” Lande says those are as follows. If a customer buys 1,000 chips a month at $100, then it spends $100,000 altogether.
At that price, the computer maker may buy 800 chips from Intel and 200 from AMD. But if Intel tries to get all of the business, there is very little AMD can do about it. Intel can, for instance, afford to discount its chips to $80 a chip on the condition that the vendor buys 100 percent from Intel. That winds up being a price that AMD can’t match, and the vendor winds up only spending $80,000. Japan, whose regulators sided with AMD, focused on just these sorts of discounts. Intel has said that it does not offer discounts that are considered anticompetitive.
Ed Black, president of the Computer & Communications Industry Association trade group, said that the potential damages are unclear, given the small monetary awards in international cases such as South Korea. But he said it’s up to AMD to collect more punitive damages in private litigation. He said, “The misbehavior must stop. We consider competition to be absolutely critical. It was very unusual that so much was happening around the world and the FTC wasn’t doing anything.”
I’m not ready to pack my bags for DC yet. We’re a lot of years away from another trial. It’s hard to imagine that, after decades of scrutiny, the antitrust investigators are going to score paydirt anytime soon. But if the FTC starts something, I’ll have to get a new keyboard for all the stories that’ll need writing up.