Legal News

FTC Sues Intel, But Has the Horse Already Escaped from the Barn?

By Ashby Jones

We hope Intel is paying its new general counsel, Doug Melamed, a bazillion dollars. Because anything less would be too little for the task he has in front of him.

The FTC on Wednesday sued the chipmaker, accusing the company of illegally using its dominant market position for a decade to stifle competition and strengthen its monopoly. The FTC alleges that Intel has waged a campaign to shut out rivals’ competing microchips by cutting off their access to the marketplace. Click here for the WSJ story; here for the NYT story. Click here, as well, for the FTC’s statement; here for the FTC’s administrative complaint.

The FTC’s move follows close on the heels of a similar move last month made by NY Attorney General Andrew Cuomo. Intel also last month agreed to pay rival Advanced Micro Devices $1.25 billion to settle similar claims. Intel meanwhile is appealing a $1.45 billion fine imposed by antitrust authorities in Europe.

Intel called the FTC case “misguided . . . [and] based largely on claims that the FTC added at the last minute and has not investigated.”

The FTC’s complaint charges that Intel used threats and rewards aimed at the world’s largest computer manufacturers, including Dell, Hewlett-Packard, and IBM, to coerce them not to buy rival computer central-processing-unit chips. Intel also used this practice, known as exclusive or restrictive dealing, to prevent computer makers from marketing any machines with non-Intel computer chips.

John Briggs, an antitrust lawyer at Axinn Veltrop & Harkrider in D.C., says he’s both surprised that the FTC didn’t sue sooner and that, given how late the commission is to the party, that it bothered to sue at all.

“They FTC is really locking up the barn door several years after the horse has escaped,” he said to the LB. “It’s really late, late, late to the party. Where have they been all these years?”

Partly as a result of the FTC’s strange timing, however, it might be in a position to reach a quick resolution. It has set a trial date for 9 months from now and will be prepared to issue a ruling in twenty months. “It’s prepared to move with an unusual amount of dispatch,” says Briggs, adding that the FTC can piggyback off of findings made in both the EU and AMD litigations.

Finally, all you antitrust junkies might take note of the fact that the FTC is suing under both Section 5 of the FTC Act and Section 2 of the Sherman Antitrust Act. Section 5 of the FTC Act, as it prohibits unfair or deceptive practices, is broader than Section 2, which prohibits single-party monopolistic behavior.

So why tack on the Section 2 claims? It’s a question asked in this statement issued this morning by FTC commissioner Thomas Rosch.

Prosecutors often just throw everything they can at a defendant in the hope that something sticks. But here, as Rosch points out, the decision to add Section 2 claims could potentially bring the FTC an unwanted result.

Here’s why: Any result stemming from a section 5 case will not have effect on other cases filed under Section 2, whereas any result stemming from a Section 2 act could have an impact on other Section 2 cases filed by private plaintiffs.

In other words, if the FTC were to win on Section 2 claims, other plaintiffs could piggyback off of that win, i.e., use it to bolster their own cases. At the same time, a loss on Section 2 claims could give Intel a lot of momentum in those cases, something that the FTC wouldn’t want, either.

Writes Rosch:

[T]he collateral consequences of including any Section 2 claims are very unfavorable for both Intel and the Commission. Intel currently faces the treble damage suits filed by the New York Attorney General under Section 2 in the United States District Court in Delaware in addition to a number of Section 2 treble damage class actions that have been filed there. The Commission should not enable those plaintiffs to free ride off of the Commission's work. Nor should it put itself in a position where an unfavorable outcome in those cases may be cited against it. Neither of those consequences can occur if the Commission proceeds solely under Section 5: the Delaware treble damage actions cannot proceed under Section 5 because only the Commission has the power to enforce Section 5. Indeed, it can be argued that where, as here, private litigation is pending under Section 2, as a matter of policy the Commission should not spend public resources on a duplicate claim.

Full post as published by Law Blog - WSJ.com on December 16, 2009 (boomark / email).