Intel lawsuit signals shift in federal antitrust policy

Wednesday’s announcement by the Federal Trade Commission (FTC) that it is suing microchip manufacturer Intel for antitrust behavior is seen in law circles as a seismic shift in how the Obama administration plans to deal with companies that threaten to dominate their particular sector.

The suit is monumental for illustrating significant differences in corporate philosophy between an FTC with Obama in the White House and what cases the regulatory commission pursued the previous eight years under President Bush, says Bill Wycoff, an antitrust attorney in Pittsburgh with Thorp Reed & Armstrong.

“To a large extent the Bush administration told [the FTC] not to come in and try to break up companies that wanted to merge or gain monopolies. There was a feeling that big business is better, and they believed there were benefits to be gained when competing worldwide in becoming bigger and more powerful,” says Mr. Wycoff. “Obama is going back to more classic antitrust theory that says the best thing for the economy is competition.”

In its complaint the FTC charges that Intel “holds monopoly power in the market” of central processing units, or CPUs, dominating up to an 85 percent share of the market since 1999. To maintain its majority foothold, the FTC says Intel deliberately redesigned the architecture of its software to sabotage the chips from rival companies and offered unfair discounts to dissuade computer manufacturers from purchasing chips from any competitor.

The FTC has gone after Intel before

This is not the first time Intel and the FTC have met in court. In 2000 Intel faced a similar suit from the FTC that charged the company illegally refused to work with computer makers in an effort to coerce them into surrendering certain intellectual property rights. That case was eventually settled before going to trial.

Montgomery Kosma, who helped represent Intel in that case, says what is different in this new case involving Intel is that computer technology is more integrated into the workplace, which makes issues being raised much more tangible among regulators, prosecutors, and the general public. For instance, when the earlier Intel case was filed in 1999, he says, Internet service had just become available in federal court.

Mr. Kosma says the passing of time allowed for a more sophisticated understanding of how the technology sector works, and also created “the sense that there’s some durability to the strength of these companies.” “That creates the question [among FTC regulators] that maybe we ought to look at why they have become so durable. Maybe the government is saying that because they’ve been around so long … they want to take a deeper look.”

FTC under Obama targeting other industries

While Intel is certainly the most high profile company the FTC is investigating since Obama entered office, it does not necessarily show the commission is training its eye specifically on technology companies.

Last month, the FTC intervened in a proposed merger between snack food companies Utz Quality Foods Inc. and Snyder's of Hanover for similar antitrust concerns. Demand for more oversight from federal regulators ended up causing the deal to collapse. In October, the FTC broke up a merger between Carilion Clinic, a Virginia healthcare system in Southwest Virginia, and its acquisition of an outpatient center in the Roanoke area.

While the FTC is comprised of political appointees, it is evident that the increased antitrust action is “moving into other industries,” says Dale Grimes, an antitrust lawyer in Nashville with Bass, Berry and Sims, who adds, “It seems like the storm has been centered over high tech for so long, other industries are getting caught in it.”

Wycoff says the Intel case will enable smaller companies to seek class action suits against larger competitors, which they may have felt were allowed to stifle the marketplace during the Bush years when antitrust regulation was “so lax.”

“You’re going to see fallout in the private sector, especially if there is an administrative finding by the FTC that [Intel] did violate the law. The floodgates will open up with private actions against them,” says Wycoff.

Intel is also facing similar antitrust charges in a lawsuit pending in New York state court, which Wycoff says, “is a beginning of a long slog for them.”

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