Why Feds Go After High Tech

FTC suit against Intel signals new antitrust assault on computer industry.

The personal computer industry has become so important to the US economy in so many ways that government regulators are going to give it special attention for years to come.

That's the likely message of the Federal Trade Commission's new antitrust case against the Intel Corp. In just the last few months, federal agencies have now filed suit against both Microsoft and Intel, the software and hardware halves of the PC "Wintel" behemoth. Regulators hint that more related actions may be coming.

But whether Washington should, or can, change high tech's behavior remains an open question. US officials are applying an old tool - antitrust law - to a new industry where many of the old business rules don't apply.

"Is it feasible to try to control the computer industry at all, when the weapon you have at hand is a set of laws which are going to take considerable time to articulate, where everything may have run away from you by the time you get in front of a judge?" says Lawrence Sullivan, a professor at the Southwestern University School of Law in Los Angeles.

Neither the Microsoft case brought by the Justice Department, nor the FTC's Intel case, deal with sweeping theoretical aspects of antitrust law.

Instead, both are relatively narrow complaints that deal with the firms' conduct in trying to improve their products and enter new markets.

The Microsoft case is the bigger of the two. It alleges that the software colossus is unfairly using the dominance of its Windows operating system to try to improve the market prospects of its Explorer World Wide Web browsing tool.

The action "is but the opening salvo in what I believe will be one of the most important antitrust cases in modern history," said Sen. Orrin Hatch (R) of Utah, Judiciary Committee chairman, in June 9 speech to a high-tech trade industry group.

Senator Hatch - whose state is home to one of Microsoft's major rivals - said that freedom of commerce on the Internet was just one of the issues hinging on the case's outcome. Microsoft's Bill Gates sees the case in a different light, of course. He complains that the US government seems to want to punish him for improving his products, and that innovation will be stifled if the Justice Department prevails.

This week's Intel filing is somewhat narrower.

Specifically, the FTC is charging that Intel violated the law by withholding key technical information about its own chips from partners, after it got into spats with them.

These partners competed with Intel on other products, or were potential competitors, says the FTC. Thus regulators judge that Intel's hardball action constitutes restraint of trade.

But a number of experts say the case against Intel exemplifies why antitrust laws may be difficult to apply to the computer industry. There are two reasons for this, they say: the speed with which high tech markets change, and the value the industry places on technical knowledge, otherwise known as "intellectual property."

INTEL may well be dominant now in the PC chip market. The FTC figures it raked in 80 percent of all industry microprocessor revenues last year.

But that may be already changing. The firm misjudged the demand for sub-$1,000 PCs, for instance, and has lost business to other firms that specialize in cheap chips for cheaper PCs. Nor is it dominant at the chip market's top end. Two weeks ago the firm announced a delay in its next-generation Merced chip - ceding ground to Digital Inc., among others.

Thus suing Intel might be like the antitrust case brought years ago against IBM. By the time it was resolved, IBM was not the colossus it had been when the case started. "Not much was accomplished by that case," says Sullivan.

Meanwhile, the Intel case also could define the relationship between antitrust and intellectual property law. Intel spent billions to develop its chips, and was awarded a legal monopoly, via patent, on the intellectual property of their design.

But that's the very data the firm is accused of unfairly withholding from Intergraph Corp., and other partners, following disputes. Intel meant to punish the firms by denying them the ability to produce products based on their popular chips.

In computing "if you lose control of your intellectual property you are dead," says Luke Froeb, an antitrust expert at Vanderbilt University in Nashville, Tenn.