On August 4, 2010, the Federal Trade Commission announced a proposed settlement (approved by a 4-0 vote, with Commissioner Kovacic recused, and subject to public comment) with Intel Corp. of charges of anticompetitive conduct in violation of Section 5 of the FTC Act.1 The FTC has exclusive jurisdiction over Section 5, which is broader than the antitrust laws and prohibits “unfair” methods of competition (as well as deceptive acts and practices).
The Intel action, filed in December 2009, is the most visible competition matter brought thus far by the FTC under the Obama Administration, and Chairman Jon Leibowitz asserted that the case “demonstrates that the FTC is willing to challenge anticompetitive conduct by even the most powerful companies in the fastestmoving industries.”2 In the settlement, Intel — which did not admit the facts alleged by the FTC or any violation of law — agreed to limitations on its ability to use bundled prices, exclusivity arrangements with original computer equipment manufacturer customers (“OEMs”), and agreements that customers purchase certain percentages of their requirements from Intel as conditions for benefits such as price discounts.
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Briefly, the FTC asserted in its Administrative Complaint that Intel engaged in a ten-year course of conduct to stall the widespread adoption of non-Intel computer hardware and software products, allowing Intel to maintain a monopoly in the relevant central processing unit (“CPU”) markets, as well as creating a dangerous probability of monopolization of relevant graphics processing markets. The FTC alleged that Intel’s conduct included de facto exclusive dealing arrangements with certain OEMs, quantity discounts, and retaliatory practices (withholding rebates, technical support, and supply, for example) that had the effect of raising the price of dealing with Intel’s rivals. Under the proposed consent order, which is effective for 10 years (as opposed to the common 20 years), Intel would be prohibited from conditioning certain benefits to customers on exclusive purchasing arrangements, and from withholding benefits based on dealings with Intel’s competitors.3
Exceptions are carved out of practices that are otherwise prohibited, however, in order to allow Intel to offer competitive pricing and enter into pro-competitive deals. For example, Intel would not be prohibited under the proposed settlement from entering into a limited number of exclusive arrangements when it provides “extraordinary assistance” to an OEM customer (to develop new and innovative products or sponsor the OEM’s entry into a new market segment), nor would Intel be prohibited from offering volume discounts in competitive bidding situations pursuant to a single bid and not conditioned on future purchases, or from meeting (but not beating) terms or benefits that it “reasonably believes” are being offered by a rival supplier. It remains to be seen whether these exceptions and the standards applied to them will result in substantial continuing regulatory oversight of Intel by the FTC, which is not the ordinary role assumed by the Commission in competition cases, but could be a shrewd result for Intel to the extent Intel obtains increased certainty concerning its conduct — at least with respect to the conduct addressed in this action and pursuant to Section 5.
Intel also would be required to modify certain intellectual property agreements with competing CPU manufacturers in order to facilitate their ability to consider mergers or joint ventures. Additionally, Intel would be required to offer to extend a licensing agreement with Via, another competing manufacturer, for five years, and to maintain an interface in a manner for at least six years that will not inhibit the performance of graphics processing chips. The FTC asserts that such provisions “will provide incentives to manufacturers of complementary, and potentially competitive, products to Intel’s CPUs to continue to innovate.”
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The Intel action is a significant indicator that the FTC is continuing to explore the full potential of its Section 5 authority, particularly with respect to competitors with perceived market dominance. Commissioner J. Thomas Rosch has asserted that one of the biggest “unintended gaps” that currently exists in the antitrust laws is that various single-firm practices (such as loyalty discounts and bundling, as to which the law is not fully settled), analyzed individually, may be lawful under Section 2 of the Sherman Act and not considered illegal under the antitrust laws if they are part of a “course of conduct.” Additionally, Section 5 of the FTC Act may be used as a vehicle (by the FTC exclusively) to challenge anticompetitive practices as “unfair” methods of competition even when such practices are in their incipiency.