FTC Sues Intel As Early Christmas Present

AMD and Intel may have settled their court case and bills—Intel paid the smaller company $1.25 billion last week—but the manufacturer has been hit with an additional charge of unlawful behavior, this time from the Federal Trade Commission (FTC). According to the FTC's complaint, Intel has systemically waged a campaign to "shut out rivals’ competing microchips by cutting off their access to the marketplace. In the process, Intel deprived consumers of choice and innovation in the microchips that comprise the computers’ central processing unit, or CPU."

“Intel has engaged in a deliberate campaign to hamstring competitive threats to its monopoly,” said Richard A. Feinstein, Director of the FTC’s Bureau of Competition. “It’s been running roughshod over the principles of fair play and the laws protecting competition on the merits. The Commission’s action today seeks to remedy the damage that Intel has done to competition, innovation, and, ultimately, the American consumer.”

A significant portion of the FTC's complaint mirrors AMD's original allegations when the company filed its antitrust lawsuit. In its statement, the FTC there is reason to believe "that Intel carried out its anticompetitive campaign using 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 CPU 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."

The (Old) Alleged Misdeeds

If you aren't familiar with the details of Intel's rebate system (as described by AMD), it allegedly functioned as follows. Assume Dell expects to sell 1,000 computers in the next quarter. Dell goes to talk to Intel, and the CPU manufacturer offers the following deal: If Dell agrees to buy 90 percent or more of its CPUs from Intel, it will only have to pay $70 a chip. If, however, Dell chooses to buy just 80 percent of its chips from Intel, it will be charged $100 per processor. Given just how razor-thin OEM margins are in the Home/Home Office segment, that $30 price cut could make the difference between a profitable quarter or a loss.

This puts AMD in an impossible situation, as illustrated by the company's offer to give—give—HP one million processors for free. As memos from the EU investigation made clear, HP feared retaliation from Intel, and took only 160,000. If you literally can't give your product away because your competitor has designed a rebate system that makes it unprofitable for an OEM to accept it, that's a problem.

Trusts and monopolies make Teddy angry. You wouldn't like Teddy when he's angry.

Next up, there's the compiler issues. The FTC suit states: "In addition, allegedly, Intel secretly redesigned key software, known as a compiler, in a way that deliberately stunted the performance of competitors’ CPU chips. Intel told its customers and the public that software performed better on Intel CPUs than on competitors’ CPUs, but the company deceived them by failing to disclose that these differences were due largely or entirely to Intel’s compiler design."

There's no proof that Intel deliberately sabotaged its compiler, but 4-5 years ago it was a known fact that Intel compilers would not take advantage of AMD's SSE/SSE2 support. If a chip failed to return the "GenuineIntel" CPUID string, the compiler refused to perform any vectorization optimizations. You can read the in-depth details of the discovery here, but the takeaway is that patching the CPUID check increased performance on Opterons of the day by 10 percent.

NVIDIA Takes The Stage

New to the fight this time around is NVIDIA, who claims Intel's practice of charging more for an Atom processor ($45) than for the entire chipset + GPU ($25) constitutes illegal bundling. Intel's response is to shrug and say it offers volume customers better prices, but the $20 price gap is a full 5 percent on a $400 notebook and that's before we factor in the cost of an ION chipset. Even if NVIDIA's ION pricetag is quite modest—say, $20—OEMs who build on ION rather than GMA are paying 2.6x more.

The FTC is not asking for damages, but seeks an "order which includes provisions that would prevent Intel from using threats, bundled prices, or other offers to encourage exclusive deals, hamper competition, or unfairly manipulate the prices of its CPU or GPU chips. The FTC also may seek an order prohibiting Intel from unreasonably excluding or inhibiting the sale of competitive CPUs or GPUs, and prohibiting Intel from making or distributing products that impair the performance–or apparent performance–of non-Intel CPUs or GPUs."

Intel's Response

Intel's response to the FTC complaint has thus far been identical to the boilerplate the company trotted out in Japan, Korea, the EU, and (when it was applicable), the AMD antitrust case. The company believes it has done nothing wrong, its actions have benefited consumers, and cheaper, faster computers have been the end result. This is rather disingenuous. The fact that computer prices have fallen while performance improved does not mean consumers weren't harmed by Intel's alleged conduct. Even if Intel's actions are ruled to have caused no harm to consumers, the company may still have abused its market position and illegally hampered its competitor.

The FTC's burgeoning investigation could be over by New Years with a series of corporate handshakes and a promise to never engage in certain types of behavior while never admitting such events ever occurred. Given the fact that the commission filed after AMD withdrew its own complaint, however, this seems unlikely. Intel would be quick to point out that it has never been found guilty of any abuses or violations in a court of law, but while that's true, it's also beside the point. To date, regulatory bodies in four different countries—the EU, US, Korea, and Japan—have either filed suit against Intel, issued findings of fact that state Intel abused its market position, or fined the company $1.45 billion. Four different countries/governments, four different cultures, four different levels of friendliness towards big business. In each case, Intel has maintained its innocence—and to date, no one's ever buys it.

It might be time for a new defense strategy.