Intel under the microscope again

US regulators probe alleged retaliatory practices

When Intel finds itself on the receiving end of a legal action from a customer it can effectively cut off that company's oxygen supply, by denying access to technical information and sample chips, writes Graham Lea.

Apparent examples of such retaliation are the subject of a current action by the US Federal Trade Commission (FTC) commerce regulator. Intel allegedly retaliated in this way against Compaq, Digital, and Intergraph after they refused to license their technology to Intel. Before launching the case, FTC staff sifted through 250,000 Intel documents, and issued subpoenas against the three firms to compel them to give evidence.

The case has its roots in an apparently minor dispute between PC makers four years ago. In 1994, Compaq sued Packard Bell for using Compaq-patented technology in motherboards supplied by Intel. Intel intervened in the case, on Packard Bell's side, claiming it had a duty to protect its customer.

Intel withheld technical information and chip samples from Compaq, prompting Compaq to file an intellectual property case against Intel in 1995. Only when Compaq cross-licensed its patents did Intel agree to restore technical information and chip samples.

The pressure increased when Digital filed a case against Intel in May last year alleging that Intel chips violated Digital patents. That case was settled out-of-court when Digital sold off its semiconductor business to Intel, a deal approved by the FTC.

But there was more to come. Intergraph pioneered work- stations using Intel processors with Windows NT. In 1987, Intergraph purchased Fairchild Industries' microprocessor division - best known for its Clipper processors.

In 1996, Intel demanded a royalty-free licence to the Clipper technology, which Intergraph understandably refused.

In November of that year, Intergraph found some of its patented technology inside Pentium processors and sued Intel. The chip maker stopped providing Intergraph with technical information and sample chips with the result - according to Jim Meadlock, Intergraph's chief executive - that 'we went from number one to number three' in the Intel-based workstation market.

Intel did not tell Intergraph about a bug in one chip, with the result that 'Intergraph had to redesign, refabricate and retest an entire motherboard' (in the words of the FTC), resulting in a serious delay. In April, Intergraph obtained a preliminary injunction from a court in Alabama requiring Intel to restart the flow of information and chip samples.

This is not the first time that the FTC has investigated Intel. From 1991 to 1993, allegations that Intel was squashing competition were investigated, but no charges resulted. The current FTC investigation commenced last September.

Graphics chip makers are also concerned at encroachment by Intel into their market, and S3 is believed to have passed on information to the FTC.

Intel has until the end of June to respond, followed on 10 July by a hearing by an administrative law judge. If the FTC wins, the proposed cease-and-desist order that it wants is modest in its demands. The FTC can order no civil or criminal penalties for past action, nor award damages. If, however, the FTC wins, any injured parties could start legal actions with a strengthened private case.

Should Intel in the future break a term of any order, the maximum fine is a paltry $5,000 a day - although the damage to its image would be considerably more serious.

If Intel loses, it could appeal first to the FTC commissioners, and then to a federal appeals court. Intel has indicated it would do this if necessary.

Even so, Intel may settle the FTC case to switch off the limelight. Craig Barrett, the new chief executive, has taken a less combative approach than Andy Grove.

A machismo attitude to anti-trust investigations is the order of the day for Microsoft. Intel is no Microsoft, however, and has made a point of ensuring that staff who deal with other companies are given a background in anti-trust law.

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