Magazine article Information Today

Intel Lawsuit Tests Competition Limits

Magazine article Information Today

Intel Lawsuit Tests Competition Limits

Article excerpt

At what point does aggressive competition become an illegal attempt to monopolize an industry or a product? Microsoft committed antitrust violations in tying its Windows operating system and Internet Explorer web browser together and restricting access to other browsers. In the legal industry, Thomson Reuters ran up against antitrust issues when it purchased its competitor, Lawyers Cooperative Publishing. As a result, Thomson Reuters was forced to sell several competing titles in order to avoid an antitrust lawsuit.

Now, the same question has arisen for Intel, which has been sued by the Federal Trade Commission (FTC) for violating antitrust laws over the sales of computer chips. The lawsuit alleges that Intel used threats, rewards, software restrictions, and deceptive business practices to monopolize the computer chip market. The lawsuit targets Intel's practices in the central processing unit (CPU) chip market and the growing graphics processing unit (GPU) market.

Market Leader

Intel has long been the market leader in the production of central microprocessor chips for desktop and laptop computers. Beginning as the supplier to IBM in the 1980s until today, Intel's Pentium, Celeron, and other processors have held 75%-85% of the CPU market. Two other chip manufacturers--AMD and VIA Technologies--hold the bulk of the remaining market.

The FTC complaint alleges that beginning in 1999, Intel saw its technological edge eroding to its competitors in terms of CPU performance and quality. In response, rather than focusing on restoring its technological advantage, Intel reportedly engaged in a series of unfair acts and methods that continue to this day, including specific arrangements with computer manufacturers to limit use of non-Intel chips, pricing and supply manipulation, and enhanced or reduced market support, depending on the manufacturer's use of Intel chips.

The complaint also alleges that Intel "redesigned its compiler and library software" to reduce the performance of competitor chips and paid hardware and software suppliers to limit their support of non-Intel chips. Finally, the complaint alleges that Intel misrepresented the quality of its product compared to other chips and induced software vendors to label their products as Intel compatible but not to label their products as compatible with competitor's chips even when they were.

Monopoly Over GPU Chips

However, more central to the complaint is the FTC's assertion that Intel is using similar tactics to gain a monopoly over the market for GPU chips (GPU chips are integrated circuits for processing computer graphics). But as computers have become more graphic-intensive, GPU chips have taken on more functionality, often from CPU chips. GPU chips can either be stand-alone or "discrete" chips usually mounted on a graphics card or integrated into computer chipsets.

Intel currently holds about 50% of the market share for GPU chips with NVIDIA and AMD as its main competitors. According to the FTC, Intel "lags behind its competitors in quality and innovation." In response to that lag, the FTC alleges that Intel undertook a similar series of anticompetitive practices to restrict competing GPU chips. Many of these practices were oriented toward restricting the interoperability of competing GPUs to work with Intel chipsets, as well as pricing and supply manipulation.

As a result of Intel's actions, the FTC claims three points: CPU and GPU prices are higher, leading to higher prices for products that contain CPUs and GPUs; competition, innovation, and quality are reduced; and consumer choice is hampered. The FTC is proposing that Intel discontinue engaging in pricing and supply manipulation that are tied to a manufacturer's purchase of Intel versus non-Intel chips and discontinue or license software, hardware, or chipset changes that favor Intel chips over non-Intel chips. Of course, Intel does not believe that its practices violate the law. …

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