World War 4.0

Consumers will win with pursuit, punishment of any anticompetitive practices by Intel

July 31, 2008|By Robert H. Lande

It's time we admitted it: We're beginning to fight World War 4.0. World War 3.0 was what many called the highly publicized antitrust actions of the U.S. and the Europeans against Microsoft in the 1990s and early 2000s, involving PC operating systems and related markets. Now we're seeing the first of a series of antitrust lawsuits against Intel that is just as important - one that should capture the public's attention the same way the Microsoft cases did.

Just over a year ago, the European Competition Commission issued a Statement of Objections alleging that Intel abused its dominant position in the market for X86 microprocessor chips. Japan and South Korea each investigated and found similar violations of their laws, and the U.S. Federal Trade Commission and the state of New York opened analogous investigations. Most recently, on June 17, the Europeans issued a supplemental Statement of Objections, adding even more charges against Intel.

In short, Intel is in big trouble.

Although nothing is final in the U.S. or Europe, the charges against Intel are remarkably similar to those proved against Microsoft, which involved a legally established monopolist trying to preserve its position through the use of illegal tactics. In neither case was the monopolist accused of attempting to do this through excessive innovation, competition on the merits, or new products. Rather, in both cases, the disputed tactics focus on impediments against competitors - leveraging a monopoly product against would-be rivals through anticompetitive tactics, disguising predatory pricing and actively taking steps to suppress rivals' position in the market.

Together, Microsoft and Intel monopolize the two key products that comprise PCs; they are sometimes referred to as "the Wintel monopoly." Microsoft's share of the PC operating system market long has exceeded 80 percent, while Intel has at least that large a portion of the market for the X86 chips used to power PCs worldwide. Only Intel and Advanced Micro Devices have any chance of being a major player in the global $30 billion X86 chip market for the foreseeable future.

During World War 3.0, Microsoft was found guilty of illegally maintaining its OS monopoly by a variety of anticompetitive tactics. For example, Microsoft took steps to prevent its browser rivals from distributing their products. Microsoft officials could establish no business justification for this or for the other tactics they deployed to destroy their main browser rival, Netscape.

Similarly, in the "preliminary view" of the European Commission, Intel has engaged in a variety of abusive practices to preserve its chip monopoly. In one instance, Intel allegedly provided substantial rebates to a leading PC retailer conditional on the company only selling Intel-based PCs. In another, it allegedly provided substantial sham rebates to a computer manufacturer "conditional on it obtaining all of its laptop CPU requirements from Intel." In other words, Intel is accused of raising chip prices and then giving significant "discounts" or "rebates" only to those customers who purchased all or almost all their chips from Intel. These quantity-based discounts or rebates were so large that customers apparently often paid no additional amount in total even though they received many more chips. If a customer purchased 80 percent of its chips from Intel, each chip might cost $10. But if it purchased 100 percent from Intel, each chip might cost only $8. This had the intended effect of making it impossible for Intel's only significant rival, AMD, to sell chips to these customers at any price. The sham discounts or rebates had no purpose other than to exclude Intel's main competitor.

And there's more: The recent Statement of Objections said "Intel made payments in order to induce" a leading computer manufacturer "to delay the planned launch of a product line incorporating an AMD-based CPU." If true, it's difficult even to conceive of a legitimate business justification for this practice. To use an Olympic-year analogy, Intel is not being accused of taking steroids to run faster. Rather, it allegedly tripped its only rival. This is the opposite of traditional competition on the merits.

The Bush administration's Department of Justice caved during the Microsoft case's remedy stage. Years later, Microsoft still has a monopoly in the PC operating systems market. Assuming the truth of the current allegations, PC users everywhere should insist that the enforcers pursue the Intel cases vigorously, and this time impose a remedy tough enough to bring competition to this crucial market.

We need to remember that this really is a World War - tens of millions of computer users, from your grandmother to tomorrow's college student in the developing world, are affected by its outcome. The litigators pursuing this case must do more than speak loudly with just a small stick in their hands. They must swing an ax, fight and win the battle, and achieve a victory for consumers everywhere.

Robert H. Lande is the Venable professor of law at the University of Baltimore School of Law and a director of the American Antitrust Institute.

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