Appeals Court Vacates Injunction in Intergraph v. Intel

(November 8, 1999) On Friday, as one federal judge concluded that Microsoft is a monopoly, another federal judge's conclusion that Intel would be found to be an illegal monopoly was reversed. The Court of Appeals vacated the U.S. District Court Judge Edwin Nelson's preliminary injunction in Intergraph v. Intel.

While Microsoft makes the operating systems that run on most desktop PCs, Intel makes the microprocessors that operate as the brains of most of those PCs. Intel has been pursued by both the Federal Trade Commission, and the Intergraph Corporation, for alleged violation of the Sherman Antitrust Act.

On Friday, November 8, the U.S. Court of Appeals for the Federal Circuit issued its 2-0 Opinion vacating the injunction entered by the U.S. District Court in Alabama on April 10, 1998.

Intergraph v. Intel is a landmark case which involves both intellectual property law and antitrust and fair competition laws. Intergraph, which makes workstations based on Intel Corporation microprocessors, sued its chip supplier, Intel, on a wide range of legal theories, including antitrust, anticompetitive behavior, and patent infringement, for withholding information and products. Intel asserts that it is properly asserting its rights under intellectual property law.

Intergraph filed its original complaint in November of 1997. It filed an Amended Complaint on December 3, 1997, which added antitrust allegations. Judge Edwin Nelson granted Intergraph a preliminary injunction on April 10, 1998, which required Intel to continue to supply it with advanced product information, advanced microprocessor "chip samples," "early production chips," and "production chips."

Judge Nelson did not try the case. Trial of the case is scheduled to begin on June 12, 2000. Rather, he ruled on a motion for preliminary injunction. In his ruling, he found that there was a "substantial likelihood of success on the merits" at trial -- that is, that Intergraph would likely prove at trial that Intel is a monopoly and harmed competition.

Intel appealed the preliminary injunction order to the U.S. Court of Appeals, which just ruled in its favor.

The Court of Appeals wrote: "The court relied on several legal theories, viz.: (1) the essential facility theory and the corollary theory of refusal to deal, (2) leveraging and tying, (3) coercive reciprocity, (4) conspiracy and other acts in restraint of trade, (5) improper use of intellectual property, and (6) retaliatory enforcement of the non-disclosure agreements. The court alternatively ruled that Intergraph is likely to succeed on its contract claims, including the claim that the mutual at-will termination provision of the non-disclosure agreements is unconscionable."

The Court of Appeals addressed each of these theories in order, and rejected them all.

Regarding monopolies, the Court of Appeals stated that the District Court's findings that Intel held market power (in the markets for high-end microprocessors and the submarket for Intel microprocessors), and that Intel had refused to license technology to Intergraph, were not dispositive. A critical factor that was missing was that Intergraph was not in competition with Intel in these markets. The Appeals Court concluded that "the Sherman Act does not convert all harsh commercial actions into antitrust violations."

On the essential facilities theory (that a monopoly controls an essential facility and refuses access to it), the Appeals Court stated that there was no precedent for the proposition that this theory applies to denial of access to a party who is not a competitor of the party who controls the essential facility.

On the corollary theory of "refusal to deal" the Appeals Court wrote that ordinarily any private business is free to decide not to do business with someone. However, the Appeals Court wrote that a "'refusal to deal' may raise antitrust concerns when the refusal is directed against competition and the purpose is to create, maintain, or enlarge a monopoly." But, the Appeals Court continued, there was no attempt by Intel to do so, and hence, there was no Sherman Act violation.

The Appeals also rejected the coercive reciprocity, or tying, theory. The District Court found that Intel engaged in unlawful tying, or the practice of using economic leverage in one market coercively to secure competitive advantage in another. The District Court reasoned that Intel tied a continued supply to Intergraph of CPUs and technical information with its demand for Intergraph's relinquishment to Intel of its Clipper technology patents.

The Appeals Court ruled that "To violate the Sherman Act the entity that coerces reciprocal dealing must be a monopolist in one product and thus be positioned to require dealing in the coerced product, which but for the monopolist's coercion could be acquired elsewhere."

It continued that Intel's various licensing proposals furthered no such action. "Intel did not demand that Intergraph buy its products, and the record describes no market in which Intel's licensing proposals were shown to have distorted competition."

The Federal Trade Commission also brought, and settled, a related administrative action against Intel for its dealings with Intergraph, and other companies.

That matter was settled earlier this year on the eve of the administrative trial. The Appeals Court wrote.

"We take notice that a consent order, reported to provide some of the same relief as does the preliminary injunction, has been entered by the Federal Trade Commission.  Intel Corp., Docket No. 9288 (FTC March 1999) (Agreement Containing Consent Order).  That proceeding, under Section 5 of the FTC Act, 15 U.S.C. § 45, is not before us."

The appeal was heard by Circuit Judges Pauline Newman, Jay Plager and Edward Smith. However, Judge Smith did not participate in the opinion, leaving it a 2 to 0 decision. Judge Newman wrote the opinion. She was a scientist, and then a patent attorney, before being appointed to the bench by President Reagan. Judge Plager is a former law professor and dean who was appointed by President Bush.