FTC Reaches Agreement with Digital On Alpha Chip Settlement

(April 27, 1998)  The Federal Trade Commission agreed with Digital Equipment Corp. to approve Intel's and Digital's settlement of patent infringement lawsuits over the high speed, slow sale, 64 bit Alpha chip technology.  However, Digital must license Alpha technology to AMD and Samsung, or other companies.  See, Complete Text of FTC Agreement with Digital.

This FTC approval came in an "Agreement Containing Consent Order" executed on April 23 by the FTC and Digital.  Intel is not a party to, or bound by, this agreement.  Intel issued a press release stating that the FTC had notified it that "Digital agreed to a consent order".  Moreover, Digital is in the process of being bought by Compaq Computer Corp., which is committed to Intel chips.  However, Intel remains under investigation by the FTC on several matters.

"We are very pleased that the FTC not only has cleared the Intel transaction, but also has endorsed Digital's plans to assure Alpha technology is available in volume quantities from a number of sources," said Digital Chairman Robert B. Palmer in a press release.  "By eliminating any questions surrounding the future of the Alpha technology and its long- term availability, system makers looking to provide industry-leading, high-performance computing solutions can now embrace Alpha without hesitation."

On May 12, 1997 Digital filed suit against Intel in Massachusetts alleging patent infringement and other things relating to Alpha technology.  The high speed Alpha microprocessors are best suited for the high-end workstation and server market, and are thus in competition with Intel's Pentium microprocessors which are predominantly used in computers running Windows NT.  Intel, in turn, sued Digital in California and Oregon, and counterclaimed in the Massachusetts action.  On October 26 the two reached a settlement agreement.

This Intel-Digital settlement agreement included the following provisions:

• Intel pays $700 Million to Intel.
• Cross licensing of patents.
• Intel acquires Digital's semiconductor manufacturing facility in Hudson, Massachusetts.
• Intel agrees to manufacture Alpha microprocessors for Digital.

On April 23 the FTC filed, and made public, both a Complaint against Digital, and the Agreement settling that Complaint. The Digital-FTC agreement requires that:

• Digital grant a license to AMD, or another company, of the Alpha microprocessor technology.  (See, Agreement, Section II.)
• Digital grant a license to Samsung, or another company, of the Alpha microprocessor technology.  (See, Agreement, Section III.)
• Digital enter into an agreement with IBM, or another company, allowing IBM to become an alternative production source of Alpha chips.  (See, Agreement, Section IV.)

The FTC has 60 days to receive public comment, and monitor Digital's compliance with its terms, before deciding whether to make the agreement final.

What Was Wrong With the Intel-Digital Deal?

The FTC Complaint against Digital asserted that the Intel-Digital settlement agreement violated Section 7 of the Clayton Act (15 USC 18) and the Federal Trade Commission Act (15 USC 45). The FTC alleged that the settlement would transfer Digital's microprocessor production assets to Intel.  This, the FTC alleged in its press release, "would have threatened competition by placing production of the Alpha chip solely in the hands of Digital's principal competitor, Intel -- possibly endangering the continuing and future development of the Alpha technology."  The Complaint alleges that:

"Digital and Intel are two of the most significant innovation competitors in the design and development of high-performance microprocessors. Even with its comparatively small share of the relevant markets, Digital’s Alpha microprocessor represents the greatest technological challenge to Intel, and stands as the most significant threat to Intel’s continued market dominance."  (See, Complaint, P 17.)

Other Resources.

• Digital Equipment Corp.
• Spokesman, Dan Kaferle.  978-493-5111.
• Legal counsel: C. Benjamin Crisman, Jr., and Michael L. Weiner, SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP, 1440 New York Avenue, NW, Washington, DC, 20005
• Federal Trade Commission.
• Office of Public Affairs.  Victoria Streitfeld or Claudia Bourne Farrell, 202-326-2180.
• FTC Bureau of Competition Staff.  William J. Baer, 202-326-2932, and Willard Tom, 202-326-2786.
• Intel.  Spokesman Chuck Malloy.   408-987-8080.