Intel Answers FTC Antitrust Complaint

(July 14, 1998)  Intel filed its Answer to the Federal Trade Commission's administrative antitrust Complaint on Monday.  Chip maker Intel denied that it has monopolized any market, that it has used any unfair methods of competition, or that it has violated any laws.

The FTC filed its Complaint against Intel on June 8 alleging that "Intel’s conduct constitutes unlawful monopolization, unlawful attempts to monopolize, and unfair methods of competition, all in violation of Section 5 of the Federal Trade Commission Act."   The FTC alleged that Intel illegally refused to deal with computer makers Compaq, Intergraph, and DEC in order to coerce them into surrendering certain intellectual property rights.

Intel's Answer denies many of the basic factual allegations contained in the complaint.  It also denies the legal conclusions that Intel has violated law.  It also raises ten affirmative defenses.

The answer, as is required, admits or denies each of the numbered allegations in the FTC Complaint.  However, it also added a statement at the beginning which summarizes the Intel position on this case:

"Intel has not monopolized any market, attempted to monopolize any market, or used any unfair methods of competition. Intel has not violated Section 5 of the Federal Trade Commission Act or any other antitrust law.

This is not an appropriate matter for action by the FTC. The allegations in this matter arise out of intellectual property disputes between Intel and three other major high technology companies. Two of those disputes have been settled on mutually agreeable terms among the parties. The third dispute is currently in litigation in Alabama. In each of these cases, Intel took reasonable, measured steps under the law and its contracts to protect its intellectual property and its core business. In none of these cases did Intel deny anyone a supply of microprocessors or any other product. Intel’s actions did not and could not harm competition in any relevant market."  (See, Answer, at page 1.)

Intel admits mainly basic allegations, such as the names and locations of the parties, Intel's customers, and who did business with whom.  Intel also admits that it has made a lot of chips, and a lot of money.  However, the Answer reflects fundamental differences between the two sides on the definition of relevant markets, the difficulty of entering chip markets, the cost and time involved in developing microprocessors, and the nature of competition in the production and sale of various microprocessors.

The Answer also shows disagreement over the nature of Intel's business dealings with the three customers cited in the FTC Complaint.  Intel asserts that it was involved in patent disputes with each of these customers, and exercised its property rights, and rights to litigate.  It further asserts that it exercised its rights to withhold confidential technical information.

Intel denies that it is a monopoly, that it has monopoly power, that it has attempted to become a monopoly, and that it is entrenching any monopoly.

Additional Defenses

Intel also raised ten defenses in its Answer.  (See, Answer at pages 10-11.)  The first is failure to state a claim upon which relief can be granted.  The Answer does not elaborate.   However, even if the facts as alleged by the FTC are taken as true, the FTC's case that Intel has violated antitrust law would have to be based on a novel theory involving refusal to deal with customers.

FTC has not alleged that Intel has engaged in unfair methods of competition in its dealings with competitors.  Rather, the unfair competition is alleged to be in Intel's refusals to deal with three of its  customers.  Moreover, the refusals to deal with these customers are not alleged to be connected with dealings with Intel competitors.  For example, there is no allegation that Intel refused to deal with its customers for buying chips from AMD.  There is scant precedent to support this approach.

Intel also raised the defense that the actions which the FTC finds illegal were "efforts to protect its intellectual property rights through the judicial system" which are protected by "the First Amendment ... and the Noerr Pennington doctrine."  (See, Answer, ¶ 29 and Fourth Additional Defense.)

Noerr and Pennington were litigants in two antitrust cases that were ultimately decided by the Supreme Court.  These, and subsequent cases, limit the extent to which antitrust violation can be found, where the alleged restraint on trade is actions to influence government decisions, such as political campaigns or litigation.  Intel likely will argue that the conduct which the FTC finds objectionable were Constitutionally protected efforts to vindicate its intellectual property rights in the courts, under the Noerr Pennington doctrine.

Intel's other defenses include:

• that this is a private controversy that does not affect the public interest,
• that it had legitimate business justifications for its conduct,
• that its products, intellectual property, and proprietary information are not essential facilities,
• that it did not violate any of DEC's, Intergraph's or Compaq's patents, but that its patents were violated, and
• that its conduct did not adversely affect competition.

Intel's attorneys, and the drafters of the Answer, are lawyers with the law firm of Gibson Dunn & Crutcher, a huge broad based Los Angeles law firm with offices in San Francisco, Palo Alto, Washington DC, New York City, Dallas, Denver, and other locations.  It includes practice groups for antitrust and trade regulation, and intellectual property law.  Lead counsel is Robert E. Cooper.