Intel Antitrust Suit Would Be Hard To Win

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May 30, 1998 (8:52 AM EDT)

By Mary Mosquera,

The Federal Trade Commission may be building its antitrust case against Intel on quicksand -- using questionable theories that are likely to fall short on appeal, said a legal expert on Friday.

Those familiar with the FTC's Intel investigation said if the government acts, it will probably draw from an April ruling by an Alabama federal district court in a case brought by workstation maker Intergraph against the chip manufacturer.

In that case, U.S. District Judge Edwin Nelson granted Intergraph a preliminary injunction that required Intel to provide the company with the same level of technical information and chips it provides to its other customers.

According to William Kovacic, who worked at the FTC's Bureau of Competition and now teaches antitrust law at George Mason University Law School, the decision in the Intergraph case "is a weak opinion and vulnerable on appeal by Intel."

Intergraph designed and built its workstations solely around Intel chips. Intel reportedly stopped doing business with Intergraph because the workstation maker would not relinquish patents it developed using Intel's Clipper chip. Intergraph filed suit against Intel for patent infringement.

Nelson found Intel held a monopoly in high-performance chips, and withholding the product was an anticompetitive practice, interfering with Intergraph's ability to do business. The judge said there was "substantial likelihood" Intergraph would succeed in proving Intel had violated the Sherman Antitrust Act, the foundation on which the government sues for anticompetitive practices.

Intel is adhering to the injunction, but is appealing it.

A dominant company unwilling to deal with a customer is a stretch for antitrust law, which was designed to protect competitors of a monopoly, Kovacic said. It is uncertain whether Intergraph qualifies as an Intel competitor. "This administration has shown a greater willingness to go to court," he said. "The government is dealing with antitrust in a very expansive way here."

Despite the U.S. government's recent zeal in pursuing antitrust cases against high-tech companies, it does not appear to be a trend, said Marimba CEO Kim Polese. "I don't see this as a campaign by the government to get big companies," she said.

Generally, in antitrust litigation, it must be shown that a particular market suffered from the actions of the accused company. "The fact that Intergraph may have suffered by itself does not automatically impact the marketplace," Kovacic said. There are workstation competitors of Intergraph that still do business with Intel, he said.

"Intel would have a strong case to appeal. The government is building [its case] on quicksand," he said.

Despite the uncertainty for companies who are slapped with antitrust lawsuits, investors look at it on a case-by-case basis. "It's not so clear if there will be much effect on Intel," said William Milton, semiconductor analyst for Brown Brothers Harriman in New York. "This is not as strong a case as Microsoft."

Intel closed slipping 2 1/16 to 71 7/16 on the Nasdaq. Meanwhile, the chipmaker announced at market closing it was postponing production of its 64-bit Merced chip used in workstations until mid-2000 from 1999.