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The Intel Cases—Legal Convergence or Leaps of Faith?

Kent Bernard, Feb 28, 2010

Intel has managed to find itself in the cross-hairs of the antitrust authorities in Brussels and in Washington D.C. It is doubtful if that was a part of its corporate goals at any recent time.

With its decision dated May 13, 2009, the European Commission held that Intel violated what was then Article 82 by abusing its dominant position in a market defined as Central Processing Units (“CPUs”) of the x86 architecture. Intel allegedly did so by offering various kinds of rebates to potential customers for the units, some of whom were the world’s largest computer manufacturers. The Commission fined Intel a record EUROs 1.06 billion. While that case raises many issues, some of which will be discussed below, the basic legal structure is not being touted as something totally new. The Commission claims that, although it is running a new “effects based” analysis using the “as efficient competitor” test, it also is applying its traditional Article 82 legal approach to the facts as found. However, a careful review of what is known to date suggests that the Commission is indeed trying to move in a new direction, and it is a roadway that was paved in U.S. law some 35 years ago. Whether it can get there is up to the courts. Whether it should get there, will be discussed below.

On December 16, 2009 the U.S. Federal Trade Commission (“FTC”), not to be outdone, brought its own action against Intel. The FTC’s administrative complaint charges that Intel carried out an anticompetitive campaign, using threats and rewards aimed at computer manufacturers, to coerce those manufacturers not to buy rival computer CPU chips. The FTC also alleges that Intel used exclusive- or restrictive-dealing provisions to prevent computer makers from marketing any machines with non-Intel computer chips.

Finally, it is alleged that Intel secretly redesigned key software, known as a compiler, to degrade the performance of competitors’ CPU chips. On this theory, Intel could, and did, truthfully tell customers that software performed better on Intel CPUs than on competitors’ CPUs, but they failed to disclose that these differences were due largely or entirely to Intel’s compiler design.

Unlike in the Commission proceeding, the FTC Complaint and, especially, the statements issued by two Commissioners, acknowledges there is a new legal approach being taken (albeit alongside some traditional allegations). And, completing the analytical circle, that new U.S. approach seems to adopt a view of Section 5 of the FTC Act that is borrowed in large parts from the Commission Article 82 cases (while resolutely claiming that this approach is what the drafters of the U.S. statute some 96 years ago intended all along).

While this article will discuss the allegations and analyses of the European and the U.S. cases, our focus will be on what appears at first blush to be an odd convergence of legal theory across the Atlantic Ocean. Our question is not simply whether the point at which both systems seems to be aiming is a “correct” one. What concerns us is whether if both sides approach, but do not reach their goals, they will make things far worse rather than better.

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