The 100 Years Chip War

The FTC piles on Intel, after a settlement

When computer chip rivals Intel and Advanced Micro Devices announced an agreement last month to end their legal disputes, Intel CEO Paul Otellini expressed hope that it would provide "some level of comfort" for regulators. What rational oasis did he think he was living in?
This week the Federal Trade Commission sued Intel, alleging that the industry leader has stifled competition to strengthen its market dominance. According to the feds, Intel has used "threats and rewards" to prevent computer makers like IBM from buying chips from competitors. The FTC also claims Intel has blocked these manufacturers from marketing computers with non-Intel chips. It's worth noting that several of the companies that Intel is accused of muscling are every bit as big as Intel—and in the case of Dell and Hewlett-Packard, bigger in revenue terms.
But the real problem with the government's case is the lack of evidence that consumers have in any way been harmed by Intel's practices. The FTC is tasked with protecting the interests of consumers, not competitors. And consumers are benefiting from an intensely competitive and highly innovative computer chip industry.
Data from the Bureau of Labor Statistics show that between 2000 and 2006—a period that includes Intel's supposed monopolistic behavior—the quality and performance of microprocessors improved while prices fell at an annual rate of 48.9%. Over the same period, the prices of related items such as personal computers, storage devices and software also decreased. The typical goal of anticompetitive corporate behavior is to raise prices, yet computer products that cost thousands of dollars a few years ago now cost hundreds.
Intel doesn't deny that it competes aggressively for customers, or that it offers deep discounts and rebates to win business. But these actions are pro-competitive, and the courts have consistently ruled that so long as Intel is pricing its products above cost, its business practices are lawful. Over the past two decades the Supreme Court has repeatedly rejected antitrust challenges to above-cost price cuts.
Settlement talks between Intel and the government reportedly stalled when regulators insisted on remedies that would turn the company into something resembling a public utility. The lawsuit states that the FTC seeks a remedy "[r]equiring Intel to make available technology . . . to others, via licensing or other means, upon terms and conditions as the Commission may order." The government also wants to micromanage how Intel prices its products and prevent it from offering better deals to its best customers. The company understandably concluded that such conditions "would make it impossible for Intel to conduct business."
The government's intervention here is both unprecedented and unnecessary. The bulk of the charges are recycled complaints first made by Intel's main rival, AMD, more than four years ago. But the deal reached last month resolved all of their differences and was approved by both boards.
Antitrust laws exist to promote business and price competition, not to protect less successful competitors. And the competition among microprocessor makers has rarely been more ferocious. The FTC is proposing remedies in search of a problem, and harassing a successful U.S. company in the bargain.