Last updated: July 20, 2010 10:49 pm

Intel nears settlement in market abuse probe

Intel seems close to putting behind it a decade of market abuse complaints from round the world in a settlement with the US Federal Trade Commission this week.

The deal will include concessions on the US chipmaker’s business practices, according to a person familiar with the settlement, but will not include fines because the FTC does not have the authority to issue civil penalties.

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A resolution with the FTC would complete investigations by the national regulatory authorities in the US, Europe, Japan and South Korea into complaints that the world’s biggest chipmaker has abused its market dominance.

The FTC inquiry has been more wide-ranging than those of its predecessors. The processor technology that drives the world’s computers has changed significantly since Intel’s rival Advanced Micro Devices first filed a complaint to the European Commission in 2000.

The central processing units (CPUs) made by Intel and AMD under Intel’s “x86” designs are now rivalled in importance by graphics processing units (GPUs) as PCs are used for more multimedia tasks.

The FTC had alleged in a case launched last December that Intel used “threats and rewards” aimed at PC makers including Dell, Hewlett-Packard and IBM to coerce them not to buy AMD CPUs.

It also alleged Intel secretly redesigned key software to stunt the performance of rivals’ chips that were licensing its “x86” microprocessor design.

But, in addition, the FTC alleged that Intel was repeating in GPUs its tactic of slowing down competitors, such as graphics chipmaker Nvidia, so that it could catch up.

“There also is a dangerous probability that Intel’s unfair methods of competition could allow it to extend its monopoly into the GPU chip markets,” the FTC said.

Intel at the time responded to the FTC allegations saying the FTC case was misguided and based on claims it had not fully investigated.

Intel, which has a more than 80 per cent global market share in computer microprocessors, is expected to accept curbs to its marketing of its chips, according to the person familiar with the FTC settlement.

The FTC declined to comment on reports of a settlement and Intel said talks were continuing and it had nothing to add at this point. Nvidia also declined to comment.

David Balto, a former antitrust attorney at the FTC, has warned that the commission needs to pay special attention to GPUs in its remedy if it is concerned about future competition.

“For a GPU remedy to work, you need at least three elements – a licence to the x86 [design], a clear agreement about interoperability between the GPU and CPU, and finally a strong enforcement mechanism – with clear standards and a timetable for prompt resolution of disputes,” he said.

While the FTC had taken Intel to court, both parties asked for a one-month suspension of proceedings in June to try to work out an out-of-court settlement that would lead to a consent order being agreed. The suspension ends on Thursday but, while it can be extended, a deal is expected to be announced by the end of the week.

A similar case brought by the New York attorney-general last year is still outstanding and Intel is appealing against a record €1.06bn ($1.44bn then) fine imposed by the European Commission in May 2009.

The South Korean FTC fined Intel about $26m in 2008 and Japan’s Fair Trade Commission ruled in 2005 that it had abused its monopoly power and the company accepted a “cease and desist” order. Intel paid AMD $1.25bn last December in settlement of a civil action its rival brought over the same issues.

AMD said a new five-year cross-licensing agreement with Intel would allow it to
compete on a level playing field.

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