The U.S. Federal Trade Commission accused Intel Corp., the world’s largest computer-chip maker, of illegally using its dominant market position for a decade to stifle competition and bolster its monopoly.

The complaint, to be heard by an FTC administrative law judge, says Intel tried to block “superior” products by rivals and hurt consumer choice. Intel has been “running roughshod” over principles of fair play, the FTC said.

“Intel has engaged in a deliberate campaign to hamstring competitive threats to its monopoly,” Richard A. Feinstein, the FTC’s director of competition, said in a statement. A hearing in the case may be held next September, the FTC said. The agency began probing Intel’s business practices in June 2008.

Intel accounts for more than 80 percent of sales in the $32 billion market for computer chips, dwarfing No. 2 Advanced Micro Devices Inc. Intel has contended with antitrust probes for more than a decade, and agreed to pay $1.25 billion to AMD last month to settle a four-year dispute. The chipmaker now faces another probe of its practices and possible steps to curb its dominance in microprocessors, the brains that power personal computers.

The action, setting the stage for the biggest U.S. antitrust case since the Clinton administration sued Microsoft Corp. in 1998, may reflect increased antitrust scrutiny of the technology industry under President Barack Obama. Jonathan Leibowitz, a former chief lobbyist for the Motion Picture Association of America, was appointed chairman of the FTC by Obama in March.

Shares Fall

Intel, based in Santa Clara, California, dropped 42 cents to $19.38 at 4 p.m. New York time in Nasdaq Stock Market trading. The stock has gained 32 percent this year. AMD jumped 3.7 percent in New York Stock Exchange composite trading. Shares of Nvidia Corp., an Intel rival in the graphics-chip market, added 8.1 percent on the Nasdaq.

While the Justice Department shares antitrust enforcement responsibility with the FTC, it isn’t involved in the Intel case.

Christine Varney, who heads the Justice Department’s antitrust division, said in a speech in May that the Obama administration “will be aggressively pursuing cases where monopolists try to use their dominance in the marketplace to stifle competition and harm consumers.”

‘Fairly and Lawfully’

Intel said that it has competed “fairly and lawfully” and that its actions have benefited consumers. The microprocessor industry is competitive and prices have declined at a faster rate than in any other industry, the company said in a statement. In settlement talks with Intel, the government asked for “unprecedented remedies” that would make it “impossible for Intel to conduct business,” general counsel Doug Melamed said.

“The FTC’s rush to file this case will cost taxpayers tens of millions of dollars to litigate issues that the FTC has not fully investigated,” Melamed said. “It is the normal practice of antitrust enforcement agencies to investigate the facts before filing suit. The commission did not do that in this case.”

In May, EU regulators levied a record 1.06 billion-euro ($1.55 billion) fine against Intel and ordered the company to stop using illegal rebates to thwart competitors. Following an eight-year investigation, the EU found that Intel impeded competition by giving rebates to computer makers that buy all or almost all of their chips from Intel. The company has appealed the fine.

No Harm?

Intel, which had about $12.9 billion in cash and short-term investments at the end of September, isn’t harmed by billion- dollar fines and AMD doesn’t have the products to challenge its dominance, said Gus Richard, an analyst at Piper Jaffray Cos. in Minneapolis.

“If you go with the European model, they get slapped and pay a fine,” Richard said. “Intel, technologically, is pulling away from AMD. A settlement may level the playing field, but it won’t aid AMD or hurt Intel significantly.”

Feinstein said he expects the trial to end a year from now and that a full commission decision may come in mid-2011. Intel’s conduct has been “detrimental” to consumers, Feinstein said at a news conference in Washington. He said the agency would seek “conduct relief,” rather than monetary penalties. He said there’s no goal of breaking up Intel.

Feinstein said politics didn’t play a role in the decision to pursue a case against Intel and the case didn’t represent a shift in position by the FTC under the Obama administration.

‘Threats and Rewards’

The FTC said Intel used “threats and rewards” aimed at computer manufacturers, including Round Rock, Texas-based Dell Inc., Palo Alto, California-based Hewlett-Packard Co. and Armonk, New York-based International Business Machines Corp. Intel coerced the companies not to buy rivals’ processor chips, the FTC said.

“One can argue that Intel made a smart business decision” because aggressive marketing tactics probably added more to profit over the past several years than Intel will incur in fines, said JoAnne Feeney, an analyst at FTN Equity Capital Markets in Cleveland.

In November, New York Attorney General Andrew Cuomo sued Intel, accusing the company of threatening computer manufacturers and making billions of dollars in illegal payments to pressure them to use its chips. Cuomo said today in a statement that the FTC’s action reinforces allegations in his lawsuit.

Good News?

“The FTC’s action against Intel is good news for consumers,” Sunnyvale, California-based AMD said in a statement. “It is yet another example of regulators around the globe acting to protect consumers by enforcing competition laws.”

Dell spokesman Jess Blackburn and Hewlett-Packard’sGina Giamanco declined comment.

Intel moved to smother competition in the graphics-chip business when it fell behind technology in core computer processors, Nvidia president Jen-Hsun Huang said in a statement.

“This has curbed innovation and investment and reduced consumer choice,” Huang said. “Today’s filing is sorely needed to stop Intel from using unlawful tactics.”

The decision is a boost to Nvidia, which has said Intel is using its market position to harm competition in the market for graphics chips. In February, Intel asked a judge in Delaware to declare that a chip license with Nvidia doesn’t cover future products. Nvidia countersued for breach of contract. Nvidia also makes so-called chipsets that provide support functions to processors.

Nvidia Pleased

Nvidia, based near Intel in Santa Clara, said it applauded the FTC’s action. The company is pleased that the commission is scrutinizing Intel’s role in the market for graphics chips, according to a statement today.

When settling its dispute with AMD last month, Intel said it also agreed to abide by a set of business-practice provisions. AMD had sued Intel in Delaware in 2005, alleging that Intel controls the microprocessor market in part by providing discounts to customers that avoid AMD’s products.

“This has been an overhang for Intel, but the fundamentals of PC demand are fantastic,” said Uche Orji, an analyst at UBS AG in New York. The company will gain more from improving profit margins, as corporate technology spending recovers, than it’s likely to lose from settling with the FTC, he said.

source:bloomberg