Numerous law firms have focused recent in-house memoranda on the settlement entered into by the Federal Trade Commission (FTC) and Intel Corporation of an administrative complaint filed last December under Section 5 of the Federal Trade Commission Act. In the complaint, FTC alleged, among other violations, that Intel unfairly used loyalty discounts and bundled discounts to computer manufacturers as a means of deterring them from purchasing chips from competitors. The settlement is currently in proposed form, and the public has thirty days in which to comment.
Each of the three memos we highlight here note that the case and its settlement should be of great interest to any regulated entity because the Commission proceeded under the FTC Act, and more specifically its controversial “unfairness” authority. The three authors of the Skadden Arps Slate Meagher & Flom memo wrote, “this was the first significant antitrust case that the FTC has filed under Section 5 . . . in nearly thirty years.” The Skadden memo also pointed out that FTC’s decision to settle reflects its desire to avoid a long, drawn-out court battle, as well as the risk of losing the case, which would call into question future use of its “unfair competition” weapon.
The Commission only pursued structural and injunctive relief, and the settlement mostly prescribes business practice alterations to which Intel must conform. As the Kelley Drye & Warren LLP client advisory noted, however, Intel is required to set up a $10 million fund to reimburse customers who relied on Intel’s allegedly false statements regarding its software development tools. The Kelley Drye advisory also related how Intel must modify its intellectual property agreements with its computer chip competitors, which FTC’s complaint alleged “locked them [competitors] into Intel’s strategy.”
The intellectual property elements of the settlement may be very precedent-setting for other patent holders who enjoy a large market share in their industry. A Kilpatrick Stockton LLP Legal Alert explained that “the complaint seems to imply that Intel threatened patent infringement suits against rivals who attempted to form competitive joint ventures or develop competing technologies.” It went on to assert, “This seems to open the door to future administrative actions against market leaders who use legally obtained intellectual property rights to limit their rivals’ ability to compete, but whose conduct does not rise to the level of abuse of monopoly power under Section 2 of the Sherman Act.”
The Kilpatrick Stockton alert also explained how the settlement could exacerbate confusion over the legal status of bundled discounts. A sharp split exists in the federal appellate courts over when a bundled discount violates the monopolization provisions of the Sherman Act. The parameters for how Intel can lawfully bundle, according to the law firm alert, fall somewhere between the competing federal circuit court standards and could “create additional confusion for large companies seeking to provide bundled discounts to their customers as to how low they can lawfully go.”