Intel, Microsoft Face Ftc Scrutiny Antitrust Probe Into Technology Industry Duopoly

What are federal investigators so worried about?

The Federal Trade Commission has launched a broad investigation into whether Intel Corp. broke antitrust law by trying to monopolize the market for computer chips. The probe, disclosed by Intel late Wednesday, now means both the chip maker and software giant Microsoft - the personal computer industry’s famous duopoly - are objects of federal scrutiny.

The government has grown more willing to address concerns that the industry’s most powerful players, if their practices are left unchecked, could stifle innovation in technology. The fear is that consumers would be left with fewer choices and that the engine driving the U.S. economic boom would be disabled.

“I think there is concern (by federal investigators) that we need to keep these technology markets open to new advances in technology, to robust competition,” said Gary Reback, a partner at the law firm Wilson Sonsini Goodrich & Rosati.

Intel sells the silicon microprocessors used in 85 percent of the world’s PCs, and Microsoft makes 80 percent of the software that runs PCs. That in itself isn’t enough to warrant an investigation. But antitrust experts said several practices were likely getting attention.

In Intel’s case, they include complaints the chip company was bullying customers by threatening to withhold key products or advance information about technology. The attention comes just a month after the Justice Department broadened its ongoing probe into Microsoft Corp. by reviewing its proposed $150 million investment in Apple Computer and its stake in three smaller companies.

The FTC declined to comment on its latest probe, citing policy against discussing investigations. A spokesman for Santa Clara, Calif.-based Intel said the FTC’s subpoena was extremely broad, covering all facets of its business, and said that no one business practice was targeted. Intel said it believes none of its practices have broken the law.

But the government’s new attitude is clear. In 1993, a deadlocked FTC commission decided against taking action against Microsoft in a probe into whether the software maker was using its market clout to suffocate sales of competitors’ software, and the investigation was passed to the Justice Department.

Today, the FTC is flush with success from recent victories.

Staples and Office Depot in July called off their $3.5 billion merger after the commission got a court injunction arguing the deal would reduce competition and lead to higher prices. Rite Aid Corp. last year dropped a $1.8 billion deal with Revco after the FTC said Rite Aid would gain too much of the market.

“The FTC, under Chairman Robert Pitofsky, has been more aggressive in its antitrust law-enforcement activities than under its recent leaders,” said Robert Burka, an antitrust lawyer with Foley & Lardner, a Washington law firm that has done work for Intel competitor Advanced Micro Devices Inc.

The probes, even if they don’t lead to cases, could slow the companies’ aggressive efforts to expand outside their core businesses, antitrust experts said. Chuck Mulloy, the Intel spokesman, said the company was not changing any practices because it had done nothing wrong.

But the FTC’s civil investigative demand for Intel comes after the federal agency last month asked for more information about Intel’s planned $420 million purchase of Chips & Technologies Inc. in a move that has delayed the deal.

Intel recently has been on the acquisition trail, its latest this week the purchase of Dayna Communications, a small Salt Lake City-based maker of hardware that helps link together computers in networks.

“These investigations obviously do have an effect on companies” even though only a small percentage lead to the filing of a complaint, said Warren Grimes, a professor at the Southwestern University School of Law in Los Angeles. Grimes is a former FTC staff member and a former chief counsel to a House antitrust subcommittee.

“Many of these investigations, merely because they take place, force the company to re-examine its own behavior,” Grimes said.

Intel’s dealings with its customers and chip rivals are legend in the chip industry. Last May, Intel hinted it might quit selling computer chips to Digital Equipment Corp. and sued to force the return of microprocessor blueprints crucial to making new Digital computers.

The moves were a stern counterattack by the world’s largest chip maker to Digital’s lawsuit two weeks earlier accusing its supplier of copying Digital technology to monopolize the PC microprocessor market.

After Digital accused Intel of anti-competitive practices, Intel agreed to ship chips to Digital, at least through the end of the year. A Digital spokesman confirmed that the company has received a subpoena from the FTC.

In the Microsoft probe, the Justice Department is looking at Microsoft’s investment in rival Apple, announced Aug. 6, which buys it only a minority nonvoting stake. But the deal also calls for Apple to make Microsoft’s Internet Explorer browser the easiest way for users of Mac computers to cruise the Internet, dealing the latest blow to rival browser maker Netscape Communications Corp.

Separate from Apple, federal antitrust investigators are looking into Microsoft’s purchase of stakes in three companies that make video technology that works across the World Wide Web.