The FTC believes Intel's tactics violate Section 5 of the FTC Act, which prohibits unfair methods of competition, as well as deceptive acts and practices in commerce. "We take seriously our mandate to find a violation of Section 5 only when it is proven that the conduct at issue has not only been unfair to rivals in the market but, more important, is likely to harm consumers," said FTC Chairman Jon Leibowitz and Commissioner J. Thomas Rosch.

Coercing PC Makers

The lawsuit accuses Intel of engaging in an anticompetitive campaign based on "exclusive or restrictive dealing." Among other things, the FTC charges that since 1999 the chipmaker has repeatedly employed a combination of threats and rewards to coerce the world's largest PC makers into foregoing the use of chips from rivals such as Advanced Micro Devices or marketing any machines containing non-Intel computer chips.

"OEMs that purchased 100 percent or nearly 100 percent of their requirements from Intel were favored with guarantees of supply during shortages, indemnification from intellectual-property litigation, or extra monies to be used in bidding situations against OEMs offering a non-Intel product," the FTC lawsuit says.

What's more, the complaint contends that Intel secretly redesigned its key software compiler in a way that deliberately reduced the performance of rival computer processing unit (CPU) products, and deceived its customers and the public by failing to disclose this fact. "Many of Intel's design changes to its software had no legitimate technical benefit and were made only to reduce the performance of competing CPUs relative to Intel's CPUs," the FTC said.

In addition, the FTC believes Intel recently began using similar tactics to stifle competition from Nvidia and other companies that make a specialized type of computer chip known as a graphics processing unit (GPU). "These products have lessened the need for conventional microprocessors, and therefore pose a threat to Intel's monopoly power," the FTC said.

Settlement Talks Scuttled

Intel Senior Vice President Doug Melamed called the FTC's lawsuit misguided and unwarranted. "Simply put, Intel has not violated the law," Melamed said. "We will aggressively defend ourselves and look forward to a successful resolution of these claims."

Melamed said the FTC's case is based largely on accusations that the FTC added at the last minute and for which the commission has not even begun the discovery process. He said Intel was told in recent weeks that there were issues with GPUs and benchmarks, "but we did not realize the full extent of it until Dec. 8."

Intel would have preferred a voluntary settlement with the FTC, which is something the chipmaker had been pursuing, Melamed observed.

"This case could have, and should have, been settled," Melamed said. "Settlement talks had progressed very far but stalled when the FTC insisted on unprecedented remedies -- including the restrictions on lawful price competition and enforcement of intellectual-property rights set forth in the complaint -- that would make it impossible for Intel to conduct business."

Still, Intel is not shutting the door on the possibility of arriving at a voluntary settlement. "It is always prudent to settle a case like this on sensible terms, but right now the option is not on the table," Melamed said.