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IP: Federal Judge says Intel CPU platform is an Essential Facility
From: Dave Farber <farber () cis upenn edu>
Date: Tue, 14 Apr 1998 11:34:57 -0400
From: James Love <love () cptech org> In a decision with broad relevance to Microsoft and the biotechnology sector, Edwin L. Nelson a US Federal District Court judge from Birmingham, Alabama, issued a decision on April 10, 1998, declared Intel's CPU an "essential facility," and ordered significant non-discriminatory licensing of Intel's proprietary information to Intergraph, a firm which sells graphics chips and technical software, and workstations. The decision is on the Web at: http://www.intergraph.com/intel/order.htm Here are a few high points from the 80 page decison: On Intel's market power: ----- Intel has purposely changed its CPU architecture by using proprietary sockets and otherwise, converting from the previously "open architecture" to a new "closed architecture."17 (Tr. 85). This "closed architecture," for practical purposes, allows Intel, by exercising its intellectual property rights in its "closed architecture," to wield absolute power over who will and who will not be allowed to participate in that part of the high-end computer industry that is based upon the "x86" microprocessor. Inasmuch as it requires two or more years and millions of dollars to design and develop a mother board and graphics subsystem to accept and take advantage of a CPU such as the Pentium II or any possible alternative, (Tr. 69)18 OEMs, such as Intergraph, who rely entirely on Intel for their supply of microprocessors and chip sets have become technologically and financially locked in to the Intel CPU, its associated chip sets, and the P6 Bus, and they have no feasible alternative to it...=20 .OEMs, such as Intergraph, are capable of competing in the marketplace only if they also have access to: (1) Intel=92s advance confidential technical information, which is necessary to develop new products and to service existing products; (2) advance samples of Intel=92s development chips, which are needed by Intergraph to develop its own next-generation products using those chips (hereinafter referred to as "Chips Samples"); and (3) early releases of Intel chips, related products, and related technical information, which is necessary for Intergraph to test and produce its products (hereinafter referred to as "Early Release Chips"). ----- 4. Intel=92s Use of NDAs to Coerce Intergraph. Intel provides its products, as well as technical and design information, to Intergraph under NDAs, which are terminable at will by Intel. These NDAs are documents drafted by Intel and presented to Intergraph and other customers on a take-it-or-leave-it basis. Intel simply dictates the terms under which it provides its products and design information to customers such as Intergraph. (Patterson Tr. 128-130). The evidence suggests strongly that Intel has used the threatened or actual termination of NDAs as a contractual weapon, coercing customers such as Intergraph to accede to Intel's demands and restraining competition. The court takes judicial notice of the fact that, when Intergraph and Digital Equipment separately asserted their patent rights against Intel, Intel immediately used the termination provisions of their respective NDAs to deny both Intergraph and Digital further technical information, samples, and products and demanded the return of all Intel confidential information provided to them. . . . In view of Intel=92s previous policy of providing much of the same type of information now subject to NDAs in a much less restricted manner and in view of the fact that Intel has offered no reasonable explanation of any present need for the use of the NDAs, it seems reasonable to conclude that Intel's present use of one sided and terminable-at-will NDAs and its retaliatory cancellation of the NDAs are unreasonable and anticompetitive contractual restraints using Intel=92s monopoly in CPUs and related design and technical information. Furthermore, the chilling effect which Intel=92s arbitrary enforcement of the NDAs in this manner must have on other members of the industry, who are dependent upon Intel for microprocessors, is obvious. ------- The court also finds that Intel has attempted to leverage its monopoly power in the "x86" CPU market to prevent Intergraph from competing in the graphics subsystem and workstation markets and to control and dominate competition in these markets through discriminatory and favored agreements and understandings with some of Intergraph=92s competitors. This reduces competition in the markets in which Intergraph competes, depriving customers of alternative and improved technology in these markets, stifling innovation, reducing competition in price and quality, and impairing competition generally. ----------- B. Intel's Unlawful Refusal to Deal and Denial of Access to Essential Facilities. A refusal to deal "may be unlawful because a monopolist=92s control of an essential facility (sometimes called a =91bottleneck=92) can extend monopoly power from one stage of production to another, and from one market into another." MCI Communications Co. v. AT&T, 708 F.2d 1081, 1132 (7th Cir. 1983), cert. denied, 464 U.S. 891, 104 S. Ct. 234, 78 L. Ed. 2d 226 (1983). Courts have held that the antitrust laws protect customers and purchasers in cases when a monopolist refuses to deal in order to control a downstream market or to frustrate litigation. Image Technical Services, 125 F.3d at 1211 (supplier=92s refusal to deal with its "customers" in order to control a downstream market); Bergen Drug Co. v. Parke, Davis & Co., 307 F.2d 725, 726 (3d Cir. 1962) (preliminary injunction granted where defendant drug company refused to sell its products to "purchasers" on the same terms as they are sold to other purchasers). The antitrust laws impose on firms controlling an essential facility the obligation to make the facility available on non-discriminatory terms. MCI Communications Co., 708 F.2d at 1132; Otter Tail Power Co. v. United States, 410 U.S. 366, 93 S. Ct. 1022, 35 L. Ed. 2d 359 (1973), reh=92g denied, 411 U.S. 910, 93 S. Ct. 1523, 36 L. Ed. 2d 201 (1973); Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 105 S. Ct. 2847, 86 L. Ed. 2d 467 (1985) (access to essential facility must be granted by ski lift owner controlling seventy-five percent of the ski lifts); Tic-X-Press, Inc. v. Omni Promotions Co. of Ga., 815 F.2d 1407, 1420 (11th Cir. 1987) (Omni arena was unique facility with substantial economic advantages; lack of viable alternative arenas gave the owner substantial market power). Intel=92s advanced CPUs and Intel=92s technical information are "essential" if they are vital to competitive viability and competitors cannot effectively compete in the relevant market without access to them. City of Anaheim v. Southern Calif. Edison Co., 955 F.2d 1373, 1380 n.5 (9th Cir. 1992) (a facility is "essential" if it is otherwise unavailable and cannot be "reasonably or practically duplicated"). Intel=92s Advanced Chips Samples, Early Release Chips and Technical Information need not be indispensable, but their denial must "impose a severe handicap on potential market entrants." TCA Bldg. Co. v. Northwestern Resources Co., 873 F. Supp. 29, 39 (S.D. Tex. 1995). Reasonable and timely access to critical business information that is necessary to compete is an essential facility. Bellsouth Adver. & Publ=92g Corp. v. Donnelley Info. Publ=92g, Inc., 719 F. Supp. 1551, 1566 (S.D. Fla. 1988), aff=92d, 933 F.2d 952 (11th Cir. 1991). Furthermore, a monopolist=92s unilateral refusal to deal violates =A7 2 of the Sherman Act where such conduct unreasonably handicaps competitors or harms competition. Image Technical Services, 125 F.3d at 1209. Accordingly, the court concludes that Intel=92s refusal to supply advanced CPUs and essential technical information to Intergraph likely violates =A7 2 of the Sherman Act, because they are not available from alternative sources and cannot be feasibly duplicated, and because competitors cannot effectively compete in the relevant markets without access to them. Moreover, the court concludes that Intel has no legitimate business reason to refuse to deal with Intergraph. Intergraph has been a loyal and beneficial customer of Intel. The dispute over Intergraph's patent claims could be resolved separately without Intel denying Intergraph the essential CPUs and technical information it needs. ------------- VII. Preliminary Injunction.=20 Accordingly, pending further order of the court, it is hereby Ordered, Adjudged, and Decreed: Intel Corporation, its officers, agents, servants, employees, and attorneys, and anyone acting in concert with any of them, shall be and they hereby are PRELIMINARY ENJOINED from terminating Intergraph=92s rights as a "strategic customer in current and future programs," or from otherwise taking any action adversely affecting Intel=92s business relationship with Intergraph or Intergraph=92s ability to design, develop, produce, manufacture market or sell products incorporating, or based upon, Intel products or information, including but not limited to the following: a. Intel shall supply Intergraph with all Intel product information, including but not limited to technical, design, development, defect, specification, support, supply, future product, product release or sample data, whether existing in product data books, "yellow backs," Confidential Information Transmittal Records, email or other mediums (hereinafter "Information"), in such form and content as supplied to and at the same time Intel supplies such Information to Intergraph=92s similarly situated competitors, such as Hewlett Packard, Compaq, Dell, IBM, NetPower and Silicon Graphics (hereinafter "the Competitors"), whether it is on an advance basis for the development of motherboards, graphics subsystems or workstations utilizing Intel=92s existing, or future generation products (hereinafter "Product Development"), on current products as needed for support of such products. Intel shall be required to maintain a log of the disclosure of Information to Intergraph and its similarly situated Competitors, and upon request of the court, certify to this court its compliance with the procedures and timely delivery of such Information. b. Intel shall supply to Intergraph all Information of the type or content made available by Intel to Intergraph through third parties (hereinafter "Third Party Information"), at the same time it permits, or provides, the disclosure of such Third Party Information to Intergraph=92s similarly situated Competitors, whether it is on an advance basis for Product Development or on a current basis for the support of products in distribution. Intel shall be required to maintain a log of the disclosure of Third Party Information to Intergraph and its Competitors,and upon request of the court, certify to this court its compliance with the procedures and timely delivery of such Information. c. Intel shall supply Intergraph with an allocation, and set aside a supply of microprocessors, semiconductors, chips, and buses (hereinafter "Chips") on an advance basis for product development ("Chips Samples"), in such quantities as forecasted by Intergraph in the same manner and the same terms as is done by Intergraph=92s similarly situated Competitors, or in proportional quantities as supplied to Intergraph=92s similarly situated Competitors, and at the same time Intel supplies such Chips Samples to Intergraph=92s similarly situated Competitors, at the prevailing rate charged to Intergraph=92s similarly situated Competitors. Intel shall be required to maintain a log of the release,or delivery, of Chips Samples to Intergraph and its Competitors, and upon request of the court, certify to this court its compliance with the procedures and delivery of such Chips Samples. d. Within eleven (11) days of the date on which Intergraph posts the bond, as required by subsection (h) of this order, Intel shall supply Intergraph with 25 sets of Deschutes Chips Samples, together with all technical data needed to permit Intergraph to develop, design, and manufacture its products. Such technical data shall be of the same type, nature, and extent of technical data provided to Intergraph=92s similarly situated Competitors. e. Intel shall supply Intergraph with an allocation, and set aside a supply, of Chips which have been manufactured by or on behalf of Intel for distribution (hereinafter "Production Chips"), as well as all future chips proposed by, or available from Intel, including but not limited to 333mhz Pentium II, BX, Deschutes and Merced Chips, in accordance with a forecast supplied by Intergraph. Intergraph shall provide Intel with a forecast for Production Chips at least one (1) quarter in advance of the quarter in which Intergraph desires to receive delivery of such Production Chips.=20 (i) Intel shall supply its authorized distributors with sufficient quantities of Production Chips to fulfill Intergraph=92s allocation of Production Chips, when such allocation has been presented by Intergraph to Intel=92s authorized distributor for fulfillment. Intergraph shall, as it has agreed to do, purchase Production Chips available through Intel=92s authorized distributors by placing an order for such an authorized distributor to fulfill Intergraph=92s Production Chips allocation. Intergraph shall negotiate the terms and conditions for the supply of its Production Chips allocation with any Intel authorized distributor of its choosing, and Intel shall not take any action, or fail to take any action, that will interfere with or effect Intergraph=92s terms, conditions, negotiations or relationship with the Intel authorized distributor selected by Intergraph, including but not limited to actions pertaining to prices, discounts, volumes, shipping or delivery pertaining to such Production Chips. Intel shall be required, upon request of the court, to certify to this court its compliance with the procedures with the applicable authorized distributor and delivery of such Production Chips. (ii) Intel shall supply Intergraph with Production Chips not yet available from Intel=92s authorized distributors ("Early Production Chips") in such quantities as forecasted by Intergraph, or in proportional quantities as supplied to Intergraph=92s similarly situated Competitors, at the same time Intel supplies such Early Production Chips to Intergraph=92s similarly situated Competitors, at the prevailing rate charged to Intergraph=92s similarly situated Competitors. Intel shall be required to maintain a log of the simultaneous release, or delivery, of Early Production Chips to Intergraph and its similarly situated Competitors, and upon request of the court certify to this court its compliance with the procedures and delivery of such Early Production Chips. Notwithstanding the foregoing, Intel shall supply Intergraph those Early Production Chips ordered by Intergraph for the 1st Quarter of 1998 at the prices previously agreed to by the parties. [snip] --=20 James Love Consumer Project on Technology P.O. Box 19367, Washington, DC 20036 love () cptech org | http://www.cptech.org 202.387.8030, fax 202.234.5176
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- IP: Federal Judge says Intel CPU platform is an Essential Facility Dave Farber (Apr 14)