IP: Federal Judge says Intel CPU platform is an Essential Facility

[Dave Farber <farber () cis upenn edu>]

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