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David Balto has penned a short apologia of the FTC’s Intel case (HT: Danny Sokol).  Unfortunately his defense (and, unfortunately, the FTC’s case) is woefully misguided.

Balto writes:

Intel has been clearly dominant in the market for central processing units (CPUs) with between 80 percent and 98 percent of the market. The practices at issue in the FTC litigation have been condemned by the Japan Fair Trade Commission in March 2005, by the Korean Fair Trade Commission in June 2008 and by the European Commission in May 2009. In the United States, Advanced Micro Devices Inc. (AMD), Intel’s sole significant rival, sued Intel for a broad range of exclusionary practices in 2005. The New York attorney general brought its own action in November 2009.

Intel has had its day in court in proceedings before the three foreign commissions—and lost. Each of those tribunals found that Intel engaged in severely anti-competitive practices that protected its central processing unit monopoly and excluded its only real CPU rival, AMD.

This is misleading.  First of all “day in court” is not the same as “proceedings before the three foreign commissions,” and it is well-accepted that conviction by a party acting as judge, jury and prosecutor is less than decisive.

Second, Intel has had judgments rendered against it by agencies–not by courts–without any adversarial process to support those judgments.  It has appealed its European Commission judgment to the European General Court (the court formerly known as the Court of First Instance), and it has appealed the claimed human rights violations inherent in the imposition of a $1.5 billion fine without due process to the European Court of Justice.  It has appealed its KFTC ruling to the Seoul High Court.  It acceded to the JFTC’s recommendations, while contesting its findings of fact.  Intel is, in fact, still awaiting its day in court.

Moreover, the practices at issue in the FTC litigation were either NOT before these other tribunals (more on this in a second), or they were evaluated under laws and jurisprudence that differ substantially from US law and jurisprudence–and in ways that many of us believe lead to outcomes that condemn practices that are not, in fact, anticompetitive. (In Europe, for example, the Commission’s decision, citing to EU case law (its Hoffmann-La Roche line of cases), essentially refused to acknowledge that there could be any pro-competitive justifications for Intel’s discounts.  We beg to differ.)

Balto continues:

As each enforcer concluded, Intel—through its exclusive rebate scheme—paid computer manufacturers to buy Intel’s more expensive, less technologically advanced CPUs, resulting in turn in consumers paying higher prices for computers.

Actually, this is not what even these other enforcers concluded.  While some translations of the Korean decision do seem to suggest that, as something of an aside, the KFTC did assert that consumer paid higher prices, the European decision says no such thing, and I doubt that the Japanese recommendation included such a conclusion, either–certainly its English press release indicates no such finding.

Of course this is not surprising.  The theory of the case is that Intel, by offering conditional discounts, induced OEMs to purchase such a large share of their chips from Intel that AMD was unable to reach the minimum sufficient scale required to compete effectively.  But this effect arises, if it does at all, by Intel offering lower, not higher, prices.  While the claim that consumers had “less choice” might follow from this argument, the claim that consumers paid higher prices does not (unless and until AMD is forced out of business and Intel is finally able to reap the rewards of its predatory strategy.  As I have noted, Intel’s shareholders sure must have a long time horizon). Continue Reading…