Commentary

Intel’s Sell Out

By Edward L. Hudgins
March 26, 1999

Frankly, it’s hard to generate much sympathy for Intel as a victim. There’s every reason to believe it could have prevailed in its legal battle with the Federal Trade Commission, but last week it settled the case instead, with serious implications for the rest of the high-tech industry. And there’s more than a little poetic justice in Intel’s taking it in the neck from the same federal government from whom it hustled trade protection and taxpayers’ dollars during the 1980s.

But the plight of the producer of the justifiably renowned Pentium microprocessor is worth serious contemplation anyway. The FTC’s attack on Intel provides support for the view that antitrust laws are now completely antiquated, if indeed they were ever of any use. America’s policy makers should place high on their agenda the repeal of laws that have no place in a dynamic, global economy.

Intel’s case grew out of its practice of sharing technical information so that other manufacturers could make their products compatible with Intel’s. Intel unsuccessfully sought free licensing of patents from Intergraph Corp. and was sued for patent infringement by Digital Equipment Corp. and Compaq Computer Corp. Not surprisingly, Intel decided to withhold its technical information until the disputes could be settled.

Normally, a business has a right to choose its own business partners and the terms of the relationship. But in this case the FTC claimed that Intel, which had an 85 percent share of America’s semiconductor market in 1997, was a monopoly. Thus it could not withhold access to critical information and had to treat all similarly situated businesses alike. That is, metaphorically, Intel had to allow all thirsty comers to draw water from the only well in town.

But Intel in fact has competition, including such well-known chipmakers as Advanced Micro Devices (AMD) and National Semiconductor Corp. Any Circuit City or Best Buy ad features plenty of computers that use competing chips rather than the ubiquitous “Pentium Inside.” By the fourth quarter of 1998, Intel’s market share had dropped to 76 percent. Sales of AMD’s low-cost retail chips recently outpaced sales of Pentiums.

Those facts suggest that Intel could have won its legal battle with the FTC. Instead, Intel agreed to knuckle under and share data with other companies unless it has a “legitimate business reason” for not doing so, such reason, naturally, to be judged by the government.

There can be little doubt that the FTC and the Justice Department (currently hounding Microsoft), having tasted blood, will be further emboldened to impose by force their notions of a “free” market. But the dynamic information and communications revolution is a compelling argument against antitrust laws. The fast pace of change has seen the dominant IBMs, Apples and CompuServes of yesterday overtaken by the Microsofts and AOLs of today. Perhaps satellite Internet services or some JAVA-based search engine will produce new winners tomorrow. But government antitrust laws and regulations will end up pouring gallons of legal molasses into this vibrant industry, with serious implications for the currently booming American economy based on it.

In a sense, Intel is getting its just desserts. In the 1980s it led a group of American semiconductor manufacturers who got the U.S. government to try to force the Japanese government to guarantee American semiconductors a 20 percent share of its market and to “voluntarily” restrict exports from Japanese manufacturers. They also got Uncle Sam to help fund Sematech, a research consortium of the 14 largest American semiconductor manufacturers that has so far spent around $900 million in taxpayers’ money.

So Intel, which first went hat in hand to the government for relief from competitors, now finds itself government’s victim. That’s the nature of a faustian bargain. Intel wanted help from the government at the expense of the Japanese. Now it objects when others seek federal help at its expense.

Alan Greenspan put it well when he wrote that antitrust “is a world in which actions designed to limit competition are branded as criminal when taken by businessmen, yet praised as ‘enlightened’ when taken by the government.”

The real monopoly maker is the federal government. Businesses should understand that when they jump into bed with government, in the end they’re more likely to get the back of the hand than tender loving care. They should understand that a government with the power to limit domestic competitors with antitrust laws can limit their freedom as well. Intel, Microsoft and the rest of America’s high-tech companies can do the nation a great service if, in addition to offering their excellent products, they neither accept government favors nor surrender to government extortion and intimidation.

Edward L. Hudgins is director of regulatory studies at the Cato Institute.