Intel’s Sell Out

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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 Pentiummicroprocessor is worth serious contemplation anyway. The FTC's attack onIntel provides support for the view that antitrust laws are now completelyantiquated, if indeed they were ever of any use. America's policy makersshould place high on their agenda the repeal of laws that have no place in adynamic, global economy.

Intel's case grew out of its practice of sharing technicalinformation sothat 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 CompaqComputer Corp. Not surprisingly, Intel decided to withhold its technicalinformation until the disputes could be settled.

Normally, a business has a right to choose its own business partnersandthe 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, wasa monopoly. Thus it could not withhold access to critical information andhad to treat all similarly situated businesses alike. That is,metaphorically, Intel had to allow all thirsty comers to draw water from theonly well in town.

But Intel in fact has competition, including such well-knownchipmakers asAdvanced Micro Devices (AMD) and National Semiconductor Corp. Any CircuitCity or Best Buy ad features plenty of computers that use competing chipsrather 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-costretail chips recently outpaced sales of Pentiums.

Those facts suggest that Intel could have won its legal battle withtheFTC. Instead, Intel agreed to knuckle under and share data with othercompanies 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 furtheremboldened to impose by force their notions of a "free" market. But thedynamic information and communications revolution is a compelling argumentagainst antitrust laws. The fast pace of change has seen the dominant IBMs,Apples and CompuServes of yesterday overtaken by the Microsofts and AOLs oftoday. Perhaps satellite Internet services or some JAVA-based search enginewill produce new winners tomorrow. But government antitrust laws andregulations will end up pouring gallons of legal molasses into this vibrantindustry, with serious implications for the currently booming Americaneconomy based on it.

In a sense, Intel is getting its just desserts. In the 1980s it ledagroup of American semiconductor manufacturers who got the U.S. government totry to force the Japanese government to guarantee American semiconductors a20 percent share of its market and to "voluntarily" restrict exports fromJapanese manufacturers. They also got Uncle Sam to help fund Sematech, aresearch consortium of the 14 largest American semiconductor manufacturersthat has so far spent around $900 million in taxpayers' money.

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

Alan Greenspan put it well when he wrote that antitrust "is a worldinwhich actions designed to limit competition are branded as criminal whentaken by businessmen, yet praised as 'enlightened' when taken by thegovernment."

The real monopoly maker is the federal government. Businessesshouldunderstand that when they jump into bed with government, in the end they'remore likely to get the back of the hand than tender loving care. Theyshould understand that a government with the power to limit domesticcompetitors with antitrust laws can limit their freedom as well. Intel,Microsoft and the rest of America's high-tech companies can do the nation agreat service if, in addition to offering their excellent products, theyneither accept government favors nor surrender to government extortion andintimidation.

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