Intel crackdown draws mixed reaction in Silicon Valley

SAN FRANCISCO - In Silicon Valley, Intel Corp.'s latest legal tussle has sparked a debate on how Washington's bid to make the company share more of its inventions could affect a region that prides itself as a center of innovation.

Intel on Wednesday was sued by the Federal Trade Commission, which accused the chip behemoth of using anticompetitive tactics against such rivals as Advanced Micro Devices and Nvidia Corp.

"Today is a huge step forward for all of us that will begin to re-level the playing field," Jen Hsun Huang, chief executive of Nvidia Corp., another Silicon Valley icon, which is seen as getting a boost from the action, said in a company memo.

But others weren't so sure.

"Everybody's first reaction was to let out a low whistle of 'Whoa,'" said Paul Saffo, a Silicon Valley-based forecaster. "It just feels that this is going to ricochet in all sorts of unexpected directions."

Intel, the world's biggest chip maker, predictably denied the allegations of the Federal Trade Commission's complaint, but one of its counter arguments - that the agency was trying to weaken its ability to protect its intellectual property - was received somewhat sympathetically by some long-time industry observers.

The FTC complaint raised past allegations Intel had bullied and bribed manufacturers through discounts and a host of other controversial tactics. But it also focused on a new allegation: that Intel improperly used its intellectual property to shut out rivals.

In its suit, the FTC wants Intel "to make available technology (including whatever is necessary to interoperate with Intel's CPUs or chipsets) to others, via licensing or other means."

That part of the suit was apparently triggered by a raging dispute between Intel and Nvidia. Intel is claiming a licensing agreement doesn't give Nvidia the right to make chipsets compatible with new Intel chips that have memory controllers integrated into the main microprocessor unit.

Huang said the FTC action "can completely transform the computer industry" by allowing more innovation. But some observers said what the FTC's is trying to get Intel to do could have far-reaching consequences.

"Breathtaking is the word," Saffo said, adding the FTC appears to be "trying to reach deep inside the company and tinker around with things."

"I'm a big believer in openness, but I have a hard time seeing how this is going to have a net benefit for the valley," he added.

Analyst Rob Enderle of the Enderle Group offered a grimmer view, saying the FTC's move "could have broad global implications for a lot of companies and the collateral damage could be both extreme and unanticipated."

"The FTC breaking this open is unprecedented and there is some danger, given companies like Intel operate globally, that by doing so they may weaken the US's technology position so this will need to be done very delicately," he said in an e-mail interview.

Paul McWilliams, a Kansas City-based analyst who follows Silicon Valley companies, echoed that view, arguing "what the FTC is proposing, if enforced on everyone, would kill innovation in Silicon Valley, which is already threatened by tech development in other countries."

"If the idea is to just create an Intel law (enforced only on Intel or whatever successful company they choose to target), I think it is pure evil," said McWilliams, editor of NextInning.com. "It discourages integration, the core benefit derived by Moore's Law."

He was referring to the chip industry trend, named after Intel co-founder Gordon Moore, in which the number of transistors companies has been able put on an integrated circuit has roughly doubled every two years. This trend has allowed chip makers to make smaller, more powerful and less expensive processors.

Gary Reback, a well-known Silicon Valley attorney and expert on antitrust issues, noted the complexity of Intel's latest legal challenge, saying "The underlying antitrust issues here are complicated because they are impacted by patents." And patents, he noted, "do confer the ability to exclude to some extent."

Veteran Silicon Valley analyst Nathan Brookwood of Insight 64 said the dispute "is going to be a tricky one for the courts to sort out."

"It is Moore's Law or the Sherman Antitrust Law that should prevail here?" he said.

Nvidia, he said, may argue much of the integration Intel did with its newer chips "was done primarily to block" Nvidia. But he said Intel can argue, "No, it was done because technology allows it to be done."

However, analyst Steve Allen of Sierra Tech Research in San Jose said he was "sympathetic to the underdog in this," noting, "Ultimately, competition makes for a better world. ... It's better to have these giants be pushed back a little bit because it forces innovation."

And some concerns of the FTC overreaching may be overblown, he added. "I do think that them coming after Intel is generally not a signal that they are going to turn the dogs loose on the rest of the industry."

Analyst Tim Bajarin of Creative Strategies Inc. agreed, saying he didn't think many of the worst-case-scenarios from the FTC legal action will pan out, although he said they can be unnerving for many in a region that prides itself in creating and building profitable businesses based ground-breaking technologies.

"If you took it to its extreme meaning - that the FTC will force Intel to open up its patent portfolio to competitors - then anyone working on innovating new technologies could be scared to actually be innovative," he said. "But that type of ruling would be just too extreme. I can't imagine that ever happening."

But he also noted because the issue was not settled before the FTC suit, it may be up to a court to settle the matter. And Saffo lamented that what is likely to be a lengthy legal battle "creates a climate of extended uncertainty" for the tech industry.

"Silicon Valley and Washington run on completely two different clocks," he said. "Needless to say, ours run faster."

(c) 2009, MarketWatch.com Inc.

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