WASHINGTON, Dec. 16 — The Federal Trade Commission today sued Intel Corp., the world’s leading computer chip maker, charging that the company has illegally used its dominant market position for a decade to stifle competition and strengthen its monopoly.

In its complaint, the FTC alleges that Intel has waged a systematic campaign to shut out rivals’ competing microchips by cutting off their access to the marketplace. In the process, Intel deprived consumers of choice and innovation in the microchips that comprise the computers’ central processing unit, or CPU. These chips are critical components that often are referred to as the “brains” of a computer.

According to the FTC complaint, Intel’s anticompetitive tactics were designed to put the brakes on superior competitive products that threatened its monopoly in the CPU microchip market. Over the last decade, this strategy has succeeded in maintaining the Intel monopoly at the expense of consumers, who have been denied access to potentially superior, non-Intel CPU chips and lower prices, the complaint states.

“Intel has engaged in a deliberate campaign to hamstring competitive threats to its monopoly,” said Richard A. Feinstein, Director of the FTC’s Bureau of Competition. “It’s been running roughshod over the principles of fair play and the laws protecting competition on the merits. The Commission’s action today seeks to remedy the damage that Intel has done to competition, innovation, and, ultimately, the American consumer.”

The FTC’s administrative complaint charges that Intel carried out its anticompetitive campaign using threats and rewards aimed at the world’s largest computer manufacturers, including Dell, Hewlett-Packard, and IBM, to coerce them not to buy rival computer CPU chips. Intel also used this practice, known as exclusive or restrictive dealing, to prevent computer makers from marketing any machines with non-Intel computer chips.

In addition, allegedly, Intel secretly redesigned key software, known as a compiler, in a way that deliberately stunted the performance of competitors’ CPU chips. Intel told its customers and the public that software performed better on Intel CPUs than on competitors’

CPUs, but the company deceived them by failing to disclose that these differences were due largely or entirely to Intel’s compiler design.

Having succeeded in slowing adoption of competing CPU chips over the past decade until it could catch up to competitors like Advanced Micro Devices, Intel allegedly once again finds itself falling behind the competition – this time in the critical market for graphics processing units, commonly known as GPUs, as well as some other related markets. These products have lessened the need for CPUs, and therefore pose a threat to Intel’s monopoly power.

Intel has responded to this competitive challenge by embarking on a similar anticompetitive strategy, which aims to preserve its CPU monopoly by smothering potential competition from GPU chips such as those made by Nvidia, the FTC complaint charges. As part of this latest campaign, Intel misled and deceived potential competitors in order to protect its monopoly. The complaint alleges that there also is a dangerous probability that Intel’s unfair methods of competition could allow it to extend its monopoly into the GPU chip markets.

According to the FTC’s complaint, Intel’s anticompetitive tactics violate Section 5 of the FTC Act, which is broader than the antitrust laws and prohibits unfair methods of competition, and deceptive acts and practices in commerce. Critically, unlike an antitrust violation, a violation of Section 5 cannot be used to establish liability for plaintiffs to seek triple damages in private litigation against the same defendant. The complaint also alleges that Intel engaged in illegal monopolization, attempted monopolization and monopoly maintenance, also in violation of Section 5 of the FTC Act.

To remedy the anticompetitive damage alleged in the complaint, the FTC is seeking an order which includes provisions that would prevent Intel from using threats, bundled prices, or other offers to encourage exclusive deals, hamper competition, or unfairly manipulate the prices of its CPU or GPU chips. The FTC also may seek an order prohibiting Intel from unreasonably excluding or inhibiting the sale of competitive CPUs or GPUs, and prohibiting Intel from making or distributing products that impair the performance-or apparent performance-of non-Intel CPUs or GPUs.

The Commission vote approving the administrative complaint was 3-0, with Commissioner William E. Kovacic recused, and Commissioner J. Thomas Rosch issuing a separate statement in which he concurs in part and dissents in part from the Commission vote.

Chairman Leibowitz and Commissioner Rosch issued a statement outlining the rationale for bringing the case under Section 5 of the FTC Act, which can be found on the FTC’s Web site and as a link to this press release. In his concurring and dissenting statement, Commissioner Rosch described the legal principles that limit an FTC Act Section 5 claim in this case, and the problems that could result from adding follow-on Sherman Act Section 2 claims. A copy of the Commissioner’s statement also can be found on the FTC’s Web site and as a link to this press release.

Under the recently implemented rule expediting the Part 3 administrative hearing process, this matter is tentatively scheduled to be heard before an Administrative Law Judge on September 8, 2010, at 10:00 a.m.

NOTE: The Commission issues a complaint when it has “reason to believe” that the law has been or is being violated, and it appears to the Commission that a proceeding is in the public interest. The issuance of a complaint is not a finding or ruling that the respondent has violated the law. The complaint marks the beginning of a proceeding in which the allegations will be ruled upon after a formal hearing.

The FTC’s Bureau of Competition works with the Bureau of Economics to investigate alleged anticompetitive business practices and, when appropriate, recommends that the Commission take law enforcement action. To inform the Bureau about particular business practices, call 202-326-3300, send an e-mail to antitrust@ftc.gov , or write to the Office of Policy and Coordination, Room 394, Bureau of Competition, Federal Trade Commission, 600 Pennsylvania Ave, N.W., Washington, DC 20580. To learn more about the Bureau of Competition, read “Competition Counts” at

http://www.ftc.gov/competitioncounts

Remember that cool blue hippo mascot for the company, appropriately named, BlueHippo? Whether you remember it or not, many people got burned. So, just how sleazy could a cool blue hippo get? Really, really, sleazy.

The Federal Trade Commission (FTC) has had it with the company, which offers computers on layaway to those too poor to buy one outright. Buyers put up $99 to $124 in down payments, then make regular payments of $36 to $88. After 13 of these payments, the company says it will send out a computer, while the payments continue until the balance is paid off.

Unfortunately for the friendly folks at BlueHippo, the FTC smelled a scam. People were simply not getting machines, and BlueHippo’s “cancelation policy” required people to send in prepaid money orders first even if their account had enough money to cover the necessary fees–not allowed under FTC consumer protection rules. In 2008, BlueHippo settled with the agency. Under the terms of the deal, BlueHippo would pay up to $5 million into a “consumer restitution pool” to reimburse those who had been burned.

At the time, BlueHippo thought this was a great idea. “The FTC staff was fair and professional, and after months of hard work we have fashioned a deal that satisfies all parties,” said Andrew Campbell, General Counsel of BlueHippo, last year. “We are very excited about this settlement. The FTC is our only national regulator and the country’s most important consumer advocate. We’ve made tremendous progress growing our systems and programs since 2006 and we are very optimistic about our future.”

So, more than a year later, how did the plan turn out? Well, when the FTC files court documents in which it accuses a company of being a “money pit,” it’s safe to say that the government isn’t entirely pleased.
Inside the “money pit”

According to the FTC, the company’s brazen business model continued without interruption after the 2008 settlement. “In fact, in the year following entry of this Court’s Stipulated Final Judgment and Order for a Permanent Injunction, BlueHippo financed—at most—a single computer to the over 35,000 consumers who placed orders for computers that could be financed during the period,” the FTC told a court (PDF) yesterday. In the meantime, the company took in a cool $15 million in payments from consumers, who don’t appear to have received anything in return.

Here’s how bad the situation was: according to an FTC footnote buried in the agency’s new court filing, “the shipment of this [one] computer was most likely in error, rather than a computer that BlueHippo intended to finance.”
Would you buy a computer on layaway from this hippo?

In April 2009, the FTC went back to the court and complained about the continued problematic behavior, seeking further penalties. BlueHippo suddenly started shipping computers. It had moved one machine between April 2008 and April 2009, but after the court filing, it suddenly ordered 4,056 computers.

But this didn’t impress the FTC, either, which points out that 2,594 of the customers who received machines had not even met BlueHippo’s financing criteria. In other words, the glut of orders only showed that BlueHippo’s “haphazard, litigation-driven efforts were not truly reflective of their business practices, but rather an effort to stave off further law enforcement action.”

BlueHippo also failed to do basic things like file the FTC reports it had agreed to as part of the agency’s oversight. In April 2009, a federal judge ordered the company to pay $2,500 a day until the report was filed; it took the company five days, resulting in a $12,500 sanction. But the report didn’t please the judge, who took a look at it and then “imposed an additional daily sanction of $5,000 per day… for BlueHippo’s continued failure to provide responsive information to the FTC.” After another $20,000 in fines, BlueHippo finally turned over the detailed information in question.
Seeing red

The FTC has had it, and today went back to court asking a federal judge for a contempt order against BlueHippo.

“Years of broken promises by BlueHippo have left consumers seeing red,” said FTC Chairman Jon Leibowitz in a statement. “We’re putting companies like this on notice: If you mistreat consumers and thumb your nose at the courts, we will hold you accountable.”