By Abby Lauer – Edited by Ian C. Wildgoose Brown

On Thursday, Intel announced that it will pay $1.25 billion to Advanced Micro Devices (AMD) to settle AMD’s antitrust complaints in the U.S., Europe, Japan and South Korea. According to the terms of the settlement, Intel agreed to refrain from engaging in tactics involving computer manufacturers that would exclude AMD from the microprocessor market. The companies also resolved to drop their patent dispute and enter into a five-year cross licensing agreement.

The NY Times provides an overview of the settlement and other information about Intel and AMD. Ars Technica provides strategic analysis; the WSJ Law Blog provides opinions of antitrust experts and PCWorld provides additional commentary.

The settlement is the latest development in a dispute between Intel and AMD that has spanned more than two decades and has involved 200 million documents and 2,200 hours of witness depositions. AMD had accused Intel of rewarding computer manufacturers that use Intel chips exclusively while penalizing those who buy products from AMD, a violation of the Clayton Antitrust Act, 15 USC 14. Intel refuted these accusations and has repeatedly denied that it engaged in illegal tactics to exclude AMD from the microprocessor market. Market leader Intel supplies 70-80% of all PC microprocessors; AMD is a distant second and supplies the remaining 20-30%.

News of the settlement was met with some surprise in the business world, although the companies claim to have been conducting dispute resolution meetings since April. The substantial amount of money that Intel has agreed to pay AMD may indicate the company’s unwillingness to risk a loss at trial. Such a loss could have required Intel to pay treble damages under 15 USC §§ 12–27; this amount plus the additional legal fees accumulated at trial could have cost Intel much more than the settlement amount.

The chance of an FTC suit against Intel is somewhat diminished in light of the settlement agreement, as AMD historically has been a significant agitator for government antitrust action. However, the settlement does not cover many of Intel’s business practices, including Intel’s broad pricing policies and its marketing payments to PC makers. The FTC has been investigating Intel business practices for the past year, though it has not yet filed a complaint against the company. Intel is currently appealing a $1.45 billion fine that was imposed by the European Union last May. Betanews reports that a spokesman for the European Commission has recognized the AMD settlement but has made clear that the Commission is going forward with its antitrust investigations. In addition, New York Attorney General Andrew Cuomo recently filed a wide-ranging antitrust suit against Intel. The AMD settlement therefore is not the end of Intel’s antitrust battles.

The settlement will help AMD address $5 billion of debt resulting from recent business acquisitions and reorganizations. Intel needs AMD to stay competitive to balance its market domination and to counter further antitrust and monopoly concerns. This settlement may represent a win-win resolution to one of the computer industry’s most bitter legal battles.

Court Issues TRO Against Sales of Beatles Music “Simulation”

Ars Technica reports that on November 5, a Central District of California judge issued a temporary restraining order (TRO) against BlueBeat.com, a website offering 25-cent downloads and free streaming of thousands of copyrighted songs, most notably including the entire Beatles catalog. The order is part of a suit filed on November 3 by Capitol, EMI, Priority, and Virgin Records, claiming copyright infringement and various state law violations. In its ill-received opposition to the TRO, BlueBeat asserted in part that the sound recordings it sells were not copied from the originals, but instead were “independently developed” through a “psycho-acoustic simulation” process.

New York Files Suit Against Intel

New York Attorney General Andrew Cuomo filed an antitrust lawsuit against Intel on November 4, The New York Times and The Washington Post report. The complaint focuses on Intel’s relationships with Dell, Hewlett-Packard, and IBM, asserting that the company has used what amounts to coercion and bribery to ensure the use of its chips over those of its main competitor, Advanced Micro Devices. This is the second antitrust action taken against Intel in the U.S — the first, an FTC administrative complaint, was filed in 1998 and later settled. Since 2005, however, Intel has battled and lost antitrust disputes in the EU, Japan, and South Korea.

Anti-Net Neutrality Bill Introduced in House

On October 30, Rep. Marsha Blackburn (R-TN) introduced a House bill that would ban the FCC from issuing “any regulations regarding the Internet,” PCMag.com reports. The bill came eight days after the FCC issued its proposed net neutrality rulemaking, and a week after Sen. John McCain introduced a similar bill in the Senate. Blackburn framed the bill as an effort to preserve the Internet as “the last truly open public marketplace”; supporters of FCC regulation counter that the proposed nondiscrimination rule is necessary to preserve that openness.

ISPs Found Liable for Websites’ Trademark and Copyright Infringement

Computerworld and Ars Technica report that on August 28, a federal jury handed down a $32.4 million judgment against two ISPs that hosted websites selling counterfeit Louis Vuitton products. Louis Vuitton successfully argued on a theory of contributory infringement, overcoming the ISPs’ claims of immunity under the Digital Millennium Copyright Act’s “safe harbor” provisions. Evidence that the ISPs had received and failed to respond to notices of the illegal activity from Louis Vuitton was key to the case.

EU to Investigate Oracle/Sun Deal

On September 3, the European Union’s antitrust regulators announced plans for a formal investigation of Oracle’s planned buyout of Sun Microsystems, The Washington Post reports. The investigation will center on the competitive consequences of “the world’s biggest proprietary database company . . . tak[ing] over the world’s leading open-source database company.” The European Commission will come to a ruling on the deal by January 19; the U.S. Department of Justice has already approved it.

Authors Voice Privacy Concerns in Objection to Google Settlement

A group of authors and publishers filed an objection to the proposed settlement between The Authors’ Guild and Google Book Search (GBS), the Electronic Frontier Foundation (EFF) reported on September 8. A fairness hearing regarding the settlement is set for next month. In the objection, prepared by EFF, the ACLU, and the Samuelson Clinic at UC Berkeley School of Law, the authors assert that GBS’s collection of personally identifiable information regarding users’ habits will having a chilling effect on readership. Limited information retention and strict disclosure standards are among the authors’ specific demands.

Microsoft, Yahoo, Amazon Join Opposition to Google Settlement

The New York Times reports that Microsoft, Yahoo, and Amazon have joined library associations, nonprofits, and individuals in opposing the Google Books settlement in The Authors Guild v. Google. The settlement, which would allow Google to provide digital versions of millions of books, still requires court approval and remains the subject of a Department of Justice antitrust investigation. The opposition group, tentatively called the Open Book Alliance, will argue to the Department of Justice that the settlement agreement is anticompetitive.

Internet Law Group Brings Suit Against Unidentified Hackers

“John Doe” suits brought against unidentified Eastern European hackers may offer a glimpse of the hackers’ targets and techniques through subpoenas against defrauded banks. However, the banks may challenge the subpoenas in order to protect customer privacy. Unspam Technologies, a group that recently filed suit against bank hackers in the Eastern District of Virginia, hopes to improve bank security and potentially identify the hackers. The New York Times outlines the stakes and key players in the case, Project Honey Pot v. Does.

Mozilla Versus Microsoft in EU Browser Investigation

Ryan Paul at Ars Technica criticizes Mozilla’s complaints regarding Microsoft’s Internet Explorer bundling and default-setting practices. Paul not only argues that many of Mozilla’s complaints “lack substance,” but also claims that the European Union has no business intervening to encourage competition because Mozilla’s Firefox browser has a 22 percent market share “amidst an increasingly competitive browser market.” In contrast, Mitchell Baker of Mozilla argues that the Firefox browser is at a disadvantage because Internet Explorer has a “uniquely privileged position on Windows installations.”

By Sharona Hakimi – Edited by Chris Kulawik
Princo Corp. v. International Trade Commission, April 20, 2009, No. 07-1386
Slip Opinion

On April 20^th, the Federal Circuit affirmed in part and vacated in part a decision by the International Trade Commission in a suit regarding a patent pool for the “Orange Book” technology used to produce recordable and rewritable CDs. At the ITC, Princo conceded that it violated six patents owned by Philips Corp, but it claimed those patents were unenforceable due to patent misuse. Writing for the Federal Circuit, Judge Dyk affirmed the ITC’s findings that Princo failed to demonstrate that Philips committed patent misuse due to unlawful tying. However, the court remanded the case to determine whether Philips misused its patents by allegedly violating antitrust laws by agreeing not to compete with Sony.

The ITC originally ruled in Certain Recordable Compact Discs & Rewritable Compact Discs (Inv. No. 337-TA-474) that CD-R and CD-RWs imported by Princo infringed on six of Philips’ patents, all of which relate to industry standard “Orange Book” CD technology. The patents at issue were jointly developed by Philips and Sony in the 1980s and early 1990s.  When developing the technology and industry standards, Philips, Sony, and other companies pooled their patents and allowed Philips to grant package licenses to each company, with all of the patent owners sharing in the royalties.

Barry Herman and Alex Englehart of the ITC Law Blog summarize the decision.  Patently-O explains the relevant case law and antitrust theories. The Patent Prospector recaps the case’s background, providing excerpts from both the ITC and the Federal Circuit opinions.

On appeal at the ITC, Princo conceded infringement but made two distinct claims of patent misuse by Philips that would render the patents unenforceable. First, Princo argued that Philips misused its patents by tying a non-essential technology, the “Lagadec patent,” into a bundle within the patent pool. Princo asserted that Philips thereby “improperly used its market power” to force manufacturers interested in Orange Book technology to also acquire a license to the non-essential Lagadec patent. However, the Federal Circuit affirmed the ITC’s finding that this did not qualify as misuse since a reasonably broad claim construction of the Lagadec patent could make it essential to the technology. The Federal Circuit agreed that that this kind of tying is not misuse so long as “it would have been reasonable for a manufacturer to believe a license… was necessary.”

Princo put forth a second misuse claim alleging that Philips violated antitrust laws by improperly colluding with Sony. According to Princo, “Philips bribed Sony not to use . . . Lagadec to compete against the [Philips dominated standard].” Princo alleged that Phillips and Sony agreed never to license the Lagadec patent without also licensing the rest of the patent pool. The court agreed with this argument, but it remanded to determine “(1) whether Lagadec was a potentially workable alternative to the Orange Book technology and (2) whether Princo has established that Sony and Philips agreed that Lagadec would not be licensed in a manner allowing its development as competitive technology.”

Judge Bryson, who dissented in part, would have fully affirmed the ITC’s findings. Judge Bryson concluded that this is not the rare case of patent misuse; the safe harbor of 35 USC 271(d) did not apply because the ITC found that Philips did have market power in the relevant market.

A news release on the website of the international firm Troutman Sanders LLP cautions patent holders, licensees, and technology manufacturers of possible implications that may arise from the decision, advising them not to enter hastily into patent pools: “As Princo reflects, such a pool needs to be set up carefully because various aspects of the negotiation or terms of a patent pool can give rise to antitrust allegations, patent disputes, or both.” This case indicates the inherent tension between protecting patent holders’ exclusive rights to their technology and the larger public policy considerations encouraging the development of competing technologies.

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