AMD and Intel have had their differences. And by differences, we mean Intel engaging in anti-competitive actions that they’ve been found guilty of in the European Union.

But all of this was supposed to come to a close last month, when AMD and Intel buried the hatchet and made up for past offenses. In return for some cash, some good behavior out of Intel, and for Intel to stop trying to block the Global Foundries deal, AMD would drop all of their civil and regulatory complaints against Intel. And that would be the end of Intel’s legal problems with various governments, right? No, as it turns out that’s wrong.

The catalyst for Intel’s legal woes (besides their own actions, obviously) has been AMD complaining to various regulatory boards about anti-competitive actions undertaken by Intel. Based on those complaints, the European Commission, the South Korean FTC, and the American FTC have been investigating Intel for some time now over these alleged actions. Intel has been found guilty and fined in the EU and South Korea (with both cases on appeal) while the American FTC has continued to investigate.

In fact despite the FTC just now suing Intel, this is actually about half-way through the process. The FTC investigation is done, and they have been negotiating with Intel in private for quite some time to get the matter settled. A lawsuit is the next step for the FTC, when those negotiations break down. Those negotiations have in fact broken down, so here we are: the FTC has sued Intel, and the biggest court battle ever for Intel is soon to begin.

What the FTC Accuses Intel of Doing in the CPU Market

As the FTC’s investigation into the matter is already over, they have published a complete list of complaints against Intel which will be the basis of the coming trial. Based on these complaints the FTC case is a significant departure from the EU and South Korean cases, as the FTC is accusing Intel over not only anti-AMD shenanigans early this decade, but of continuing anti-AMD and anti-NVIDIA shenanigans right up to this day.

The Athlon, the processor that's at the root of all of Intel's legal troubles

The case fundamentally breaks down into two halves: what Intel did against AMD in the CPU market, and what they’re continuing to do against AMD and NVIDIA in the GPU market. Let’s start with the CPU-focused complaints:

1. The usual complaints we’ve seen from the EU. Intel rewarded OEMs to not use AMD’s processors through various means, such as volume discounts, withholding advertising & R&D money, and threatening OEMs with a low-priority during CPU shortages.
   
2. Intel reworked their compiler to put AMD CPUs at a disadvantage. For a time Intel’s compiler would not enable SSE/SSE2 codepaths on non-Intel CPUs, our assumption is that this the specific complaint. To our knowledge this has been resolved for quite some time now.
   
3. Intel paid/coerced software and hardware vendors to not support or to limit their support for AMD CPUs. This includes having vendors label their wares as Intel compatible, but not AMD compatible.
   
4. False advertising. This includes hiding the compiler changes from developers, misrepresenting benchmark results (such as BAPCo Sysmark) that changed due to those compiler changes, and general misrepresentation of benchmarks as being “real world” when they are not.

Interestingly enough, the FTC cites Intel’s reasoning for all of this being that the company was at a competitive disadvantage, and engaged in these actions to buy time to improve their products. The timelines given place specific emphasis on the Athlon (K7) launch in 1999, and the Athlon 64 (K8) launch in 2003. This is a somewhat different take than in past cases, where Intel was merely accused of attempting to keep AMD’s overall market share down rather than specifically bridging performance gaps.

The FTC believes that the effects of all of these actions have (besides limiting AMD): served to drive up CPU prices, driven up CPU distribution costs, limited CPU innovation, harmed AMD’s ability to market CPUs, limited the ability of OEMs to innovate and differentiate their products, and reduced the quality of industry benchmarking.

Ultimately all of the CPU accusations are for things long past; none of the FTC’s CPU-related allegations are for things that have occurred in the last few years. We would not take this as a sign that the FTC is happy with the current market situation, but that they have no proof that they wish to follow up on that would show Intel as having engaged in anti-competitive actions in the CPU market in the last few years. The FTC does want some significant changes at Intel, which we’ll discuss in a bit.

Finally, there’s also the matter of AMD. Since AMD and Intel have settled their matters, AMD is presumably not going to participate in these proceedings as an ally of the FTC. As the FTC is going ahead on these charges, it’s clear that they aren’t worried about what this means for their position.

What the FTC Accuses Intel of Doing in the GPU Market

When we were first reading the FTC’s suit, the thing that caught us entirely off-guard was that it wasn’t merely about anti-competitive actions in the CPU market, but anti-competitive actions in the GPU market as well. While the CPU-related accusations are all for things done well in the past, the GPU accusations are fresh, very fresh. These run right up to today, and include the Larrabee project and the anti-competitive actions Intel has taken in the GPU market both outside and inside that project. To get right to the point, the FTC believes that as things currently stand, Intel is likely to get a monopoly on the GPU market similar to the one that they have on the CPU market, and that this monopoly will be created by abusing their CPU monopoly.

In the complaints about the GPU market, both NVIDIA and AMD are mentioned as being the primary competitors for Intel. The bulk of the complaints however are related to NVIDIA and their chipset business, as while AMD stands to be harmed too by an Intel GPU monopoly, it’s NVIDIA that stands to be the most harmed. In effect Intel has finally gotten AMD off their back for CPU matters, only to now have NVIDIA on their back for GPU matters.

The GeForce 9400M: Intel's chief competitor in the integrated graphics market and a threatened product line

Just to note where things stand, the FTC already estimates that Intel has approximately 50% of the GPU market. This is consistent with the vast number of Intel IGP-equipped computers that are on the market. Depending on how you intend to count various user bases, this stands to grow in the future as Intel puts their IGP GPUs first on-chip, and then on-die with their CPUs.

The basis of the FTC’s complaint here is that they believe Intel is threatened by the rise of GPUs as programmable computing devices, and that using them in GPGPU situations threatens Intel by making CPUs less important (something NVIDIA has been trying to play for ages) and as a result less profitable. The FTC argues that Intel is seeking to establish a monopoly here to maintain their overall control of (and high margins in) the computing market.

As for the specific complaints:

1. Intel eliminated the future threat of NVIDIA’s chipset business by refusing to license the latest version of the DMI bus (the bus that connects the Northbridge to the Southbridge) and the QPI bus (the bus that connects Nehalem processors to the X58 Northbridge) to NVIDIA, which prevents them from offering a chipset for Nehalem-generation CPUs.
   
2. Intel “created several interoperability problems” with discrete CPUs, specifically to attack GPGPU functionality. We’re actually not sure what this means, it may be a complaint based on the fact that Lynnfield only offers single PCIe x16 connection coming from the CPU, which wouldn’t be enough to fully feed 2 high-end GPUs.
   
3. Intel has attempted to harm GPGPU functionality by developing Larrabee. This includes lying about the state of Larrabee hardware and software, and making disparaging remarks about non-Intel development tools.
   
4. In bundling CPUs with IGP chipsets, Intel is selling them at below-cost to drive out competition (given Intel’s margins, we find this one questionable. Below-cost would have to be extremely cheap).
   
5. Intel priced Atom CPUs higher if they were not used with an Intel IGP chipset.
   
6. All of this has enhanced Intel’s CPU monopoly.

The FTC believes that all of this will help Intel to establish a GPU monopoly. This is on top of all other effects of Intel’s actions, which are similar to the effects of their actions in the CPU market: driving up GPU prices, driving up GPU distribution costs, limited OEM differentiation, and limited GPU innovation.

There’s also one last complaint unrelated to GPUs, which has to do with standards.

1. Intel used their market position to delay AMD and NVIDIA’s implementations of USB and HDCP by refusing to make the specifications accessible until Intel’s products were ready. We know that there has been some strife among Intel and virtually everyone else over Intel dragging its heels on the USB3 specification, but it’s not clear if this complaint is about that.

Intel’s Response

Intel wasted no time in responding to the FTC’s suit. In their response, Intel has denied the accusations, and insisted that they have competed “fairly and lawfully,” noting that prices (ASPs) have been declining at a rate faster than any other industry.

Of particular note in Intel’s response is their claim that the FTC’s case “is based largely on claims that the FTC added at the last minute and has not investigated.” This we’re assuming means all of the GPU-related claims. You can read into this several ways, but our take is that Intel is more concerned with the GPU-related claims than the CPU-related claims at this moment.

Finally, Intel is understandably annoyed that this even reached the lawsuit stage. As we mentioned before Intel was already in settlement talks with the FTC, and believes that the issue should have been resolved there. In the failure of these talks, Intel has cited that the FTC “insisted on unprecedented remedies – including the restrictions on lawful price competition and enforcement of intellectual property rights set forth in the complaint.” As the FTC would not back down on their requested remedies and Intel would not accept them, this is what has lead to the case moving on to a lawsuit.

What the FTC Wants

So what does the FTC want? For one thing, not money. In their claims and requested remedies, they have not asked for any kind of fine, but rather are focusing exclusively on enforcing changes in the way Intel conducts business. This means their remedies are entirely corrective, rather than being a mix of corrective and punitive remedies such as what the EU has gone for.

What the FTC wants for Christmas: For Intel to license DMI

For their corrective remedies, here is what the FTC wants:

1. For Intel to stop doing all of the things mentioned above.
   
2. Intel cannot require OEMs to purchase only Intel CPUs and GPUs, purchase them in specific quantities, or to not purchase competitors GPUs and CPUs. This is effectively a stab at the rebates Intel has been offering for bulk purchasing, and the advertising help Intel has been offering to bulk purchasers.
   
3. To stop prioritizing CPU shipments to loyal OEMs.
   
4. To stop withholding technical support from disloyal OEMs.
   
5. For Intel to be disallowed from producing/distributing any software or hardware that unreasonably excludes or inhibits the performance of competitors’ GPUs and CPUs.
   
6. To stop selling things below cost. The FTC is defining this as being the average variable cost plus a “contribution to Intel’s fixed sunk costs in an appropriate multiple of that average variable cost.”
   
7. For Intel to do a few different things about the versions of their compiler that put AMD at a disadvantage (which the FTC is calling the Defective Compiler): offer a substitute compiler to customers for free that is not a Defective Compiler, or to compensate customers in switching to another compiler, to provide notice to software buyers of products compiled using the Defective Compiler that they may need to replace their software.
   
8. To stop Intel from making misleading statements.
   
9. To prevent Intel from coercing benchmark organizations into adopting misleading benchmarks.
   
10. For Intel to license the QPI and DMI buses to 3rd party chipset manufacturers.
    
11. For Intel to not block the Global Foundries deal (AMD and Intel already settled this) or any similar deal that VIA might make.
    
12. For Intel to stop badmouthing competing products unless they have solid scientific evidence.
    
13. For Intel to foot the bill for the independent organization that will monitor this.
    

It’s a long list, but there’s nothing in it that’s particularly surprising. The FTC’s ultimate goal is to get Intel to stop engaging in all of the anti-competitive actions they have been engaging in for the last decade, and to have them directly monitored for an indefinite period of time in the future to make sure they do not resume these actions.

On an interesting note, the FTC chose an unusual way to go about this suit. Without getting into the nitty-gritty of anti-trust laws, the FTC has multiple sections of the FTC act to charge violators under. Normally when they engage in a lawsuit, they charge them under Section 2, which allows for harmed consumers to sue violators in private for triple damages. The FTC has decided that it’s in the best interest of everyone to not open Intel to that kind of liability or to take the risk that they’ll lose the suit based on that kind of liability, and instead charge them under Section 5. The big difference between the sections is that a Section 5 violation only leaves Intel open to the damages caused by their actions, and not to triple that price tag. Overall the use of Section 5 is very rare compared to Section 2, but the use of it is growing according to the FTC.

At this point we do not have any idea what the price tag would be on damages for Intel if they were to lose this suit, but it’s a reasonable expectation that it won’t be cheap, going into the billions of dollars. Triple damages would make that even higher. As triple damages were established as a punitive solution, this is consistent with the FTC’s position that they are not trying to enact a punitive remedy upon Intel.

Conclusion

So when does this battle royale kick-off? Not for a while, it seems. The case is currently scheduled to go before a judge on Wednesday, September 15^th of 2010, which is 9 months from now. Even if it were to start on time (it likely won’t), a ruling would take an equally long time. It may be 2012 before the case is ruled on, later if the case starts late.

In the meantime, there are the positions of NVIDIA, Intel, and AMD to consider. Despite the FTC’s immediate concerns, with the recent cancelation of Larrabee Prime, Intel probably isn’t the risk to the GPU market that the FTC believes they are. The question will be what Intel will be announcing in 2010 as the successor to Larrabee Prime, and what actions they may be taking. It’s not in their best interests with this case to engage in anything that might be seen as disparaging of AMD or NVIDIA GPUs, which in turn may influence Intel’s actions here.

As for AMD, for them this entire matter is largely settled when it comes to CPUs. Their exposure on the GPU side is a bit more nebulous – they aren’t going to make integrated GPUs for Intel processors, so their exposure is in the smaller discrete GPU market. Without a better idea of what the FTC is accusing Intel of when it comes to discrete GPUs, it’s hard to say what the impact of this is. If this stops Intel’s anti-GPGPU efforts however, then it’s going to be good news for AMD’s efforts in that field.

Fermi: Intel's greatest fear?

And finally there’s NVIDIA. NVIDIA has been on a crash-course with Intel for some time now, and they would have it no other way. For NVIDIA this has been a very good month: first Larrabee Prime gets canceled, and now the FTC is going to fight Intel in court over several issues that effectively has the FTC fighting Intel on NVIDIA’s behalf. This could go a very long way in boosting NVIDIA’s GPGPU efforts with Fermi, not to mention the fact that the IGP chipset business has been quite good to NVIDIA lately and is something they would like to continue. This suit could come quite close to defanging Intel from NVIDIA’s perspective.

On a long-term perspective, we’re left wondering where this is going to leave the entire market when it comes to GPU/CPU integration. Both AMD and Intel have been pushing it, with Intel preparing CPUs with both on-chip and on-die GPUs. Could a successful FTC suit put a stop to this Fusion for Intel? Will this slow down or stop GPU/CPU integration for the entire market, and greatly benefit CPU-less NVIDIA in the process? The outcome of this case could very well have an impact greater than just stopping any anti-competitive actions Intel is engaging in, so it’s going to be something we’ll be keeping a very close eye on.