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Intel FTC Settlement Ends Exclusive Deals, Payouts For PC Makers

Intel is prohibited from making "exclusive" deals with PC makers and system builders under a sweeping antitrust settlement with the Federal Trade Commission (FTC).

Intel Wednesday agreed to not pay PC makers and system builders to "exclusively" use its processors or chips -- avoiding products from rivals like AMD -- as part of a sweeping antitrust settlement with the Federal Trade Commission (FTC).

The prohibition on those exclusive deals was one of many restrictions that the chip giant agreed to as part of a "consent decree" that will govern its actions for the next 10 years.

Intel also agreed not to pay PC makers to avoid products from competitors or to retaliate against computer makers if they do business with non-Intel suppliers. What's more, the settlement prohibits Intel from redesigning its chips to harm competitors.

In the intensely competitive graphics chips market, Intel is required for at least six years to not limit the performance of graphics processing chips made by competitors.

But it's the exclusive deal arrangement that potentially could send the biggest shock waves through the technology industry.

The settlement comes only two weeks after computer giant Dell paid a $100 million penalty to settle a Securities & Exchange Commission (SEC) investigation that it received billions of dollars from Intel over the course of several years as a ’rebate’ for not selling PCs and servers powered by AMD processors.

The SEC alleged that ’Intel effectively paid Dell not to use processors manufactured by Advanced Micro Devices.’

Dell, in fact, allegedly repeatedly sought more and more cash from Intel to cover earnings shortfalls. It was a habit that former CEO Kevin Rollins referred to as a ’drug’ that Dell needed to ’get off’ of, according to the SEC.

Next: The Slippery Technology Exclusivity Slope

Tyler Dikman, president and CEO of CoolTronics, a Tampa, Fla. solution provider, said he sees the FTC settlement as a "slippery slope" in an industry where exclusive deals are common practice.

"How can Apple get away with using AT&T as its exclusive carrier for iPhone?" he asked if Intel is restricted from exclusive agreements with PC makers. "I see absolutely no difference between The Apple-AT&T agreement and the Dell-Intel agreement." What's more, he noted, Apple uses only Intel chips. "Will the FTC look at them next?" he asked.

Dikman said that the exclusivity restrictions in the Intel FTC consent decree ultimately could "open the floodgates" for similar FTC antitrust actions. "You could take this argument into almost every level of the tech industry," he said.

Dikman, who sells Dell systems, said the Intel-Dell exclusivity arrangement was common knowledge among sales reps and Dell partners.

"I certainly believe that all chip manufacturers have a right to enter the marketplace and have the ability to be competitive with giants like Intel," he said. "At the same time, I think creating exclusivity arrangements with a manufacturer like Dell should be okay. If you don't want an Intel processor you can always buy a computer from another manufacturer. It is not like Intel had exclusive arrangements with every computer manufacturer."

The Intel-FTC settlement comes nine months after Intel agreed to pay rival AMD $1.25 billion to settle an antitrust suit AMD had filed in 2005. What's more it comes after the European Commission last September fined Intel over $1.5 billion for what it termed "illegal" competitive practices.

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