June 15, 1998

Alabama-based Intergraph at center of Intel's troubles with FTC

By JAY REEVES
AP Business Writer

HUNTSVILLE, Ala. (AP) -- With a $1 billion computer business at stake, Intergraph Corp. chairman Jim Meadlock needed some assurances from Andy Grove, chief executive of Intel Corp.

Meeting at a trade show, Meadlock told Grove he was worried about Intel being the sole supplier of computer chips for Intergraph's high-powered workstations. A disruption could kill Meadlock's company.

Grove said Intel was sensitive to Intergraph's concerns and "treated all of its developers fairly and equally," Meadlock recalled.

The conversation ended. Intel gave the Alabama-based company confidential information and its latest Pentium chips before they hit the market. As a result, Intergraph abandoned its own high-end chip, Clipper.

Five years later, lawyers are doing all the talking. And the companies' fractured relationship is at the heart of a Federal Trade Commission complaint against Intel, the largest chip maker.

The FTC accused Intel this week of mistreating Intergraph, Digital Equipment Corp. and Compaq Computer Corp. after the companies tried to enforce patents on rival chips or refused to let Intel use their technology.

Intergraph and Digital sued Intel previously. Intergraph's case is pending, but Digital settled.

Intel did not deny FTC claims that it tried to place "speed bumps" in front of Intergraph and other competitors by denying them technical information and advance copies of microchips -- both of which are crucial to developing new products.

But everything Intel did was within the law, spokesman Chuck Mulloy said, and it never completely cut off Intergraph or any other customer from its cutting-edge chip technology.

"In no way did we damage the company by stopping shipments of microprocessors, which they continue to receive today," Mulloy said.

The FTC action could result in an administrative order banning wrongful monopolistic practices by Intel. Fines can be imposed only for violations of such orders, an agency spokeswoman said Thursday.

The Intergraph suit could be more costly. Intergraph's complaint seeks unspecified damages and royalties from the sale of Intel chips it claims were made using Intergraph technology.

The core of Intergraph's business involves elaborate computer graphics used in technical design, mapping and animation. The company manufactures computer workstations mated to its own software in its north Alabama factories, which employ 3,400 of the company's 7,600 employees worldwide.

Despite the computer boom of the '90s, Intergraph has lost $370 million over the last five years even as revenues grew to $1.1 billion in 1997. The company blames those losses in large part on Intel.

In 1993, Intergraph began a move away from a proprietary operating system and instead began basing its products on Intel and Microsoft systems. That's why Meadlock, who recounted his talk with Grove in a sworn statement, wanted to know Intel's Pentium chips would be available.

Intel signed agreements giving Intergraph confidential information, and the companies worked together so well Grove used an Intergraph workstation to demonstrate Intel products at a 1996 trade show. By then, Intergraph's sales of Intel-based machines exceeded $610 million -- more than half its total revenues.

But things went downhill quickly.

Relations soured when Intel sought patent rights on the Intergraph-produced Clipper chip and Intergraph refused. In August 1997, according to court documents, Intel canceled agreements with Intergraph and demanded the return of all confidential information.

Mulloy, the Intel spokesman, said the company went into a "defensive posture" only after seven months of hearing Intergraph threaten legal action.

Intergraph finally sued in November, and in April a court issued a preliminary ruling against Intel, saying Intergraph had a good chance of winning. More importantly, U.S. District Judge Edwin Nelson of Birmingham ordered Intel to treat Intergraph like any other customer.

Nelson said that because of Intel's market dominance, advance information about its most up-to-date chips was an "essential facility," meaning it is an industry standard that must be shared.

Intel resumed sharing confidential information and yet-to-be-released chips with Intergraph, which hopes to turn a profit the second half of this year.

Nelson's decision "ended the immediate threat" of Intergraph being unable to do business because of a chip shortage, said spokesman Keith Britnell. The company cooperated in the FTC investigation.

Intel, meanwhile, is appealing Nelson's ruling, which prominently mentioned the meeting between Meadlock and Grove.

The judge said Grove "induced" Intergraph to rely solely on Intel technology, eliminating a potential rival and making Intergraph dependent on Intel. But, Nelson noted, Grove did not promise an unending supply.

While Intel has yet to formally respond to Intergraph's suit, Mulloy denied the company violated any assurances by Grove.

"In general, it's the sort of thing we would say to a customer," said Mulloy. "But we would also say, 'What's the point?"