Intel One Step Closer to European Anti-Trust Charges

Intel is currently being investigated by the European Commission on anti-trust charges stemming from alleged pricing pressure put upon retailers.  Microsoft has also faced the wrath of European anti-trust regulators for the past several years over several business practices.  Several European countries have also independently sparred with Apple over the closed format of its iTunes store.  Does this signal increased hostility to dominant US-based high tech companies?

From TechNewsWorld:
European regulatory authorities have taken a step toward bringing allegations that Intel (Nasdaq: INTC) is violating antitrust law closer to a resolution — and the company’s probable prosecution.

Officials investigating claims against the chip maker reportedly have presented their evidence to an internal panel of so-called “devil’s advocates,” a step taken before formal legal proceedings are launched.

If charges are levied, the competition commissioner will issue a statement of objections to the company. Intel’s European antitrust woes began several years ago in Germany, with allegations that retailers were being pressured into stocking only PCs that were equipped with Intel chips. Complaints also surfaced over Intel’s manufacturer rebate program.

Navigating the Rebate Issue

Surprisingly, rebates can be a gray area in anticompetition law, even in the United States, commented Tyler Baker, a partner with Fenwick & West in Silicon Valley.

“I don’t know all of the details about the rebate systems Intel uses, but I can tell you it is a very much unresolved question in this country,” he told the E-Commerce Times.

Many U.S. courts are hesitant to find that rebates are illegal, because they are a form of price competition — which antitrust laws encourage, he explained.

However, pricing can subtly morph into a de facto exclusive dealer’s arrangement when companies are required to buy large quantities of product to qualify for a manufacturer’s rebate.

“Some courts have found that rebates can be set up or structured to be more than just price competition,” Baker said.
Following Microsoft

Intel may be poised to head down the same path in Europe that Microsoft (Nasdaq: MSFT) has been on for the last several years. Microsoft’s antitrust legal problems extend into many different areas, Baker noted, so the analogy is not a perfect one. It is, however, close enough.

“Intel is a very dominant company, and dominant companies are sometimes judged by different standards. That is true both [in the U.S.] and in Europe,” he pointed out.

Intel might find, as Microsoft did, that business practices are not judged in isolation. While it might be unclear whether one activity could be considered an antitrust violation, the combination of several ambiguous business practices can add up to antitrust concerns in the eyes of regulators.

Whether charges will be filed is still uncertain, and it is too early to extrapolate any lessons from the latest events, Baker noted.

“If the EC brings a case, then other companies will have to pay greater attention, of course, to these issues,” he said.

On the other hand, the European Commission may decide not to press charges. After all, the panel of devil’s advocates was established precisely to ensure that poorly investigated cases do not enter the legal system. “That will also send a message,” Baker said.

Congress Investigating the Impact of University P2P Networks

On Tuesday, September 26, the Subcommittee on 21st Century Competitiveness held a hearing entitled “The Internet and the College Campus: How the Entertainment Industry and Higher Education are Working to Combat Illegal Piracy”.

Congress has yet to regulate educational networks, but has considered measures that would require universities to actively monitor their networks to limit the sharing of copyrighted materials. As the holders of copyrighted materials continue to see sales eroded by online piracy, it appears that increased pressure will be put upon federal legislators to force educational institutions to limit access by students to P2P sharing of copyrighted works over their networks. This may not be as uncomfortable for universities as it may seem, as P2P sharing eats up network bandwith, and may put schools in tricky positions should one of their users be sued.

A full webcast of the Subcommitte hearing is available here.
For a summary of the meeting and further discussion please see Congress Looks At P2P in Academia at arstechnica.

Americans Don’t Want Net Neutrality

From ArsTechnica: Poll: Americans don’t want net neutrality (or maybe they don’t know what it is)

A nationwide survey of 800 registered voters is being touted by the Senate Committee on Commerce, Science and Transportation because it purports to show that Americans are not interested in net neutrality legislation. Calling proposed net neutrality “onerous,” the Committee’s press materials say that the poll makes it clear that Americans prefer “video choice” over such regulations.

The poll also found that many Americans have no idea what net neutrality is, or why they should care . . .

Maybe we just need another term to describe the concept. (I find the term “network neutrality” confusing. Perhaps something more loaded like “egalitarian networks” or “anti-entertainment bandwidth throttling” or “need-blind allocation” or “usage-tiered pricing.” Or “lobster pricing.”)

In the survey, the question was posed as a battle between network neutrality–ISPs can’t sell faster (or slower) bandwidth on a scaled pricing scale–and increased TV and video choice. A non-neutral network could, for example, charge YouTube’s streaming video more for their bandwidth, and favor the ISPs cable network partner in allocating bandwidth to the TV set. It’s like paying more per pound for the larger lobster at the lobster pound.

It’ll be exciting to see more decisions being made in Congress by people who don’t even try to understand, like what happened with the Inducing Infringement of Copyrights Act.

Update: ValleyWag comments on this in a less-formal manner: Feature: Congress says “fuck you” to Net Neutrality with blatant pro-big-business push poll.

Unpacking the EAR: Walkthrough for Determining Regulations per Country

Once you’ve determined that the software you’re exporting is ECCN 5D002 (broadly, that it is not mass-market and then in any way uses encryption technology), then you need to determine whether the country you are exporting to requires authorization.

Under Part 774 Supp. 1(C)(D) 5D002, you’ll see that 5D002 encryption falls under the NS (National Security) and AT (Anti-Terrorism) reasons for control. Underneath that one sentence, you’ll see “Control(s)” and accompanying “Country Charts.” Here, we have to look at our Country Chart for control under NS column 1 and AT column 1.

The Country Chart is found in Part 738 Supp. 1. There, for example, if you’re exporting to Mongolia, you’ll see that authorization is required because there’s an X under NS column 1. Even though there’s no X under AT column 1, you still need to look into authorization.

As of now, Canada is the only country that is completely free and clear for exporting 5D002. Also note that you do not need authorization if you’re exporting to foreign subsidiaries of domestic corporations. Lastly, make sure to check Part 740 Supp. 3 to see if there is a Part 740.17(a) exception to your country destination. This exception also applies to foreign subsidiaries of Canadian and Part 740 Supp. 3 countries.

Unpacking the EAR: Inheriting Export Licenses

If you are exporting software that uses encryption outside of the US, to a company that is not a subsidiary of a US company, then you generally need your product to undergo review by the Bureau of Industry and Security (“BIS”). BIS references the Export Administration Regulations (“EAR”), and more specifically the Commerce Control List, to see if your software needs authorization for export.

If your software has the characteristics, or performs or simulates the functions of a product designed or modified to use encryption beyond 56-bits (for a symmetric algorithm, e.g., DES; the requirements are different for other types; see the EAR), then your software may likely be classified as “5D002.” (See the EAR Part 774, Supp. 1, Cat. 5(II)(D).) If you and the government determine your software is 5D002, then you need to be authorized by review.

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The Berry Amendment and Integrated Circuits

The Berry Amendment (10 U.S.C. sec. 2533a) requires that certain supplies purchased by the U.S. Dept. of Defense be sourced domestically from start to finish. But what may actually be happening is that essential supplies such as electronics and clothing must be withheld, because of these source restrictions, from much-needed areas such as Iraq and Afghanistan.

One issue with the Berry Amendment is that it restricts the sources of “specialty metals” to wholly domestic suppliers. A problem with this is that the manufacture of some integrated circuits (“ICs”) deposits trace amounts of titanium, a “specialty metal,” in the component. It is nearly impossible to discover the source of this titanium through the chain of suppliers, and therefore IC suppliers cannot know whether they are Berry-compliant or not.

ICs are everywhere, in nearly every electronic component. And Berry is specific that no exception can be made for electronics and communications equipment in aircraft, missile and space systems, ships, tank-automotive, weapons, and ammunition.

Furthermore, there is the issue where certain foreign countries can source specialty metals from non-US suppliers, defeating the pro-domestic industry intent of Berry. For example, a French manufacturer can source titanium from Russia, but a US manufacturer can only source titanium from a US-based supplier.

The Defense Contract Mgmt. Agency (“DCMA”) issued interim guidance that suppliers may withhold the cost of lowest auditable non-compliant specialty metal part against the cost of the contract. I.e., if a set of non-compliant screws costs $1 and the entire component is $10, then the contract can be sold for $9 each component. But since the titanium in ICs is difficult to audit, the lowest auditable part may be the entire IC.

The National Defense Authorization Act for Fiscal Year 2007 includes a section advising flexibile interpretation of the Berry restrictions, but it may take more legislation to ensure that components such as ICs can make it to places such as the Middle East conflict zone.