Intel Bags its Chips

November 1, 2002

Long-running Battle

VIA makes chipsets – subsidiary hardware necessary for a microprocessor to work in a PC – that can only work with Intel products if they contain Intel’s proprietary protocols. Intel licenses its protocols to certain manufacturers that make the chipsets which work with Intel products. Intel had done business with VIA for some time, and then imposed conditions on licensees for its new P6 chip that VIA asserted were anti-competitive. The two companies have been engaged in a long-running battle over patents and other issues affecting VIA’s ability to make accessory chips that work with Intel’s microprocessors.

The original chipset licence, pursuant to which Intel allowed VIA to use its technology to manufacture chipsets for use with Intel’s Pentium II and Celeron chips, was litigated and eventually revised. The amended licence extended VIA’s licence to Pentium III compatible products, but prevented VIA from making chipsets for Pentium IV compatible products. Intel was investigated by the US Federal Trade Commission in 1998, which investigation was settled by a consent order in 1999. Intel was later investigated by the European Commission at VIA’s instigation. The EC investigation was subsequently dropped. The present actions relate to a further revised licence agreement between the parties. This further revised licence provided each company with a worldwide, non-exclusive, royalty-free licence of the other’s technology, except that VIA’s licence continued to prevent it from making chipsets for the Pentium IV.

Defences in the Chipset Action

Abuse of Dominant Position

Firstly, VIA claimed that the proceedings were an abuse by Intel of the exercise of its intellectual property rights, and/or Intel was precluded from obtaining relief because it was prepared to grant a licence to VIA only on terms which would infringe Article 81(1) and/or the Competition Act 1998, s 2(1). In addition, the proceedings formed part of an attempt to compel VIA to enter into an anti-competitive licence agreement.

Collins J rejected this defence on the ground that the licence that Intel was prepared to give VIA – the right to make chipsets that would interoperate with the Pentium IV in return for a non-exclusive cross-licence of all of VIA’s patent rights – was not in fact contrary to Article 81(1)/s 2(1). Although Intel had gained a licence of all VIA’s technology and VIA only a part of Intel’s, Intel’s technology was worth far more than VIA’s. Further, VIA had produced no supporting facts nor disclosed any triable issue on the validity of the cross-licence.

In any event, even if the cross-licence had violated Article 81(1)/s 2(1), VIA had failed to bring itself within the principles for asserting that infringement proceedings are themselves anti-competitive, as set out in British Leyland v TI Silencers Ltd [1981] 2 CMLR 75. According to these principles, a licensee cannot be sued for infringement if: (i) a licence of intellectual property is offered but not accepted on the grounds that to do so would infringe Article 81(1); (ii) the licensee’s choice is to accept the licence on the licensor’s terms or be forced out of the market because he is desperate for the business; and (iii) the licensee is prepared to pay a reasonable royalty. VIA did not fall within this principle because it was not desperate for business and would not be forced out of the market by refusing to accept Intel’s licence terms. VIA would merely be unable to manufacture chipsets for Pentium IV, the economic effect of which would not be fatal.

Compulsory Licensing

Secondly, by refusing to grant VIA a licence relating to its patents either at all or on reasonable terms, and by bringing these proceedings, VIA claimed that Intel was abusing its dominant position on the microprocessor and chipsets markets. Intel was using its patents to prevent the emergence of new types of chipset compatible with Intel’s x86 microprocessors. According to VIA, Intel was also partitioning the market for the supply of chipsets compatible with its x86 microprocessors by constraining third parties in the place of VIA to produce and sell only trailing edge products.

Having reviewed EC case law on “refusal to supply”, Collins J observed that Magill Radio Telefis Eireann v Commission [1995] ECR II-743 was the only case in which the European Court of Justice had found that a refusal to grant a licence of intellectual property rights was an abuse. In order for Magill to apply to a particular case “exceptional circumstances” would need to be presentthe refusal must be likely to eliminate competition, must not be objectively justified, must prevent the emergence of a new product for which there is consumer demand, and the ability to use the intellectual property must be indispensable to carrying on business. These conditions would rarely be met in a copyright case let alone in a patent case. Echoing Laddie J in Philips Electronics NV v Ingman Ltd [1988] 2 CMLR 839, Collins J observed that “the general policy that the holder of an intellectual property right is free to refuse to grant licences is stronger in the case of patents because of the need to encourage investment and innovation by rewarding the inventor with a largely unrestricted monopoly”.

VIA had not demonstrated that this case contained the “exceptional circumstances” necessary to justify compulsory licensing under Magill. Even if Magill did apply to its full extent to patents, and even if the principles in Magill extended from new products to variations on existing products (as VIA had argued relying on the recent decision by the Commission in IMS Health), VIA could not argue that there were exceptional circumstances that would eliminate all competition. Intel was not the only player in the market, VIA had various competitors and was not prevented from introducing new products or making variations to its existing products. To compel Intel to license in these circumstances would result in a new form of compulsory licensing that could not be justified under EC case law.


Thirdly, VIA argued that they were already licensed to make Pentium IV compatible products because the restrictions in the licence agreement that would otherwise have prevented them from manufacturing such products were contrary to Article 81(1) and therefore void and unenforceable. These restrictions were anti-competitive because VIA was constrained to supply trailing edge products while Intel reserved to itself the ability to market any improved product and/or products with different capabilities.

In rejecting this defence, Collins J relied upon the EC Technology Transfer Regulation and, in particular, the “white clause” allowing restrictions as to field of use. He held that Intel owned its patents and was entitled to license them for the purposes of making specified products and that it took a commercial decision to do so in respect only of chipsets for its current chips. Further, even if the restriction as to field of use did breach Article 81(1), the severance of this term could not result in the rest of the licence surviving. According to Collins J: “It is plain from the history of the relations between Intel and VIA that the removal of the restriction would make the contract one into which the parties had not intended to enter, and that its deletion would alter entirely its scope and intention, and disappoint one of its main purposes.”

Euro-defences also rejected in the CPU action

In the second infringement action, VIA put forward two further “Euro-defences”. Firstly, VIA argued that it could make use of Intel’s modern windows-compatible technology in manufacturing types of microprocessor for which VIA said there was consumer demand (namely microprocessors which have the Socket 370 feature), and which, it claimed, Intel was replacing by the Pentium IV. VIA argued that Intel’s refusal to license its technology was an abuse of its dominant position in the “x86” microprocessor market because it formed part of a plan to eliminate and replace the existing standard microprocessor with a Pentium IV, notwithstanding continuing demand for the existing microprocessor, and to force consumers to adopt a new and more expensive technology. VIA relied on the statement in Volvo v Veng Case 238/87 [1988] ECR 6211 that a manufacturer may be guilty of an abuse of a dominant position by taking a decision no longer to produce spare parts for a particular model even though many cars of that model were still in circulation.

Collins J held that the defence was not supportable on the pleaded facts as it pleaded only that Socket 370 products will be phased out in the future, and that it did not plead that Intel was refusing to supply a demand or even that it will refuse to do so.

Secondly, VIA claimed that Intel’s refusal to licence its windows-compatible technology was abusive because the technology was an industry standard and competitors could not otherwise access the x86 microprocessor market, and because the exercise of those rights unjustly prevented the marketing by VIA of a unique product. Again, the exceptional circumstances of Magill were not made out in this case, and Collins J held that this did “not make out even the beginnings of a case on abuse of a dominant position.”

Summing up

This case reinforces, inter alia, the accepted principle of EC competition law that the refusal to grant a licence of intellectual property rights either on reasonable terms or at all will not normally give rise to objections under EC or UK competition law unless it places the licensee in extremis. The prospect of being stuck in a trailing-edge market as the licensor takes off in another more innovative market is not in itself a ground upon which a licence relating to the exploitation of intellectual property rights in either of those markets can be challenged.