Scaling Laws: Uncle Sam Buys In: Examining the Intel Deal

[Intro]

Alan Rozenshtein: When the AI overlords takeover, what are you most excited about?

Kevin Frazier: It's, it's not crazy, it's just smart.

Alan Rozenshtein: And just this year, in the first six months, there have been something like a thousand laws.

Kevin Frazier: Who’s actually building the scaffolding around how it's gonna work, how everyday folks are gonna use it.

Alan Rozenshtein: AI only works if society lets it work.

Kevin Frazier: There are so many questions have to be figured out and

Alan Rozenshtein: Nobody came to my bonus class.

Kevin Frazier: Let's enforce the rules of the road.

Welcome back to Scaling Laws, the podcast brought to you by Lawfare and the University of Texas School of Law that explores the intersection of AI policy and of course, the law. I'm Kevin Frazier, the AI Innovation and Law Fellow at Texas Law, and a senior editor at Lawfare.

It's my pleasure to welcome Peter Harrell, adjunct senior fellow at the Center for a New American Security to the show. Today, we're taking a hard look at a headline grabbing decision by the United States to claim a 10% stake in Intel. It's a deal that's raised a lot of eyebrows and yet may just be the beginning of a new interventionist policy by the administration. To get in touch with us, email scaling laws@lawfaremedia.org, and with that, we hope you enjoy the show.

[Main Podcast]

The U.S. government's decision to acquire a 10% stake in Intel marks one of the most significant interventions in the private sector in decades. Once the poster child for American semiconductor dominance, Intel has struggled with repeated delays, mounting competition, and faltering delivery on its multi-billion dollar Chips Act commitments depending on who you ask as we'll soon learn faced with the choice of clawing back funds or renegotiating terms, the administration took a boulder step converting support for equity.

The move is not without precedent. The government has dabbled in corporate ownership from the Reconstruction Finance Corporation in the 1930s to the TARP initiative in 2008, but the Intel deal combined with recent remarks from President Trump, signals that equity stakes may now be part of the toolkit for managing America's most strategic industries.

Yet this policy pivot raises as many questions as it answers what legal authority justifies the government's new role as shareholder when statutes like the CHIPS Act never explicitly contemplate equity? How far does the Defense Production Act stretch, and what limits does the Government Corporation Control Act impose? Could the Supreme Court's major question doctrine destabilize the legal basis for these deals? And beyond the law, the policy stakes are profound.

Will government ownership distort markets and dull competition, or is it the only way to secure critical supply chains? And as Washington expands its experiments with state capitalism, should Americans expect a more formal sovereign wealth strategy? Or a patchwork of one-off deals driven by crises.

Wow, Peter, there's a lot to dive into there. I don't even know which of those questions to start with. So why don't we just get our facts straight. We're speaking on August 25th at 5:00 PM Eastern. Things are still emerging about this 10% stake in Intel from the U.S. federal government. Can you walk us through the timeline briefly of when was this deal announced and what are some of the core tenets of its actual details?

Peter E. Harrell: Well, let's actually, before we get into the last couple of weeks, let's step back for listeners who were not kind of intimately following the CHIPS Act in 2023 and 2024. And let's talk a little bit about how we got here. So back in 2023 and 2024, the Commerce Department struck a deal with Intel as part of its CHIPS Act initiative to onshore U.S. advanced semiconductor comp, semiconductor manufacturing where the Commerce Department and the Defense Department had pledged to, to give Intel a total of about $11 billion that was going to help Intel build first some sort of commercially oriented fabs in Ohio and in Oregon and then there was also gonna be the, the Defense Department link 'cause there was gonna be some sort of what were called secure enclaves, some kind of lines in these fabs that were gonna be dedicated to building chips for defense purposes, intelligence, community, you know, sort of, sort of government customers here.

So we have this deal that had come together a couple of years ago, over a year ago, where Intel was gonna get a grant to cover, you know, about 15% of the cost of these fabs that they were, they were building over the year or so since that deal was announced, we have seen Intel's overall situation deteriorate. You know, Intel has had to announce some delays for some of its fabs. It has become even more clear that Intel is falling behind its competitors, particularly TSMC, in its ability to build leading edge chips. So you see a company and its hemorrhaging talent, it's had a new CEO.

So you see a company that is deteriorated over the, the course of the last year, a couple of weeks ago, we began to see I guess you'd say rumblings out of the Trump administration that it was considering thinking about taking an equity stake in Intel. This was I think first reported in the financial time.

So there weren't a lot of details that seemed to be something that was more conceptual. Then about a week ago the president met with Intel's CEO and shortly after that meeting, late last week, I think it was on Friday, Trump announced that the government had in fact taken a 10% stake in Intel. Actually, technically we learned today 9.9%, but you know, who's quibbling about the differences?

Kevin Frazier: What's, what's 0.1% when you're engaging in interventionist policy? So, let's dive into that a little bit further with respect to just how far behind was Intel on some of its promises with respect to fulfilling and helping implement the CHIPS Act, and how dire were things at Intel leading up to this point? Were we talking about potentially closing its doors? Were we talking about breaking it into smaller chunks? What was the state of play when we had this meeting between Trump and the CEO?

Peter E. Harrell: Yeah. So this is, I think an important piece to unpack because Kevin, you talked about some of the history of American equity stakes in companies. And actually going back, as you said, at least in the 1930s, there is a history of the U.S. taking equity stakes in companies. That has almost exclusively happened in the context of a bailout where the company is, you know, on the verge of failure.

So you alluded to the 1930s, you know, lots of banks were failing, the government took equity stakes. In 2008, 2009, we had, you know, insurance industry banks and some car companies literally about to fail. The government took equity stakes as part of a bailout, but then sold them within two years. Similarly actually in the CARES Act in 2020 when the government was bailing out the airlines, the airlines actually had to give some warrants to the government.

So there's a little bit of a history of sort of if the government's got bailout a company because it's about to go bankrupt next week, the government gets something. That's not what was about to happen to Intel.

Kevin Frazier: For the, for the folks who perhaps skipped business administration or any corporate law adjacent class, can you quickly describe the difference between taking equity and a warrant in a company? What, what's the difference there?

Peter E. Harrell: A warrant is sort of like an option to purchase option to purchase equity at a, at a, at an agreed price.

Kevin Frazier: So even with these background deals that we've seen the U.S. federal government make in prior decades, as you mentioned, always crisis oriented, and for the most part, those ownership stakes were returned at a, an eventual point, correct?

Peter E. Harrell: Yeah. And, and, and the idea from the, at least in the post world, let's put aside the 1930s, at least in the post-World War II era at the time the government was taking these stakes, the idea was the government's gonna own this for as short a period of time as possible, and then is gonna sell it off, you know, when the market conditions stabilize.

And so, you know, sometimes you know, the context of the 2008, 2009 financial crisis, it might take, you know, one to three years, it was a couple of years before the government fully exited all those stakes, but at the time it was taking it and then, you know, as soon as possible, the idea was always we're gonna get out as quick as possible. That just doesn't seem to be the goal here, right? I mean, in fact the, the 10K that was filed suggests the government, you know, could hold this in perpetuity. So, sorry, the 8k, sorry, the 8K that Intel filed today, Secures Exchange Commission suggests the government could hold this in perpetuity.

So we, we have a kind of seemingly different objective. And then the other thing I'd say, Kevin, you know, we're beginning to talk about, Intel doesn't actually need cash. Intel is a very troubled company. It is hemorrhaging customers at the leading edge. It is, as I say, it's seen a lot of staff turnover.

There's a lot of skepticism among chip companies that need to buy or need buy, there's a lot of skepticism among companies that wanna buy leading edge chips that Intel can actually manufacture them. So it's sort of losing market share, if you will. And there have been plans that Intel has been discussing about whether to separate its design business from its manufacturing business, they're looking at sort of strategic options for how to kind of stop the, the bleeding and to see if they can actually continue to compete at the leading edge, but it's not, it's not like Intel was gonna go bankrupt this week if the government hadn't rescued it on Friday. Just a very different situation.

Kevin Frazier: So, it's not, not an emergency operation, but more of a steroid injection, I guess. Which begs a policy question that I want to get to before we dive into so much law, which I can't wait for. On the policy front, what's the rationale here? Why do we see a sort of unprecedented, or at least rare move by the government to come in, claim a minority equity stake in a company despite this relative sense that Intel was gonna be around for a while, even if it took on a different shape or, or form?

Peter E. Harrell: Yeah, I don't know, Kevin, I mean, it's a little bit of a facetious answer. Let's look at what the government, because I think any, any objective analyst looking at this is gonna take the view that Intel doesn't really need, you know, it's not, it's not facing an immediate cash shortfall. Got very serious problems, not immediate cash shortfall. So, you know, what could this possibly be doing? Well, you know, maybe it is in some sense a vote of confidence in the company. Maybe in some sense you could view it as the government, although it doesn't really need cash.

For sort of near term survival purposes. If it is going to invest in leading edge, you know, in in, in regenerating its technology infrastructure, it could use some cash to do that. So may maybe there's a kind of, this is gonna help with the turnaround. I don't think that those reasons really add up. I think the reason that is the government's reason that we've heard you know, Secretary Howard Lutnick at the Commerce Department say is basically, well, if we're gonna be giving money to these companies, we should get a take. So I, I think it's more they saw an opportunity to take a stake and took it, and now we're gonna figure out what to do with it. That, that's kind of how I think this is playing out.

Kevin Frazier: It's impossible not to have this conversation without acknowledging that we just saw the somewhat unprecedented and very rare deal that the U.S. government reached with Nvidia, with respect to its sales of chips, to the Chinese government.

And so this revenue drive seems to be really orienting the administration at this point, which opens a very interesting can of worms about just how much should the government be looking to its own industrial policy as a form of revenue, but we'll leave that for a moment and instead go to what's the actual legal authority underpinning this decision? We are a federal government of limited enumerated powers. We can't have Congress, we can't have the administration just act willy-nilly, sua sponte, and say, hey, this looks like a good deal, why don't we go and join up with Intel?

So whether it's the Chips Act, the Defense Production Act, or some other legal source of authority. Where do we find a basis or a potential basis for this deal? And what has the government said so far? So why don't we start with, has the government said anything about its authority to pursue this deal?

Peter E. Harrell: So I have not seen the government lay out its legal rationale. We have now seen a SEC filing from Intel, but that doesn't really talk about the legal authority other than to note that one of the material risks with this deal is that there might be challenges to its legality, so, but there, but there's no positive laying out of what the, the legal authority is.

I, I think I'll come to some of the specific statutes. And how I, how if I were told to justify this, I would in just a moment, but I, but I think that one key element of the Trump administration's legal theory here is who's gonna sue us? Be, and I, and I think you see that also in some of these other things they've done, like the Nvidia deal.

I think their legal theory on Nvidia is Nvidia’s not going to sue us, having just agreed to this, because to me, the way in which they are demanding a rev share from Nvidia is just pretty much clearly illegal. At the very least, it's prohibited by statute, which expressly forbids the commerce department from charging a fee for issuing or related to a license, but on the other hand you know, who's gonna sue? And I, I think there's an element here of, of just, you know, the administration's legal theories, who's gonna sue?

Kevin Frazier: Well, let's, well, and we we're, unfortunately, we don't have the wonderful Scott R. Anderson to help us out with this question, but standing is always going to be a driver of these questions of, as you're pointing out, Peter, who is being impacted other than the companies themselves.

With respect to actually having standing to raise a challenge to these deals. And from a business standpoint, it wouldn't make a whole lot of sense for Nvidia or Intel to turn around and say, hey, thanks for the deal also, we're gonna sue you.

Peter E. Harrell: Yeah, exactly. And I don't know enough about shareholder lawsuits to know if in the Intel context maybe there'd be a shareholder lawsuit here. I just don't know. But, but like Intel I don't think is gonna suit. So I think the first part of their legal theory is. Who's gonna sue? But let's, let's bracket that for a moment and let's, let's, let's posit, you know, you're a lawyer in the commerce department. You're being told you have to come up with some legal rationale for this.

And as you note Kevin, we've not historically taken a lot of equity and, and I should state that should note that in those previous contexts, you know, like the tarp bailout in the 2008 2009 financial crisis, that was done pursuant to specific bailout legislation that at least in a general sense, authorized taking equity.

So this is, there's not sort of a–

Kevin Frazier: Right, this was–

Peter E. Harrell: –clear standing legal

Kevin Frazier: It was Congress saying we need you, the federal government, to act to intervene in these specific sectors and we are granting you the authority to do this kind of thing, even to claim equity stakes in some of these companies.

And just to hit on a point before we get to the details of this arrangement in those prior deals. Let's talk about TARP, for example. Those were always minority stakes, correct? Never a majority stake in a company, or did we ever see some sort of arrangement?

Peter E. Harrell: We may have taken a majority in AIG I'd need to check that.

I think we may have been a majority shareholder. I there also, if you go back earlier in history, you know, kind of one-offs in the 1980s, the government definitely took a majority stake in. Illinois Continental Bank, which was a large bank in the 1980s. So there is a little bit of history, I think, at least for majority stakes, but, but typically we are talking minority stakes here

Kevin Frazier: And it's Congress speaking clearly authorizing the federal government to take those actions. So now looking at, let's start with the CHIPS Act. Where do we see a potential rationale, assuming our role of Jane Doe in the Commerce Department defending this arrangement? Where, where are we pointing to in the CHIPS Act?

Peter E. Harrell: Yeah, so, so I think the first thing you're gonna be looking at, if you're trying to justify this, you're gonna look at the text of the Chips Act. The Chips Act being this law that was first passed in 2020, funded in 2022 that says that the Commerce Department is directed to stand up a program to provide incentives for a number of things, but in relevant part to Intel here incentives to expand manufacturing capacity of semiconductors in the United States.

And so the very clearly that authorized the grant program that the Biden administration had set up, it also very clearly, especially. In the 2022 appropriations bill, it very clearly contemplated lending a lending facility. So then the question is basically, well, you know, could you as a part of chips read this statute as.

You know, allowing the government to take equity if the company agreed to it as part of a deal. Right. And I think that what we are, and, and then also in the CHIPS Act, so there's this kind of, you gotta make sure that the taking of equity would be within the kind of scope of the authorization, and then you also have to make sure that it's kind of allowed under the co contracting part of the act where there is also this expansive provision called other transaction authority, which gives the government a, a pretty broad and flexible contracting vehicle.

Now, I don't, I don't think when Congress passed this bill they were envisioning equity being taken, but I think you can read the text of the bill authorizing incentives to expand semiconductor manufacturing and with this very flexible contracting authority. I think you can read the text of the bill to allow the government, you know, there's no, we can come to case law and whatnot. I think you can read the text of the bill to allow the government to take equity as part of giving one of these grants. It's not prohibited and you have flexible contracting.

Kevin Frazier: Although let's, if we're, if we're sitting in the seat of our hypothetical Jane Doe though, and anticipating something like a major questions doctrine challenge. Where we would be saying, to what extent is Congress actually speaking clearly authorizing the federal government to take this role? I think you could cut the other way by saying other transactional authority seems to suggest minor provisions, seems to suggest some sort of final cleaning you know, making things pretty, crossing off certain t's dotting i’s, Not something like a 10% stake, or excuse me, 9.9% stake in a major chips manufacturer. How would you try to combat that counterargument?

Peter E. Harrell: Yeah, so, so clearly if you're gonna challenge this transaction court, you'd argue under the major questions doctrine, Congress should have had to speak clearly if it wanted to authorize equity, you'd, you'd also note that, there was an amendment that Senator Sanders and Senator Warren proposed that would've required the government to take equity as part of these chips grants, and that was voted down. You know that, that's different, there's obviously a difference from saying you're required to take equity versus maybe there is the authority to take equity.

Those are different things, but I think you would, you would note not, not only should Congress have spoken clearly in this particular case, in the legislative history, there's at least some ambiguity about what, you know, at least there wasn't like a clear in language in favor of the government taking equity. The, the other side of that argument though, is whether in any given, I mean, if you look at the major questions doctrine, what they have highlighted is it is relevant where there are government decisions of kind of unique, large significance, right? So it came up when the government was trying to use the Clean Air Act to regulate greenhouse gas emissions.

It came up in the context of the Biden administration trying to forgive a hundred and some odd billion of student loans. So these are very large individual items. I could see the Trump administration arguing, well, look, this is, you know, this is one grant of you know, 11 of, of $11 billion, we're taking 9.9% in one company, like this particular deal doesn't rise to the issue of a major question, and then you'd make the same argument in every other deal. To try to, you know, to try to try to, which particular deal gives, gives you the major question.

Kevin Frazier: Well, of course this also tees up a fund, steel seizure case analysis under Youngstown and trying to decide what bucket are we in with respect to the executive's authority when interpreting whether they can intervene in certain spaces and the fact that we did see that Warren and Sanders amendment at least shows some consideration by Congress, as you mentioned, but it isn't the sort of continual consideration we saw in Youngstown.

So perhaps that's another distinguishing factor, but here that deal by a deal analysis, if that's the path we go, and today, again, August 25th at 5:00 PM, earlier today, president Trump went on to CNBC and said this is just the beginning, we could see many more transactions look just like this. So perhaps Peter, as you're forecasting, this is going to be the, well, it wasn't that big of a deal. It wasn't a major question. It's just a series of very minor, but ultimately very important questions.

Peter E. Harrell: And it does get back, you know, you're bringing up Kevin, you bring up Youngstown Sheet and Tube v. Sawyer so, you know, famous Supreme Court case, and it gets back to the question of who's gonna sue, right? The reason we have Youngstown is that Youngstown sued, right? They did not want to be seized, and so they very clearly had standing to come in and, and challenge this and, and what we're gonna see is Intel is filing the eight, eight, 8l, and happy to move on with its life now.

Kevin Frazier: Ready to go, thanks for the influx.

Peter E. Harrell: I, I should also say, I having begun to digest some of the details of the deal and we just today got Intel's SEC filing on it.

I think the details of the deal raise an added legal wrinkle as well as a policy wrinkle in a very serious way. So the concept of the Biden administration giving intel this grant very consistent with the CHIPS Act, you know, the, the purpose of this program is to expand semiconductor manufacturing was giving Intel a grant to defray some of Intel's costs for these planned fabs. What Intel announced today in its securities filing is that it is gonna take the about $11 billion dollars, but as part of taking it, the chips office is actually deeming Intel is having completed most of its obligations under the prior grant.

Not quite all of them, but most of them, even though Intel has not built most of the facts. So I think there's like an added layer here as we see the details. I mean, there's a, there's a policy question of. The, this isn't actually, does not actually look like what Lutnick says it, it is. Which is Biden gave Intel money Intel's now doing the same things it would and or getting equity.

This is actually, Biden gave Intel money to build fabs, and now it looks like the Trump administration is giving the money to buy stock and not necessarily to build fabs, right. So, so I, I, I think we have to sort of see how this plays out, and this is all sort of preliminary, but like, if, if Intel is now not actually gonna build the fabs I think that then raises an additional legal question about like, are they complying with the CHIPS Act? Because if you, the CHIPS Act is very clearly to expand domestic manufacturing.

Kevin Frazier: Right, this money was given for a specific purpose. We may see a creative interpretation of how best to leverage those funds, but at the end of the day, the purpose is still to build.

Peter E. Harrell: The purpose has to be the purpose.

Kevin Frazier: Right

Peter E. Harrell: And if this is–

Kevin Frazier: Well said.

Peter E. Harrell: And if the purpose is no longer to build fabs, but just to buy the government a stake in Intel, I don't see how that complies with the CHIPS Act.

Kevin Frazier: Well, so let's say our CHIPS Act argument is taken off the table, that's not the justification that trip, that's not the justification the Trump administration wants to lean on. Now, our creative lawyer sitting in the Commerce Department says, wait, wait, wait, we still have the Defense Production Act. So how might the DPA, which is everyone's the darling of the AI discourse in many ways, especially with respect to supply chain issues, how might the DPA come into this conversation and serve as a sort of justification here?

Peter E. Harrell: Well, so Kevin, let's, let's first note that the DPA has already served as the justification for the Trump administration taking an equity stake in a company. Back in early July, the Trump administration announced as part of a Defense Department contract with a rare earth's mining company MP Materials, which runs a mine in California, the Trump administration announced it was going to take 15% of MP Materials. So, and that was all done pursuant to the DPA.

So we've already seen, you know, Intel's in the news today, but actually this is not the first time the Trump administration has taken equity in a company that it is giving money to.

Kevin Frazier: And just to drill down on the actual mechanics of the DPA, that justified that deal, and that may provide a justification here. What title are we talking about? Because the DPA is quite expansive and has a number of authorities. What's the explicit authority here that may allow it?

Peter E. Harrell: Yeah, so, so here too, we're just speculating. The Trump administration has not published a legal memorandum on its on it on the MP deal. But what I th, what I believe to be the case is that they made a determination that DPA Title III, which is a provision of the Defense Production Act that authorizes actions to expand U.S. production or actually Canadian production of items important to national, national security, and there is a pretty, you know, there, there are a number of, of enumerated authorities in the DPA, sort of similar to the CHIPS Act, it sort of, it makes very clear the government can lend a company money to expand production.

It makes pretty, very clear the government can give the company, a company, a grant to expand production. It also has this provision that a company can the government can enter into a purchase commitment, tou know, we will buy for the next five years the goods you're making, and then the company can, you know, build its own factory knowing it has a customer. There's also a general sort of catchall in the DPA that says the president may make provision for, measures to expand production capacity.

And so here again, if you're, you know, if, if you're, if you're in a world where, a, like, who's gonna sue me anyway? And b, you wanna read a statute aggressively, I think you could read, you know, if you are making provision for expanding you know, the defense industrial base in some critical area you know, that, that could certainly be read to include making an equity investment in a company you know, where that company is using the equity to go out and build something.

So on the Intel front, like then there's kind of a question well, if you, if you conclude you need authority beyond the CHIPS Act, could you stack the DPA and the CHIPS Act and sort of say, well, the president is gonna, you know, money, grant money's coming from the CHIPS Act, but we will, you know, kind of take title to the shares pursuant to our DPA authority and somehow stack them together maybe. And, you know, maybe you could do that one. One thing that I, makes me think the Trump administration has not done that is that the DPA does require various like certifications and congressional notifications to the best of my knowledge, have not been made here. So I don't think that, in fact, even if you could maybe stack them together, I've seen no evidence to date that that is how the Trump administration lawyers are thinking about this.

Kevin Frazier: Well, it notwithstanding those certification questions and the procedural basis that may need to go through for the DPA to be the source of authority here, you raise and have thought through how another barrier could be the Government Corporation Control Act which I don't think is an act anyone would have roll off their tongue when analyzing the steel initially, so what the heck is the GCCA? And how might it be relevant to this conversation?

Peter E. Harrell: Well, so let's go back Kevin, to your initial question of like, how do you get to thinking this is legal? And there are really like two parts to that question, right? Part one is, you know, as I look as I, the government look at getting at the money out the door, does the statute that lets me get the money out the door, let me use that to make the investment right?

Because there's a, a clear constitutional and statutory prob, you can't spend money without an appropriation, right? So you do have to make sure like, here's my pot of money. I wanna use my pot of money to buy the stock. Can I read into the controlling statutory language governing this pot of money, the authority to, to, to buy the stock. That's sort of question one. Question two is, okay, even if I can read into this statute governing this pot of money, yeah, I can buy the stock, is there some other statute that says, you know, government can't buy equity in companies.

And there's not really a clear cut general authority saying the government, you know, can never full stop buy equity in companies, but there is this act from 1945, the government corporation Control Act, which was really designed to set up oversight of what you think of as government companies, so this would be like the TV, a Tennessee Valley Authority. This would be like the EXIM Bank, this would be the Development Finance Corporation sort of saying a, some governance and budgeting standards and things for government companies. And then b, saying agencies can't set up government corporations to serve government, to serve agency purposes without, without specific statutory authorization.

So you, you look at this government company control act and you sort of think about the Intel deal and well, is, is Intel now a government corporation such that for the government to do it, would need to take would, would, would need to have specific authorization. And you know, the fact is the act is there's not really a specific definition in the act, there's only one piece of case law on it, there are a couple of OLC memos from the nineties interpreting it, but there's really not a lot of rrecedent on how to interpret that. So, I think you could see the lawyers deciding, eh, doesn't apply here, and also who's gonna sue. But, but there is one other cork to this, Kevin, because, which makes me think the, the Trump administration is well aware of the Government Corporation Control Act, Government Company Control Act, which is that in addition to announcing the details of the Intel deal over the last couple of days, today Secretary Lutnick announced he was going to kill off something called Natcast.

Natcast is a nonprofit that the Biden administration had set up and was going to give $7 billion to, to implement the R&D part of the CHIPS Act, so Intel's like a recipient of the. Manufacturing part of the CHIPS Act, but there's also an R&D part, you know, to build better semiconductor technology. And Natcast was the nonprofit mechanism the government had set up to in 2024 and hired an outside board to, you know, sort of in a impartial way, make awards for R&D and. What did Howard Lutnick say was the reason for killing Natcast today? It was that Natcast violates the government company control act and is too independent of, of the Commerce Department. So they're clearly aware of this act and they clearly have decided Natcast covered 10% stake in Intel not covered.

Kevin Frazier: Yeah, certainly we are getting some signals that they did their homework before they went forward with this deal. It'll be very interesting to see if and when any sort of transparency comes out around why the deal was authorized.

But again, to your point, Peter. Yeah, if we don't see litigation pursuant to this, what sort of information may we see? Are we going to see a FOIA? Are we going to see Intel disclose more? How might we get more information on this deal? Or especially if this is just the beginning of a sort of interventionist policy in which this becomes more common.

When are we going to learn about some of the inner mechanics of the legal authority here?

Peter E. Harrell: So there are, you know, we, I, I, I don't know when we will learn the government's legal rationale. The SEC filing does provide some more details about kind of the contractual parameters of the deal in the stock. For example, in general, the government has committed it will vote for whatever the Intel board wants.

So the Intel board now knows it has 10% of stock doing whatever it wants, with a few exceptions, but, but by and large. And that raises a whole, you know, that, that sort of leads into, you know, there are so many questions about these kinds of deals. One of which is like, how's corporate governance gonna work here, right? And all that kind of thing. And that, so we may, as we get more SEC filings out of these deals, get more kind of technical details about questions of corporate governance, about, you know about, about kinda material risks and that kind of thing? I, I, I, I suspect we'll see some efforts to, you know, FOIA materials here.

I, you know, there's probably a lot of business confidential information in these materials, so you might find a lot of these material FOIA materials FOIA documents would be FOIA exempt, or at least, you know, heavily blacked out. I assume Congress will begin asking some questions, although like they really need to get up off their duff and do something if they, I mean, rather than just sort of sitting there, being the supine branch and letting the executive do whatever it do whatever it wants.

I mean, that would be, you know, sort, sort of the, the, the easiest way conceptually for more information to come out would be for Congress all to heal a hearing and haul Howard Lutnick up there and make him explain some of this. But, but that would require them to actually decide they want to do something.

Kevin Frazier: Well, you know, those are big decisions, Peter. We gotta, we gotta save that for another day. So, diving into the initial responses to this deal, we've heard, obviously the administration say this is entirely justified. President Trump now announcing a plan to make this perhaps more common. And yet on the other side of the ledger, some real concerns about rule of law ramifications.

What is this going to mean from a procurement standpoint, for example, when Intel is perhaps bidding against other folks in the space for deals? What does this mean from a industrial policy perspective more generally about the government getting more and more and involved in the economy. Can you paint us a broad picture, and then we'll try to look at some specific images, but paint a broad picture of the initial response here.

Peter E. Harrell: Well, I think you've seen a lot of skepticism of this deal from a wide range of you know, business constituents, legislators, policy experts. And I would say that when I sort of read the criticism of this deal, you see criticism of this deal even from folks who are maybe open-minded to government stakes in other contexts or with maybe, maybe I should say open-minded to government stakes in the private sector, subject to better governance 'cause there's a ton of ques, even for people maybe on the progressive side of the Democratic party who think there should be some government upside, government ownership.

If you're doling out a bunch of money to a company, this looks like it happened, you know, in a very opaque, hurried fashion without a lot of transparency and oversight. And also it's not clear that like, again, Intel needs the cash. So, so I, you have a bunch of kind of criticism. It's just like this, this isn't a deal that's gonna do much for Intel or for national security, kind of on the nature of this deal.

Then you have a bunch of criticism, you know, from what I would call the kind of traditional business community and, and sort of more free market types, you know, across the partisan aisle and in in business just sort of saying this is gonna raise huge questions as you say, Kevin, of favoritism. Is the government now gonna be favoring intel in procurement? You know, or is this gonna crowd out investment and potentially more nimble and, and leaner competitors? And so you got a bunch of sort of economic policy criticism you know, that, that basically argues, look, we are a free market capitalist society. We believe that is the best and most efficient way to run our economy, and this particularly expands, looks like a massive change from that. Then of course, you get the question, I think of anyone who. You know, I, I think, you know, many companies that are you know, thinking they might apply for grants over the next couple of years are gonna be wondering, am I gonna get shaken down, shaken down too?

Kevin Frazier: Right, and we still don't know what the sort of initial criteria is, given the fact that Intel was looking okay, no one was saying, okay, Intel's at peak power or anything like that, but Intel was doing all right. We know that it wasn't necessarily up to snuff on a lot of its CHIPS Act compliance requirements, and yet we see this intervention, we have promise of perhaps future deals down the road. So what will you be looking for over the next weeks, Peter, in terms of trying to get a better sense of what this may mean as a policy signal, what this means for Intel? And what other kind of observers and defenders of the rule of law might wanna be particularly attentive to?

Peter E. Harrell: Yeah, so putting an analytic hat on, because I think this is all a bad idea I, I think it is a bad deal, I'm very skeptical of, of this deal. But let, let's put an analytic hat on, like what will I be watching for? First thing is gonna be, you know, to get back to a point, Kevin, you made a couple of minutes ago, like, how much favoritism is the government now gonna show Intel?

Are we gonna see favoritism in, in procurement? But you know, actually if the government really wanted to, you know, do a solid for it,  the company it now owns 10% of, there are lots of ways it could conceptually favor Intel. Is it gonna start, you know, telling say Nvidia for example, hey, you wanna export your chips not just to China, you want to export your chips, period. You got a fab 30% of 'em that, you know, my fab now, right. I mean, you can picture ways in which the government could really provide a bunch of benefit to Intel given its control of export licenses.

I mean, you could even see you know, be terrible policy, but like DPA, favorite act that we were just talking about, it, it allows the government very clearly allows the government to allocate resources. So is the government gonna say to you know, to ASML, hey, you wanna sell any EUV machines in the United States? You know, who gets first cut on all the EUV machines in the United States? My fab.

Kevin Frazier: And just a reminder for folks, these, these ASML machines, these are not commonly available and so if there's any sort of redirection of these critical components of the AI stack towards Intel, that's a huge game changer. And again, to your point, Peter, there's a very clear incentive now to start to think about these sorts of arrangements, even if it may not be said out loud. Certainly when you're just sitting looking at what sorts of policies could we start to endorse, these will come up, or they seem likely to come up.

Peter E. Harrell: I mean, maybe I'd look at it this way if I was the guy sitting over on Lutnick staff being told you know, manage that new investment we got. What can you do to, you know, get us a good return on our Intel investment? I could start thinking in lots of ways that would probably be very bad for the economy and would be very bad long term for U.S. technology, but, you know, in the short run would be good for my investment, right? So I worry a lot about that, and it's one of the things I'll be watching. And then the next thing is just sort, okay, who is next and what is next? You know, there's a meeting today between the president and the President Trump and the South Korean president announcements coming, I gather on ship building, Korean ship building here. You know, are we gonna see the government try to you know, extract a stake in Korean shipyards you know, investing here in the United States? You know, the Department of Energy is obviously doing, you know, the Biden administration spent a lot of Department of Energy money on wind and solar, they're not Trump administration's not doing that, but they are now spending money on like nuclear and geothermal. Are they gonna start, you know, getting into the government power business here? Like, I just, I'll be interested to see how they think through what other parts of the economy they can get their, their hands in.

Kevin Frazier: Well, Peter, you have such a beautiful head of hair, so you need to take that analytical hat off and I want to explore. What are your policy qualms here? We, we've said this is bad policy. What, what for you makes this a matter to kind of scream from the rooftops about in terms of just a bad policy move, law notwithstanding?

Peter E. Harrell: Well, look, I, I, I think the way the U.S. has succeeded over time in fostering technological leadership has been by fostering a competitive ecosystem and innovation and R&D, right. So I have, I just, we have rarely seen the U.S. sort of successfully bet on a national champion, and I worry a lot that we have a national, you know, a company that was not in great shape on the technological front, is this really who we want to bet on as a national champion? Or should we be saying, you know, like, let's get some guys out in California, spin out some new lab technology. Like I just, I worry a lot about the precedent of kind of picking national champions, and in particular here because this is a, you know, there was no like competitive process to sort of see who should we bet on to invest in, in the semiconductor. So it was actually competitive process for grants, but this is just like they saw a moment of opportunity and seized it. So it's a very sloppy, if you were gonna pick a national champion, it very sloppy way to me to, to meet

Kevin Frazier: There, there was no Shark Tank process of Letnick and President Trump sitting and hearing pitches about, Hey, you know, take equity in U.S. first.

Peter E. Harrell: Yeah, exactly. I'm not sure they're gonna, you know, knowing these guys, like, they're probably they're probably not gonna invite Mark Cuban to join that particular that particular episode. But

Kevin Frazier: No, no invite for Cuban, wow. Well, we certainly are gonna have a lot to pay attention to over the coming days, and if President Trump lives up to his word, we, we may be having you back sooner rather than later, Peter, to break down yet another deal. But for now, unless there's any final word from you, I think we'll have to leave it there so everyone can kind of catch up on what the heck's going on. That sounds great.

Peter E. Harrell: This has been a pleasure, Kevin.

Kevin Frazier: Thanks so much, Peter. We'll talk soon.

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