INTC Says Put Up Your Dukes AMD

INTC is Angry

Intel Corp. said Advanced Micro Devices Inc.’s deal to spin off its manufacturing operations breaches a patent-licensing pact between the companies, and threatened to cut off AMD’s rights to use the patents in 60 days.

AMD recently spun off the operations — which include factories in Dresden, Germany, that continue to manufacture chips for AMD — to a new company that is largely funded by investors from Abu Dhabi.

AMD retains an ownership interest in the venture, which is called Globalfoundries.

The dispute hinges on whether the venture can be considered an AMD subsidiary, as defined by a 2001 agreement between the rivals to share intellectual property.

Intel argues Globalfoundries isn’t an AMD subsidiary, and therefore the venture doesn’t have rights to use its patents to make chips.

Harry Wolin, AMD’s general counsel, said the Globalfoundries deal meets the requirements of a subsidiary as laid out in the agreement with Intel: The parent company must contribute at least 50% of any spinoff’s assets, retain at least 50% voting control and at least 30% interest in any profits or losses.

Intel’s “legal arguments are incredibly weak, at best,” Mr. Wolin said.

Bruce Sewell, Intel’s general counsel, argued that AMD violates all three parts of the definition.

For example, while AMD counts the assets it is contributing to the venture, he said, it fails to consider AMD debts that Globalfoundries is assuming that reduces AMD’s net contribution to the venture.

Intel also contends that the deal violates a confidential portion of the agreement that Mr. Sewell said prohibits AMD from setting up any corporate structure that has the goal of extending patent rights to a third party.

“It’s clear to us that AMD has gone down this path precisely in order to get around the requirement,” Mr. Sewell said.

Mr. Sewell said Intel remains open to negotiating a patent-license arrangement with Globalfoundries.

Without one, he said, Intel faces the possibility that the new venture could use its patents in making chips for other companies besides AMD.

Intel has raised legal questions about the spinoff plan since AMD announced it in October.

Lawyers from the two companies met last week to discuss the issues, Mr. Sewell said, and Intel followed up with a letter to AMD that accuses AMD of committing a material breach of the license.

Under terms of the license agreement, the companies are expected to begin a mediation process.

But Intel said it is invoking its right to terminate AMD’s license to Intel patents in 60 days unless AMD corrects the alleged breach of the agreement. AMD, in turn, said Intel’s actions to terminate its rights also entitle AMD to terminate Intel’s rights to AMD’s patents.

The dispute is the latest in a series of legal battles between the companies, including a private antitrust suit that AMD filed against Intel in June 2005.

A spokesman for Globalfoundries characterized Intel’s latest action as a “diversionary tactic” to distract from global antitrust scrutiny that Intel faces.

“We remain on track to manufacture products for AMD and other future customers,” he said.