Experts: Dispute with Intel won’t choke supply of AMD chips

Intel’s threat to pull its cross-licensing deal with AMD is unlikely to result in a shortage of AMD processors in the market, experts said Monday.

“Gosh, I’d worry more about a meteor slamming into the Earth,” said Nathan Brookwood, a longtime analyst with Insight64, noting that very few patent lawsuits in Silicon Valley result in either party being forced to halt production.

[ Today, Intel warned AMD about its potential patent breach. | Related: Intel launches probe into AMD’s spin-off plans. ]

Even as both Intel and AMD amp up their legal posturing and rhetoric, they will also “go on their merry way making their products,” he said.

One reason is the terms of the 2001 deal struck by AMD and Intel which spell out that any dispute must be settled in state court or federal court in Delaware (see clause 9.8).

For Intel to get a court order to force AMD to stop making processors would take at least three years, according to Mark Walters, a patent lawyer in the Seattle office of Darby & Darby.

To hammer home how long such cases take, AMD sued Intel for broad antitrust violations in 2005. The case is expected to go to federal court next year.

Besides the propensity of patent cases to drag on for years, many end up being settled out of court or are used as negotiating leverage in other cases, Walters said.

“This is done all of the time, especially with big companies that have multiple legal positions that are somewhat conflicting,” he said.

Intel did not reply to a request for comment.

But AMD argues that its spinoff of Global Foundries doesn’t violate what appears to be the key clause 1.22 in the 2001 contract, which states that patents may be shared with subsidiary companies provided the subsidiary satisfies two requirements:

* Owns or controls or originally contributed (either directly or indirectly) at least 50 percent of the tangible and intangible assets of the subsidiary;

* Through voting shares or seats on the board, has 50 percent control of the subsidiary and also gets at least 30 percent of the profits and losses.

As has been reported before, AMD will own 34.2 percent of the joint venture while Advanced Technology Investment Co. (ATIC), a firm owned by the government of Abu Dhabi, will hold 65.8 percent after investing $2.1 billion and agreeing to put in between $3.6 to $6 billion of “equity funding” within five years.

AMD’s stake in Global Foundries was originally set to be 44.4 percent but was diluted due to its falling stock price amidst slumping PC demand. At the same time, AMD will still hold 50 percent of the seats on the board of Global Foundries.

In an interview, Harry Wolin, AMD’s general counsel, said AMD not only earns more than 30 percent profit from Global Foundries, but said its original contribution to Global Foundries “added up to much more than 50 percent.”

“We threw in the German factories, all of the employees, the technology, and the intellectual property,” Wolin said.

Brookwood observed that “from what is publicly visible, it would seem that AMD is meeting the criteria.”

But Walters said AMD may be exploiting a “loophole.”

“The implicit assumption” is that if AMD puts in 50 percent worth of assets, it will own 50 percent of the spinoff, he said. “It seems to be some gaming of the system by AMD.”

Intel also argued that the way the spinoff deal was structured also breaches a “confidential portion” of the licensing agreement, and asks AMD to make that public.

Wolin said the confidential information is “no big deal” and involves “some terms Intel is accusing us of breaching that we haven’t.” Indeed, AMD is “happy to make this information public,” Wolin said, in return for Intel’s publicly revealing a number of documents that have already been discovered for next year’s court case, which he claimed would “shed light on Intel’s behavior and how they operate illegally using their monopoly power.”

Wolin accused Intel of “trying to create PR and churn in the marketplace with our customers.” He argued that Intel’s termination of the deal would result in a breach of contract by Intel, which would cut Intel’s access to AMD’s patents and licenses.

“Remember, they need our patents every bit as much as we need theirs,” he said.

Computerworld is an InfoWorld affiliate.