Intel fires a warning shot across AMD's bow on Global Foundries

When AMD spun off a huge chunk of its manufacturing operations two weeks ago, creating a new and instantly major chip making firm called Global Foundries, it was with the idea of enabling the new entity to manufacture CPUs using AMD's designs. But a good portion of the intellectual property for those designs comes to AMD by way of a cross-licensing agreement between the two companies, that Intel fears AMD may be breaching.

This morning, Intel announced it has formally informed AMD of its opinion that Global Foundries is not an AMD "subsidiary," and therefore does not qualify to make use of Intel's x86 intellectual property in building chips for AMD or anyone else.

"We sent them a letter saying they're in breach, and absent a cure within 60 days, their rights [to Intel's IP] will be terminated," Intel corporate spokesperson Chuck Mulloy told Betanews early this afternoon.

Under the terms of AMD's and Intel's cross-license agreement, Mulloy told us, the step Intel has just taken compels the two companies to enter into mediation. The objective of that mediation, from Intel's point of view, will be to hammer out an agreement that enables Intel to benefit from AMD's arrangement with its new spinoff, which Intel argues cannot be labeled a subsidiary even though they share an executive chairman (Hector Ruiz).

"We believe what [AMD] did was unilaterally transfer rights to a third party," said Mulloy. "We don't believe Global Foundries is a part of AMD. They [AMD] transferred rights without our permission, and without an opportunity for Intel to get a return on its IP."

In response, AMD spokesperson Michael Silverman implied to Betanews today that if Intel were to make good on its threat to conceivably stop Global Foundries from producing AMD chips in the next few months, AMD could retaliate by preventing Intel from producing chips using technologies that rely on IP granted to Intel on the reverse side of the cross-license...technologies including multicore.

"The AMD/Intel cross-license agreement is a two-way agreement, the benefits of which go to both companies," Silverman wrote to Betanews this morning. "Intel leverages innovative AMD IP critical for its product designs under the cross-license. This includes AMD patents related to 64-bit architecture extensions, integrated memory controller, multi-core architecture, etc. The cross-license is very much a two-way street."

Responding to that counter-charge, Mulloy told us he wasn't personally aware of what technologies AMD may have licensed to Intel under the agreement. That part among others, he said, has been redacted according to AMD's request. The redacted version of the agreement appears here.

But Mulloy disputes that AMD can terminate its side of the cross-license agreement without a significant claim of breach -- meaning, he doesn't believe AMD could retaliate under the terms of that agreement if it wanted to. "They can't go back and take those license rights away," he told Betanews.
Silverman disagrees, saying Intel's termination would in effect trigger AMD's. "In fact, we informed Intel that their attempt to terminate AMD's license itself constitutes a breach of the cross-license agreement, which, if uncured, gives AMD the right to terminate Intel's license," Silverman told us, implying that AMD did indeed file some sort of response to Intel.

But until that time, AMD isn't claiming it has been harmed just yet, arguing instead that Intel's action is just a smokescreen: "We believe that Intel manufactured this diversion as an attempt to distract attention from the increasing number of antitrust rulings against it around the world. With a ruling from the European Commission and a US trial date looming, and investigations by the US [Federal Trade Commission] and N.Y. Attorney General [Andrew Cuomo], the clock is ticking on Intel's illegal practices -- and yet with its dominant monopoly position it still tries to stifle competitors."

At issue is an element of the cross-license agreement that defines subsidiary -- a firm to which either principal would have the authority to transfer rights -- in this way:

 1.22. "Subsidiary" shall mean any corporation, partnership,
 joint venture, limited liability or other entity, now or hereafter,
 in which a party

 (a) owns or controls (either directly or indirectly) or originally
 contributed (either directly or indirectly) at least fifty
 percent (50%) of the tangible and intangible assets of such
 entity; and

 (b) owns or controls (either directly or indirectly) either of the
 following:

 (1) if such entity has voting shares or other securities, at
 least fifty percent (50%) of the outstanding shares or
 securities entitled to vote for the election of
 directors or similar managing authority and such entity
 is under no obligation (contractual or otherwise) to
 directly or indirectly distribute more than seventy
 percent (70%) of its profits to a third party, or

 (2) if such entity does not have voting shares or other
 securities, at least fifty percent (50%) of the
 ownership interest that represents the right to make
 decisions for such entity and an interest sufficient to
 receive at least thirty percent (30%) of the profits
 and/or losses of such entity.

 (c) An entity shall be deemed to be a Subsidiary under this
 Agreement only so long as all requisite conditions of being a
 Subsidiary are met.

Under the terms of the agreement executed earlier this month between AMD and investment co-owner ATIC, AMD owns 44.4% of Global Foundries, less than the 50% necessary to qualify as a subsidiary under the agreement. For its part, AMD hasn't been calling Global Foundries a subsidiary either, though it's clear that they share resources.

Mulloy also told us that as the agreement now stands, AMD must have the rights to manufacture chips using Intel's IP. If AMD is no longer a manufacturer in its own right, that too could be a problem.

"X86 is an Intel architecture that is a cornerstone of our business," said Mulloy. "When we license, we license. They can't license Intel [IP] to someone else."

AMD, meanwhile, indicated to Betanews that it's ready and willing to go the distance with this one: "Should this matter proceed to litigation," Silverman stated, "we will prove that Intel fabricated this claim to interfere with our commercial relationships and thus has violated the cross-license."