'A pivot from war to peace:' The AMD + Intel armistice, in their own words

For much of its history, AMD's image in customers' minds has been established, or at least reinforced, by its very public stance with regard to Intel. The company that AMD has tried to be, it has explained for years, begins with everything that Intel -- at least from its perspective -- is not.

So it must have been a bewildering feeling for AMD executives to approach this morning, perhaps after not very much sleep last night, in an environment that can no longer be framed by the legal and intellectual property conflicts between it and its sole rival. The legal war is gone. Only the market competition remains, the sole differentiator between the last two producers of CPUs for PCs in the world. It was what AMD said it has always wanted.

It's no wonder then, that the first words this morning from AMD's chief legal executive, Tom McCoy, were at times laced with poetic metaphors, and at other times flying loosely in the breeze, like this could still be a dream: "What's important about the agreement, to us, is that it signals a new era. It's a pivot from war to peace, and we're trying to redefine not only the path to a fair and fierce competitive fight in the marketplace, but also one of tonality with Intel. We're all trying to get this behind us and move forward in a very respectful way -- a way that will make everybody proud of this industry in which we operate, that is so fundamental and vital to innovation, to productivity, and to great fun, using technology in the world."

What's fair and what's not

The agreement between the two companies, as explained to the US Securities and Exchange Commission this morning, spells out a new set of guidelines for what both CPU producers can agree to be "fair competition." With federal regulators worldwide having used AMD's situation as a model case for a manufacturer treated unfairly by its dominant rival, the fact that AMD signed off on these new guidelines will make it difficult for them to continue pursuing their investigation of Intel the way they have been, although they will project the image of stubborn persistence for at least the next few months.

"The key points are, for us, that Intel will not be able to condition doing business with them on not doing business with us," McCoy explained this morning. "They can't use inducements in order to force exclusive dealing, to delay customers from using our products, delaying or prohibiting companies from marketing or advertising our products or systems with our products, withholding benefits from OEMs in the event that they elect to use AMD processors. We've also agreed to certain technical practices...particularly in the compiler business, so that compilers will not unfairly, artificially impair the performance of our products. We're never looking for any help; we're just not looking to be unfairly hurt. Intel has no obligation to help us; they do have an obligation not to do things that are simply designed not to hurt us."

What it was obvious that Intel needed at this point was an addition to its cost-cutting program -- a way to stop spending vital resources and capital on defending its image among lawmakers. It needed an exit strategy that enabled it to save face; and this morning, Intel CEO Paul Otellini stopped just short of saying exactly that:

"In most lawsuits between businesses, there comes a time where both sides step back and look at whether spending all of that time and money makes sense. That's what happened here. Intel and AMD took a step back. We look at the claims AMD was making, and they looked at our claims that they had breached their license rights to Intel's patents. After a lengthy negotiation that began last spring, we found a way to put these matters behind us and move forward.

"People can honestly disagree about business and marketing practices," Otellini continued, as he pursued his metaphor of stepping back and moving forward simultaneously. "We continue to believe that our discounts are lawful and in the best interests of consumers and the marketplace, although we understand that others have a different perspective. At this point, the best path forward is to bring closure to all disputes between the companies."

How can Intel effectively agree to stop doing what it says it never did, and keep a straight face about it? That's the essence of a question asked this morning by a Wall Street Journal reporter.

As Intel Executive Vice President for Legal Affairs Andy Bryant responded, "They [AMD] believe we conduct business certain ways that we don't believe we do. So it's been a contention for a long time...one of the examples they gave was, if a customer doesn't buy a certain amount from us, we punish that customer. We don't do that. We understand they believe that. What made sense for us was to say, since we all agree it shouldn't be done, let's write it down and agree to it. And we'll monitor it and have talks about it. So what we've really done is, taking where the two sides have a different conception, and codify what we will and won't do -- mostly what we won't do -- and hopefully, then, we can track that going forward, and everybody understands that competition has been fair and will be fair."

Under the terms of the settlement agreement, representatives from both companies will meet once every quarter to discuss possible points of dispute, perhaps in writing. This gives both sides the opportunity to propose solutions prior to any future litigation taking place.

Why was AMD willing to grant Intel some lee-way on what appeared to have been, up until today, the central point of its dispute -- for example, Intel's ability to bargain for exclusivity? In response to this question, AMD's Tom McCoy actually went so far as to state that certain elements of its case against Intel that seemed critical, really weren't.

"The key issue for us is the conditionality," McCoy said, not being nearly as poetic as at the start. "That is, that structures or inducements, or the opposite of inducements, that are provided to customers, are conditional on whether, and to what extent, or how, customers can also deploy AMD technology. That is the key practice that, in our view, has constrained our access to the marketplace, whether it be at the computer manufacturer level or the channel level; and Intel has agreed to cease those practices, consistent with what are already several regulatory decisions."

But a so-called "narrow set of practices" (which aren't so narrow after all; for instance, fairly bidding for exclusivity if an OEM offers it) remains permissible even under this agreement. As AMD's McCoy explained, "As to these other, narrow set of practices, bear in mind that there is also a decision that exists against Intel from Brussels, and that Intel is undoubtedly going to try to comply in good faith with that decision. So we believe that we, through the actions of the regulators, already have significant protections against these practices, and that our customers therefore are going to enjoy freedom of action to deal with us."

Next: The cases against Intel going forward, or backward...