Fabrication Spin-Off Unlikely to Spark Another Intel vs AMD Court Battle

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We’ve performed a (very informal) analysis of how the x86/x86-64 cross license could threaten AMD’s plans to spin off its manufacturing assets into the Foundry Company. In order to shut out AMD but still have access to their x86-64 side of the cross-license, Intel would need to Terminate for Cause (section 6.2) based on a material breach (6.2.a). Intel can also terminate the agreement if AMD undergoes a Change of Control (6.2.b.7), but it appears that terminating under that clause would cut off both sides of the license.

What we found is that the spin-off seems structured in such a way that AMD is not, as defined in the license, undergoing a change of control, and, also by definition in the license, TFC is a subsidiary of AMD. That means they can produce AMD’s chips under the x86 license without causing a “material breach.”

At least as far as we found, anyways, though (as you are tired of hearing if you’ve been reading the whole series) I am not a lawyer and many parts of both the spin-off and license documents are confidential. But would the spin-off plan have gotten past square one if AMD’s legal counsel didn’t think it would fly?

Now That Would Be Embarrassing

According to Joel Hruska of ars technica in Intel to examine AMD split for x86 licensing violations:

“It’s possible—indeed, it seems likely—that AMD built this deal from the ground up with all of its restrictions in mind… With over a year (and possibly two) to consider the situation, and the terms of the license right in front of it, it’s hard to believe AMD built the plan first, then belatedly went, ‘Oh, yeah—Intel.’”

Indeed, it would be hard to believe. We don’t have all the confidential information, and our highly informal approach was far from exhaustive, so it is more than possible we missed something. But for AMD to have internally missed something of this sort of significance would be a biggie.

Does Intel Play Monopoly or King of the Hill?

Even if Hruska, AMD, and I overlooked something, one important question remains. As we said at the outset of our analysis and Hruska suggests in his article (actually it is a far more widely held opinion than the one discussed above), Intel may not be that eager to be a monopoly, particularly by suing their way into it. The public relations disaster and antitrust regulatory issues may not be worth that last piece of market Intel doesn’t have yet.

Intel already has a court date with AMD in June 2010 based on a suit AMD brought against Intel in 2005, alleging anti-competitive practices like raising prices on customers that also bought AMD products. Intel, as one would assume, argues that they were just doing things like offering discounts to customers that bought in greater volume. The EU and Japanese governments have already taken action related to similar claims in their jurisdictions.

Even if it there is a silver bullet somewhere in the license behind the asterisks, it may not be the best time for Intel to open a new legal front against a company that already has them in court on antitrust allegations. If Intel has anything on AMD via the license, it is far more likely to be used as a bargaining chip should Intel not like the way the case in April is going and wants to settle.

What Does Intel Say for Now?

Not much. Right after the TFC plan was officially announced, Intel spokesperson Chuck Mulloy made a comment that has been spurring imaginations on to dream of legal confrontations on an unparalled scale. Not much has been said since, and it is quite possible the statement isn’t the prophecy of doom some would like to think:

“Intel has serious questions about this transaction as it relates to the license and will vigorously protect Intel’s intellectual property rights.” (Reuters)

While that could mean Intel is looking forward to spending a few years in court trying to put AMD out of business, it could also mean that Intel wants to make sure nothing in this deal would see AMD trying to get out of paying its royalties under the license, or sharing x86 processes and technology with third-party clients of The Foundry Company.

When taken at face value, the statement, though ambiguous, allows for the possibility that Intel will be satisfied by the answers they turn up to their “serious questions,” and protecting their IP rights “vigorously” doesn’t necessarily require blocking the TFC deal.

Intel is unlikely to want to block the deal in court, even if they can. This series examines the Committee on Foreign Investment in the US might have to say about AMD’s deal with ATIC and Mubadala, both of which are owned entirely by the government of Abu Dhabi.

This post is part of the series: CFIUS, ESD, and Possibly Even Intel Have a Say in AMD Spinning Off Its Manufacturing Business

With numerous approvals needed from investors and regulators, and possible legal issues tied to the x86/x86-64 cross-license agreement with Intel, AMD’s spin-off plans to create The Foundry Company need more than a rubber stamp. Who is for it, who doesn’t mind, about whom we aren’t sure, and why?

  1. AMD Shareholders and Others Likely to Approve of Plans for The Foundry Company
  2. Will AMD’s Plans for The Foundry Company Touch Off a New Legal Battle with Intel?
  3. Will Intel Say AMD’s Asset Lite Plan Represents a Change of Control?
  4. Could an Increase in AMD’s Market Value Because of their Asset Lite Transactions Threaten their x86 Agreement with Intel?
  5. The Foundry Company as an AMD Subsidiary Would Receive Intel x86 License Access
  6. Intel Unlikely to Pose Legal Threat to AMD’s Spin-Off Plans for The Foundry Company