Intel and AMD Play the Blame Game

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Play nice, kids. Mud-slinging doesn't make anybody look good.

But mud is exactly what Intel (Nasdaq: INTC  ) and Advanced Micro Devices (NYSE: AMD  ) are flinging at each other today. Intel complains that AMD's separation into separate chip design and foundry units violates an eight-year-old cross-licensing agreement. AMD has no right to "unilaterally extend Intel's licensing rights" to the new entity, because it's not an AMD subsidiary under the terms of the licensing agreement. Cease and desist, AMD. The mediators are on their way to Santa Clara. And it's a quick trip, less than two miles down Bayshore Freeway.

AMD, of course, denies any wrongdoing and maintains that Intel now has breached that contract. The mere action of telling AMD that it's doing something wrong seems to trigger a clause to that effect. "Should this matter proceed to litigation, we will prove that Intel fabricated this claim to interfere with our commercial relationships and thus has violated the cross-license," said AMD spokesman Michael Silverman in an emailed statement. "We will continue to respect Intel's intellectual property rights, just as we expect them to respect ours."

Parts of the contract are confidential. The censored snippets in the publicly available document tend to be the good stuff that we really wanted to know. That makes it very hard for us outsiders to figure out who's right and who's wrong here, so I won't even try. Let the mediation team figure it out and decide who owes who an apology, a backrub, and some money.

Either way, you need to understand that this licensing agreement is a very big deal for both of the squabbling parties. Whenever I bring up the possibility of a cash-laden biggie like IBM (NYSE: IBM  ) or perhaps Cisco (Nasdaq: CSCO  ) buying the beleaguered underdog, readers always take pain to point out that this 2001 agreement could be null and void if AMD were acquired. There wouldn't be much value left in an AMD that wasn't allowed to sell chips.

On the flipside, the contract is both retroactive and forward-looking, but again, it's tough to pin down exactly what is and isn't covered. AMD's Athlon 64 set some standards for 64-bit processors that Intel had to follow, under the very same license exchange. Once Microsoft (Nasdaq: MSFT  ) started building a 64-bit windows based on AMD's extensions rather than Intel's competing architecture, there wasn't much else Intel could do. And so the twain are beholden to one another.

Intel has given AMD 60 days to resolve the issue or lose the license. The whole agreement was set to expire in 2011 anyway, so maybe it's about time to sit down and negotiate a new version for the next decade. Both sides have incentives to settle the dispute, otherwise the legal eagles are standing by in case the negotiators fail.

Further Foolishness:

Intel and Microsoft are Motley Fool Inside Value selections. The Fool owns shares and covered calls of Intel. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Anders Bylund owns shares in AMD, but he holds no other position in any of the companies discussed here. You can check out Anders' holdings or a concise bio if you like, and The Motley Fool is investors writing for investors.

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