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Intel Agrees to Pay AMD $1.25 Billion in Sudden Settlement
The Recorder
November 13, 2009
Image: Photodisc Red
A historic settlement between rival chip companies Intel and AMD shook the tech world on Thursday.
Intel Corp. agreed to pay Advanced Micro Devices Inc. $1.25 billion to settle lawsuits claiming that it unfairly squashed the smaller AMD by bribing computer companies not to use AMD chips. The agreement also says Intel will abide by certain business practices, including not paying companies to stay away from AMD chips.
The two companies went years without so much as a whiff of settlement. But with a trial looming in Delaware, a $1.45 billion fine against Intel from European regulators, a lawsuit against Intel from the New York attorney general, and another one on the way from the Federal Trade Commission, the sides got serious, said Thomas McCoy, AMD's executive VP for legal, corporate and public affairs.
"There we were," said McCoy, who headed up the fight against Intel. "All of the pieces were on the chess board and we could all see them clearly." The sides didn't leave the settlement talks up to their outside lawyers -- AMD's outside lawyers at O'Melveny & Myers were busy preparing for trial, as were Intel's at Gibson, Dunn & Crutcher. Beginning after Labor Day, McCoy, GC Harry Wolin and other AMD in-house lawyers began to hammer out an agreement in earnest with Intel's in-house lawyers, including interim GC Suzan Miller and director of litigation Steven Rodgers, and Intel executive Andy Bryant.
"We certainly needed the help of outside counsel, but we were only going to get something done if our own executives were there," McCoy said. "The trial lawyers on both teams were also too busy to do anything." So who came out ahead in the settlement? One outside observer, Aaron Edlin, a UC-Berkeley School of Law professor who specializes in antitrust, said it was AMD. Even though AMD could have won even more money at trial, Edlin said Intel's promise to abide by certain business practices is very valuable.
"The business concessions could be more valuable than the money," said Edlin, who was not involved in the case. "I would judge from the settlement that the parties thought AMD had a very good likelihood of winning the trial. I would say that AMD, from what we know, appears to come out with what they wanted." Intel agreed not to promise payments or rebates to its customers for not using AMD chips in their products. AMD and authorities such as the New York attorney general have alleged that Intel paid Dell and other computer makers billions to not use AMD chips in their machines. However, in a conference call, Intel executives did not admit to any bad behavior in the past, saying they were agreeing to rules of the road.
Of great interest also was what was left out of the agreement. The companies did not agree that Intel shouldn't use controversial high-volume discounts. Lawyers involved in the negotiations said that was because of antitrust concerns that could arise from the two competitors agreeing to any sort of pricing. Instead, Intel will abide by the government's decision on those discounts when the time arrives and allow AMD to argue its case.
On most every other matter, AMD is withdrawing its complaints against Intel that it has pressed with governments all around the world. Of course, that doesn't mean regulators won't act.
But Chuck Diamond, AMD's lead trial lawyer at O'Melveny, said he expects that Intel will settle the government actions before long.
"We would expect that there would be efforts to put those matters to rest," he said.
Intel spokesman Chuck Mulloy indicated that Intel is still fighting those cases. He said Intel is currently appealing the judgments brought by the European Union and regulators in South Korea. He called the New York AG's lawsuit "deeply flawed and needlessly inflammatory," and said Intel is continuing to cooperate with the FTC's investigation.
Aside from the Delaware case, AMD will also drop two cases in Japan. The two sides also agreed to a new patent cross-license as part of the deal. Intel had accused AMD of breaching the patent agreement in April. Intel's Mulloy said the settlement negotiations were spurred by Intel's accusations, not by the huge EU fine or the New York suit.
O'Melveny's Diamond, who has worked on the AMD case for five years, said that internally at AMD it was called "Project Slingshot" because of the David and Goliath nature of the fight. Now, he said, that fight is over.
"I think that for the first time there's going to be competition on the merits," he said. "That means there's no David and no Goliath."
Over the last year, AMD has been one of O'Melveny's top five clients in terms of billings, in large part because of this litigation. Bradley Butwin, co-chairman of the firm's litigation department, insists that the abrupt cessation of this massive matter won't materially impact O'Melveny's revenue. He notes that the firm gets a half-billion dollars from litigation matters overall, so no one case will affect the bottom line too much. The firm throughout its history has redeployed resources from one case to another, he notes, and this settlement will give O'Melveny a chance to move lawyers to other cases.
Andrew Longstreth, a reporter for The American Lawyer, contributed to this story.
