Advanced Micro Devices announced Monday that Intel plans to pull its 2001 cross-licensing patent agreement in the next 60 days, unless concerns surrounding AMD's joint-chip foundry are addressed. Intel's warning is a further escalation of concerns it expressed more than five months ago, following AMD's announcement it planned to spin off its manufacturing assets to a joint-venture with the Abu Dhabi government. The joint-chip foundry, tentatively called The Foundry Company, calls for the government's Advanced Technology Investment Co. (ATIC) to own a majority 55.6 percent stake, but AMD and ATIC will hold equal voting rights. The deal officially closed earlier this month.

Under the 2001 Intel-AMD patent cross licensing agreement, restrictions exist regarding the transfer of licenses and patents. That agreement currently stands in place until 2010, when it expires. For AMD, the 2001 Intel agreement allows it to manufacture chips using Intel's X86 design and rely on chip foundries for up to 20 percent of their total manufacturing capacity. Intel, meanwhile, receives royalties from AMD, under the deal. The companies, despite their heated legal battles over antitrust matters, have had a long-standing patent and licensing relationship, going back to 1976.

But this latest turn of events could result in a change in that relationship. AMD, in its filing with the Securities and Exchange Commission on Monday, said Intel sent it a letter that alleges AMD:

Advanced Micro Devices, Inc. (the "Company") has received correspondence from Intel Corporation ("Intel") related to the 2001 Patent Cross License Agreement between the Company and Intel (the "Cross License"). In this correspondence, Intel (i) alleges that the Company has committed a material breach of the Cross License through the creation of the Company's GLOBALFOUNDRIES joint venture and (ii) purports to terminate the Company's rights and licenses under the Cross License in 60 days if the alleged breach has not been corrected.

The Company strongly believes that (i) the Company has not breached the terms of the Cross-License and (ii) Intel has no right to terminate the Company's rights and licenses under the Cross License. Under the terms of the Cross License, there is an escalating procedure for resolving disputes, and the Company has commenced the application of that procedure with respect to Intel's purported attempt to terminate the Company's rights and licenses under the Cross License. In addition, the Company has informed Intel that the Company maintains that Intel's purported attempt to terminate the Company's rights and licenses under the Cross License itself constitutes a material breach of the Cross License by Intel which gives the Company the right to terminate Intel's rights and licenses under the Cross License Agreement while retaining the Company's rights and licenses under the Cross License Agreement.

AMD further notes in its filing that the 2001 agreement calls for an escalating procedure for resolving disputes and that AMD has begun those steps.

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