Intel to pay AMD $1.25 billion in antitrust settlement

Burying a very large hatchet in the computing industry, Intel has agreed to pay Advanced Micro Devices $1.25 billion as part of a settlement of a long-running antitrust case.

The pact, announced Thursday, resolves the private antitrust lawsuit AMD filed in 2004 and extends the companies' patent cross-licensing agreement. The new patent arrangement removes hindrances to AMD's effort to spin off its chip manufacturing business and to have other manufacturers build its processors.

In addition, Intel has agreed to "abide by a set of business practice provisions." Check below for a full list.

In turn, AMD says it will drop all pending litigation, including the case in U.S. District Court in Delaware and two cases pending in Japan, and will also withdraw all of its regulatory complaints worldwide.

AMD investors were delighted, sending the company's stock up 21 percent to $6.46 in morning trading. Intel's stayed flat at $19.84.

"While the relationship between the two companies has been difficult in the past, this agreement ends the legal disputes and enables the companies to focus all of our efforts on product innovation and development," the chipmakers said in a joint statement.

Government cases unaffected
Well, it probably won't end everything exactly. The settlement between the companies doesn't stop antitrust cases brought by governments.

After AMD filed its case in 2004, European regulators brought a separate case that led to a $1.5 billion fine, which Intel is now appealing. And last week, New York Attorney General Andrew Cuomo filed another antitrust suit against Intel.

"Those cases filed by those government regulators will continue," Intel spokesman Tom Beerman said. "We will continue at the same time to work with the regulatory bodies to work on those issues."

Added AMD's Drew Prairie, "We've notified the regulatory authorities of the settlement. They didn't have ongoing investigations because of us...That's a snowball rolling downhill."

Intel still must reckon with an investigation from the Federal Trade Commission, too. "Certainly we plan to review the settlement between Intel and AMD in their private litigation. The FTC has an ongoing independent investigation of Intel's practices so we cannot comment further at this time," FTC Chairman Jon Leibowitz said in a statement Thursday.

The European Commission didn't comment on whether Thursday's settlement would affect discussions about Intel's fine, but did say the agreement doesn't affect its regulatory scrutiny of the chipmaker.

"Intel has an ongoing obligation to comply with the Commission's May 2009 decision and with EU antitrust law," said spokesman Jonathan Todd. "The Commission continues to vigorously monitor Intel's compliance with its obligations under the May 2009 decision."

The cross-license agreement has been updated to reflect AMD's move to spin off its processor manufacturing business into a separate company, Globalfoundries, which currently is an AMD subsidiary. Under the updated agreement, AMD will be able to operate as a "fabless" processor company--one that relies on others to build its chips. In addition, Globalfoundries "is free to operate independently and go after third-party business without issues," Prairie said.

Another change: in the earlier patent cross-license agreement, AMD had to pay Intel royalties. Now neither company makes payments, Prairie said.

Intel: Settlement was 'practical'
Intel Chief Executive Paul Otellini didn't show much in the way of contrition in a conference call.

"We have competed fairly and legally," Otellini said, including the price discounts it offered computer makers as incentives to use Intel chips. In the United States, 98 percent of private antitrust cases are settled, he added. "It pains me to write a check at any time, but in this case it made a practical settlement. It was a good compromise between the two companies. In many ways it was a small multiple of the damage that could be awarded in a jury trial."

And Andy D. Bryant, Intel's chief administrative officer, said the restraints Intel agreed to don't really change Intel's behavior in practice, because it wasn't doing those things in the first place.

"AMD believes we have done business in some fashion they believe is inappropriate," such as punishing computer makers that don't buy a certain amount of chips from Intel. "We have said we don't do the acts they say we're doing...There are no changes to pricing practices as a result of this contract."

He did add that Intel changed some pricing practices as a result of the European Commission case.

Intel also said that as a result of the settlement, its fourth-quarter spending will increase from its earlier projection of $2.9 billion to about $4.2 billion; Intel is paying cash within 30 days. However, Intel's effective tax rate should decline from 26 percent to 20 percent for the quarter, Intel said.

A new relationship
The companies didn't agree to become best friends, but AMD and Intel are turning over a new leaf, moving toward "fierce but fair" competition, Tom McCoy, AMD's executive vice president of legal, corporate and public affairs, said in a conference call.

"With this agreement, we are trying to reset our relationship between AMD and Intel," McCoy said. That relationship has been "intense, emotional, and acrimonious for all too many years...We wanted to put this behind us. We didn't want pressures to build up. We wanted a healthy, normal relationship. Therefore we will see in the agreement, a thought-out procedure [through which] we will build trust and try to resolve our differences before spilling into the courts or into [the] public affairs domain."

Intel's Bryant said the agreement includes mechanisms for mediation and arbitration that provide "a very thorough ability to...resolve differences."

The constraints on Intel's practices caught the attention of Richard Brosnick, an attorney at Butzel Long who focuses on antitrust law.

"In settling a suit that arose from claims that steep discounts were anticompetitive, Intel has now agreed with its rival to a set of 'business practice provisions' that will presumably limit Intel's ability to compete with AMD on price," Brosnick said. "Of course any analysis would depend on the details of the deal, but as a general antitrust matter, I'd call that ironic to say the least."

Intel's restraints
According to AMD, Intel will refrain from these practices:

• Offering inducements to customers in exchange for their agreement to buy all of their microprocessor needs from Intel, whether on a geographic, market segment, or any other basis

• Offering inducements to customers in exchange for their agreement to limit or delay their purchase of microprocessors from AMD, whether on a geographic, market segment, or any other basis

• Offering inducements to customers in exchange for their agreement to limit their engagement with AMD or their promotion or distribution of products containing AMD microprocessors, whether on a geographic, channel, market segment, or any other basis

• Offering inducements to customers in exchange for their agreement to abstain from or delay their participation in AMD product launches, announcements, advertising, or other promotional activities

• Offering inducements to customers or others to delay or forebear in the development or release of computer systems or platforms containing AMD microprocessors, whether on a geographic, market segment, or any other basis

• Offering inducements to retailers or distributors to limit or delay their purchase or distribution of computer systems or platforms containing AMD microprocessors, whether on a geographic, market segment, or any other basis

• Withholding any benefit or threatening retaliation against anyone for their refusal to enter into a prohibited arrangement such as the ones listed above.

Those constraints will benefit the chipmakers' customers, computer makers such as IBM, Hewlett-Packard, and Dell, McCoy said.

"When we aggregate all these things together, we believe we have delivered to [the] marketplace and to mutual customers something they've wanted, which is more freedom of action to choose," McCoy said.

Updated at 7:00 a.m., 7:30 a.m., 7:56 a.m., 9 a.m., and 10:50 a.m PST with further details and comments.