The Intel-AMD Settlement: A Play-by-Play
The financial settlement was hammered out very late in more than a half-year of negotiations that culminated in a Nov. 12 announcement that Intel (INTC) would pay $1.25 billion to resolve long-standing antitrust allegations by AMD (AMD). Several people close to both sides gave BusinessWeek a play-by-play outline of the dramatic and sometimes tense talks dating to April 2009.
Money—and who would pay it—proved the thorniest point. People on both sides say AMD wanted payment in exchange for dropping antitrust allegations, while Intel said it should be compensated for giving an AMD subsidiary access to its patents. The resulting disagreement threatened to derail settlement talks. But parties hammered out an eleventh-hour compromise during a two-day marathon of meetings this fall with a mediator in Hawaii.
AMD had accused Intel of anti-competitive behavior in the market for computer chips. In court documents, AMD alleged that its larger rival used multibillion-dollar payments to coerce PC makers such as Dell (DELL) and Hewlett-Packard (HPQ) into using Intel products to the exclusion of AMD's chips. To drop pending lawsuits, AMD initially requested "multiple billions of dollars," according to one person involved in the process.
patent-sharing dispute opens the doorIntel insisted that instead, it should receive payment in relation to another issue under dispute: long-standing agreements that let the companies share certain patents on PC chips. For years, Intel and AMD agreed to share certain technology to ensure that computer manufacturers can expect a relatively consistent product from both. But discord arose earlier in the year when AMD, as part of a sweeping reorganization, moved to spin out its chip-manufacturing operations into a new company called GlobalFoundries. In March, Intel threatened to pull one of the pacts that dated to 2001, saying AMD "cannot unilaterally extend Intel's licensing rights to a third party." If GlobalFoundries couldn't use the patents, AMD's ability to produce valuable chips would be jeopardized, and Intel would have a leg up in ongoing battles.
With both sides at loggerheads over how to value the patents, Intel Chief Administrative Officer Andy Bryant persuaded negotiators to take the issue to a mediator.
They turned to Antonio Piazza, a partner at the San Francisco law firm Gregorio, Haldeman & Piazza, which specializes in mediation. Piazza had helped Intel and AMD resolve an earlier legal dispute in 1994. The attorney resides in San Francisco and Maui and prefers to meet with parties in one of those locations. Piazza is said to have a photographic memory and a knack for bringing parties together in deals where the situation seems intractable. "There was no fun on the beach," says one person who was there. The meetings, held in a hotel on Maui, lasted two days. Piazza's firm declined to comment for this article.
Besides Piazza, others present were Bryant and Steve Rodgers, vice-president and associate general counsel at Intel. AMD was represented by its general counsel, Harry Wolin, and AMD Vice-President for Legal Affairs Thomas McCoy. Outside patent lawyers were there to present opposing arguments about how to value the patents.
After overcoming a huge chasm between what each side deemed a fair figure, they finally arrived at $1.25 billion at the very end of the meetings. That was "the amount at which neither side would storm out of the room," one executive says. "If we went for more, they would have walked," says a person close to AMD. "And if they went for a penny less, we would have walked." McCoy and Bryant shook hands.
a key negotiatorPeople on both sides say Bryant's involvement was crucial. Bryant, who previously served as Intel's CFO for several years, joined the process at a crucial juncture in September, when Intel's then-general counsel Bruce Sewell unexpectedly accepted a job as general counsel at Apple (AAPL). Sewell's Sept. 15 departure "floored" Intel's negotiators and sowed doubt on the AMD side, says a person familiar with the developments. Apple declined to comment or make Sewell available.
But Bryant helped get negotiations back on track. Appreciated as much for his understanding of the complex finances of chip manufacturing as for his plain-spoken manner, Bryant was a calming influence for both sides. "Andy brought great credibility and leadership to the table," says AMD's McCoy. Intel did not make Bryant available for comment.
As critical as Bryant's involvement was, many important details were hammered out before he joined the talks. Early on, negotiators agreed to a set of "touchstone principles," McCoy says. Among them was a "reboot" of relations between the companies, he says. After decades of antagonism, it was time for Intel and AMD to start acting like "statesmen" of the computer industry, McCoy says. "We needed to find a way to conduct ourselves in a manner consistent with industry leaders, not tribal warriors."
Getting there wouldn't be easy. A potential stumbling block came on Nov. 4, a week before the settlement was concluded, when New York Attorney General Andrew Cuomo filed a federal antitrust lawsuit accusing Intel of engaging in a "systematic worldwide campaign of illegal, exclusionary conduct to maintain its monopoly power." Intel negotiators feared the case might give AMD renewed confidence to deal more aggressively. But, says one executive involved in the process, "both sides were smart and kept the emotion out of it."
The critical opening for the settlement negotiations came in March. AMD had just closed the complex transaction that led to the spin-off of its manufacturing operations. The new venture caught Intel's attention. Intel and AMD have for decades held a broad range of cross-licensing agreements that let them share certain patents related to PC chips. Intel said it wouldn't let AMD extend the rights to GlobalFoundries and invoked a formal dispute-resolution procedure.
pressure on intel continued to buildThat was the break both sides needed to start talking not just about patents but also AMD's antitrust allegations, McCoy says. "They had been trying to figure out for some time how to talk to us," he says of Intel. The first meeting occurred in April between AMD's Wolin and Intel's Sewell in the offices of a mediator appointed to handle the patent issue. During a break, Wolin and Sewell left the room to talk privately, according to an executive who attended the meeting. Wolin asked Sewell whether Intel wanted to talk only about patents—or cover "everything." Sewell's answer: "Everything."
Wolin mostly negotiated with Intel's Rodgers and Intel's director of litigation. The two companies were able to work out several issues, including term sheets saying AMD would withdraw its antitrust complaints with regulators around the world and that Intel would stop withholding payments to PC makers launching products using AMD chips.
Talks stalled at points during the summer months as Sewell went on sabbatical. "We scratched our heads at that," McCoy says. "They didn't seem to see any urgency, and we didn't care because we knew the pressure would continue to build on them, so we were in no hurry."
Pressure on Intel came from many fronts. In May, European regulators ordered Intel to pay $1.45 billion, the largest fine in EU history, for antitrust violations. Intel is appealing the ruling and the fine. Although the EU ruling might have given AMD an upper hand in the talks, negotiators on both sides agreed not to discuss it.
Then there was the early November lawsuit filed by Cuomo's office. Intel is also being investigated by the Federal Trade Commission, so the prospect of an FTC lawsuit hung over the settlement talks as well. "It seemed to us [Intel] wanted to get a settlement done before any FTC action was started," McCoy says. After the AMD-Intel settlement, FTC Chairman Jon Leibowitz said the agency will review the settlement. He also said the FTC investigation is ongoing. Intel sources play down any fear of a possible FTC lawsuit. The settlement "got done when it was done," says a person familiar with Intel's thinking.
Whatever the pressures either company faced, the deal was ready by Nov. 11, when AMD CEO Dirk Meyer and Intel CEO Paul Otellini met at Intel's headquarters in Santa Clara, Calif. The executives then signed the settlement that would be announced to the world the next day.