Advanced Micro Wins a Round in Fight With Intel : Technology: Intel could be forced to share the 386 microprocessor, the brain inside many PCs. Damages won’t be decided until next year.

Advanced Micro Devices won a potentially important victory Thursday in its long and bitter fight with Intel Corp. when an arbitrator ruled that Intel had deliberately breached a technology exchange contract with AMD and is liable for damages.

The decision, which was harshly critical of Intel’s conduct, stopped short of ordering the Santa Clara firm to grant AMD the right to produce a microprocessor known as the 386. That popular product forms the brain inside many advanced personal computers and could generate as much as $1 billion in revenue for Intel this year.

But the arbitrator, retired Judge J. Barton Phelps, left open the possibility that Intel could be forced to share the 386 with AMD following the next phase of the arbitration proceedings, which will determine damages. That phase will begin in November, and a decision is not expected until next year.

W. J. Sanders III, chairman of Sunnyvale-based AMD, called it “a great day for Advanced Micro Devices” and said the company would ask for $500 million as well as the rights to the 386.

Intel, meanwhile, took comfort in the fact that Phelps did not order an immediate transfer of the 386, and noted that the arbitrator had largely upheld Intel’s contention that AMD had failed to uphold its end of the technology-sharing deal.

The dispute stems from a 1982 agreement, amended in early 1984, that called for the two companies to exchange products of equal value, based on a point system that rated parts according to their complexity. At the time, Intel was eager to have AMD act as a “second-source” for its 8086 microprocessor, because computer companies--notably International Business Machines--that were choosing parts for their computer designs wanted to be able to obtain them from more than one supplier.

AMD produced the 8086 and its more powerful successors, the 80186 and the 80286. But late in 1984, the agreement with Intel began to break down, and Intel refused to turn over the rights to the next-generation processor, the 80386.

Intel claimed that AMD had failed to produce parts Intel wanted and thus didn’t have the necessary points to justify access to the 386. But AMD maintained that Intel unilaterally refused to accept AMD parts that had already been agreed upon in order to prevent AMD from gaining the 386.

Phelps, though agreeing that AMD had not performed adequately on the products it was supposed to supply to Intel, concluded that Intel decided “to ditch the relationship with AMD and, at the same time, to pretend externally to AMD that the relationship still existed,” simply because it was in the best interests of Intel’s business to do so.

He called Intel’s behavior “unbecoming” and “a classic example of a breach of the covenant of good faith and fair dealing, preaching good faith but practicing duplicity.” The arbitrator said Intel therefore was liable for damages for its general repudiation of the contract and for its specific refusal to turn over updates of several Intel parts produced by AMD under the agreement.

AMD was found liable for not acting in good faith regarding a flawed part that it had delivered to Intel and was also criticized for demanding valuable parts from Intel without having anything to offer in return.

Andrew J. Kessler, an analyst at Morgan Stanley in New York, said it was unlikely that Intel would be forced to turn over the 386. Even if it was, he said, that would not happen until late next year, when the product was already well past its peak in the market. Kessler estimated that Intel might eventually have to pay about $50 million to AMD, a figure that has also been cited by other analysts.

Regardless of the outcome of the arbitration, AMD is widely expected to introduce a “clone” of the 386--an issue over which it is engaged in two other legal disputes with Intel.

In February, a trial will be held to determine whether AMD has the right to use Intel microcode, the instructions written into a microprocessor, under an earlier technology exchange agreement between the two firms.

Intel also has sued AMD for trademark infringement to prevent the company from using the numbers “386” in any future product.