Intel Suffers New Setback in Latest Court Decision on Arbitration Case
Intel Corp., the giant computer chip maker still reeling from the nasty debacle over the flaw in its Pentium microprocessor, suffered another setback Friday when the California Supreme Court reinstated an arbitration award granting rival Advanced Micro Devices Inc. rights to some Intel technology.
The 4-3 decision is expected to have relatively little effect on the booming microprocessor market, but it could have broader significance for the legal community. Some proponents of arbitration had feared that had the high court sided with the appeals court that threw out the award, it would have had a chilling effect on the growing use of arbitration by individuals and businesses to resolve disputes.
“If you sign a contract and agree to participate in arbitration, and you proceeded with arbitration, I would hope that the justice system would provide a stamp of approval for the process,” said Lauren Burton, executive director of the Los Angeles County Bar Assn.’s dispute resolution services.
Barring an appeal to the U.S. Supreme Court, Friday’s ruling settles a case that began in 1987, when AMD accused Intel of violating a 1982 technology exchange agreement and forced an arbitration proceeding. The original agreement called for any disputes to be settled by arbitration.
After 4 1/2 years of hearings, retired Superior Court Judge J. Barton Phelps, the court-appointed arbitrator, found that Santa Clara-based Intel had breached the contract in refusing to grant AMD the rights to manufacture the 386 microprocessor. (Chip companies once routinely shared their designs to assure customers a back-up source of production.) But he also found fault on AMD’s side, so rather than require Intel to turn over to AMD the specifications for the 386, as AMD had sought, Phelps granted AMD rights to any Intel technology that might be found in the 386 “clone” that AMD had already begun producing in the face of an Intel legal assault.
Intel claimed Phelps had exceeded his authority and took the issue back to court. In 1993, a state court of appeals panel agreed with Intel, but the Supreme Court action on Friday overruled the appeals court.
Microprocessors compose the “brains” of personal computers, and the 386 was at the time the industry-leading chip and represented a very lucrative market. It has since been largely superseded by the 486 and the Pentium, and thus Friday’s decision will have little direct effect.
But the ruling bolsters Sunnyvale-based AMD’s record in a tangle of complex disputes with Intel. A string of rulings in the past year or so have also gone mostly in favor of AMD and other Intel rivals.
“It really looks like Intel has lost its legal battles to constrain competitors,” said Linley Gwennap, editor of Microprocessor Report, a trade newsletter in Sebastopol. “Now Intel will have to go head-to-head in the marketplace rather than in the courtroom.”
The state Supreme Court decision centered on the extent of the arbitrator’s power. In the ruling, written by Justice Kathryn M. Werdegar, the court held that “the remedy an arbitrator fashions does not exceed his or her powers if it bears a rational relationship to the underlying contract. . . .”
Peter Detkin, director of litigation at Intel, said the ruling could make people reluctant to go to arbitration “because it gives arbitrators too much power.”
However, Robert Daggett, a San Francisco lawyer, said the decision is a boon to champions of arbitration. “The Supreme Court has in this decision pretty clearly approved a scope of the arbitrator’s power which some people thought might be over the line,” he said. “That strengthens arbitration when the parties agree to it by contract.”
