Nvidia fires back at Intel with chip set countersuit

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Nvidia filed a countersuit against Intel today, alleging that Intel broke contract when it refused to grant Nvidia a chip set license on future Intel microprocessors.

Santa Clara, Calif.-based Nvidia is asking the courts to allow the graphics chip maker to terminate its own contracts with Intel, which sued Nvidia last month.

The companies signed a license four years ago that allowed Nvidia to make Intel chip sets. In turn, Intel got to make chip sets with Nvidia’s SLI technology, which allows computer makers to put two or more graphics cards in a single PC. Both Intel and Nvidia make chip sets.

But Intel changed the configuration of its newest microprocessors, code-named Nehalem, so that they have a new kind of design. They have an integrated memory controller, whereas before the memory controller was not part of the microprocessor. Intel says that Nvidia does not have a license for this new design, while Nvidia insists that it does. Intel issued its own statement:

As we said a few weeks ago when we filed our case, Intel and Nvidia have had an ongoing disagreement concerning Nvidia’s rights under a licensing agreement.  This counterclaim reinforces the differences between the companies and the fact that we have been unable to resolve them despite the best efforts for both Nvidia and Intel.  We’re asking the court to resolve this.

These moves are part of a larger war between the two companies, which are fighting a turf battle for control of the personal computer’s hardware. In a memo to employees, Nvidia chief executive Jen-Hsun Huang said that Intel is about to launch its Larrabee graphics chip with features that use Nvidia’s patented technologies. He also says Intel’s own existing integrated graphics chip sets, which combine a chip set with a graphics chip in a single chip, also use Nvidia’s patented technologies. If Nvidia can revoke the Intel license, then Intel will be infringing on Nvidia’s patents. Here’s the text of Huang’s message:

A moment ago, we announced that we have responded to Intel’s lawsuit against us with a countersuit of our own.

In our countersuit, we assert our belief that we are licensed to build chipsets for Intel processors. In a pair of agreements signed in 2004, we negotiated for rights to build chipsets.  In exchange, Intel obtained a cross license to our valuable patents. Today, Intel is using technologies that we invented in their integrated graphics chips. And they will soon integrate NVIDIA patented technologies into their CPUs and upcoming Larrabee processors.

We claim in the countersuit that they have breached the chipset agreement by spreading damaging claims that we are not licensed to design chipsets for future processors and by Intel taking other actions in the market. Why are they suing us over products that we have not announced or offered to sell? Because they see the tremendous interest in ION and are resorting to every possible tactic to slow us down. ION not only displaces their chipset sales. ION also promotes the use of less expensive, and adequately sized CPUs. ION is a double whammy for them.   So with this legal tactic, they are trying to slow down ION adoption by claiming that ION has no future.  Instead of going back to the drawing board to build a better chipset, Intel is using their market power and legal antics like this to keep the world from benefiting from ION.

We also claimed that Intel has breached the implied covenant of good faith and fair dealing.   It was clear from our agreement what each party wanted from the deal.  We wanted to build chipsets for Intel CPUs, thereby offering products to the single largest segment of the graphics market. In exchange for the opportunity to participate in this multi-billion dollar segment, we granted them a cross license to our graphics technologies, which they desperately wanted. They are surely realizing the full benefits from a license to our patents. Yet, they are doing everything possible to prevent us from realizing the benefits that we negotiated for.

The bottom line is that we are license, and they have damaged us. And they have breached our agreement and should, therefore, lose the benefits of our cross license.

We didn’t start this fight, but we will surely rise to the challenge.

And we will not allow the world to be distracted by this tactic. In fact, we will use this as a platform to shout from the highest mountain why Intel is so afraid of ION – this is the era of visual computing, and the GPU has become the soul of the new PC. And customers deserve better than Intel’s graphics.

Don’t let this lawsuit distract you.   Focus on execution and delighting our customers.  And continue to build market-changing products like ION.