Intel ( INTC) said chip rival AMD ( AMD) violated a 2001 cross licensing agreement, and AMD fired back calling the move an attempt by Intel to end the pact, which would be a breach of contract.

AMD said in a filing Monday that it received notice from Intel that it had "committed a material breach" of its cross licensing contract by forming a chipmaking joint venture with tech-financing firm Advanced Technology Investment on March 4.

Intel threatened to terminate its AMD cross license on May 4, or about 60 days after AMD and ATI created the partnership.

AMD and Intel have been sparring partners not only in engineering but also in the legal arena. AMD has two antitrust complaints against Intel, one in Japan and the other with the European Union. Intel is also facing a shareholder lawsuit based on the AMD antitrust charges.

The breach of contract case comes at a critical time for both AMD and Intel.

AMD is scrambling to stay afloat and needs a partner like ATI to help it move into the production of high-performance 32-nanometer chips.

Intel is already sitting on a mountain of aging PC chips thanks to slumping computer sales and the rise of cheap netbooks. Intel is under pressure to find a new market hungry for more lucrative advanced chips, and AMD/ATI have targeted that opportunity.

Intel told business leaders at the Economic Club of Washington, D.C, last month, that it was planning to get in to the 32-nanometer chip game. The self-congratulating announcement outlined plans to invest $7 billion in the retooling and production effort. On closer inspection, instead of a private sector stimulus jolt as presented, the plan actually revealed an 8% spending cut for Intel.

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