Updated from 9:56 a.m. EDT

Graphics chip maker Nvidia ( NVDA) has launched a countersuit against Intel ( INTC), which recently accused the firm of breaching a key licensing contract.

Intel filed a suit last month alleging that its five-year old licensing agreement with Nvidia does not extend to its next-generation integrated memory processors, such as the "Nehalem" chip.

In response, the Santa Clara, Calif.-based firm is accusing Intel of breach of contract and is attempting to terminate the chip giant's access to Nvidia's patent portfolio. This includes its 3-D, graphics processing unit (GPU) and other computing patents, according to an Nvidia statement.

GPUs, which are used for to process 3-D graphics, are said to be driving demand for Nvidia's technology from desktop and notebook computer manufacturers as well as companies in China.

"Nvidia did not initiate this legal dispute," said Jen-Hsun Huang, the Nvidia CEO, in a statement, which was released Thursday. "But we must defend ourselves and the rights we negotiated for when we provided Intel access to our valuable patents."

The two firms entered into the disputed agreement in 2004, and Nvidia says that it has been attempting to resolve the disagreement for more than a year.

"Intel's actions are intended to block us from making use of the very license rights that they agreed to provide," said Huang.

With tech firms slowly gearing up for a sector rebound, the chip market looks set to become a key battleground.

For example, Nvidia is considering entering the X86 server chip market, a move that would step up its rivalry with Intel.

Earlier this week, computer maker Dell ( DELL) announced its first servers built using the Nehalem processor, which is expected to formally debut next week. Intel, which has felt the crush of its slumping PC customers, has high hopes for Nehalem, which it claims will boost performance thanks to its integrated memory controller.

Nvidia is not the only chip maker locking legal horns with Intel at the moment. Intel recently accused rival AMD ( AMD) of violating a 2001 cross licensing agreement. AMD fired back, calling the move an attempt by Intel to end the pact, which would be a breach of contract.

Nvidia shares were recently down 0.7% to $10.49, and Intel was down 2.7% to $15.39.

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