Competitor Arm Engages in Legal Tussle with Qualcomm, Carrying Wide-Ranging Consequences
Since 2019, a legal dispute between Arm and Qualcomm over Qualcomm's acquisition of Nuvia has evolved into a prolonged legal battle. This week, the fight will culminate in a jury trial in the U.S. District Court in Wilmington, Delaware. The trial's commencement is scheduled for Monday. Both parties accuse each other of breaching an architecture license agreement between Arm and Nuvia. Arm, the licensor, and Nuvia, along with its acquirer, Qualcomm, the licensees, are in conflict. The resolution of this case could have substantial implications for intellectual property licensing and mergers and acquisitions in the tech industry.
Historical Context of the Dispute
Upon Nuvia's establishment by ex-Apple and Google engineers in 2019, Arm granted Nuvia licenses through two agreements: a technology license agreement and an architecture license agreement. In addition to the licenses, Arm offered engineering support to help advance the Arm architecture in data center and server processor applications. In 2020, Nuvia announced the impending release of the "Phoenix" processor, but before any Nuvia products hit the market, Qualcomm acquired Nuvia in early 2021.
Qualcomm and Nuvia planned to utilize the joint efforts of their engineering teams to improve Qualcomm's products across various markets, including smartphones, PCs, automotive, and consumer and industrial IoT. Arm, however, believed that the transaction violated the Nuvia architecture license agreement, and, consequently, initiated legal action in 2022 to compel Qualcomm to stop using and destroy any material related to Nuvia technology based on the termination terms of the ALA. Arm ultimately terminated the Nuvia license agreements. Since then, the legal battle between Qualcomm and Arm has continued, with Qualcomm asserting its rights to utilize its own ALA with Arm and its authority to use Nuvia technology that is not related to the Arm architecture.
(It's important to note that the Nuvia ALA, as well as other Arm-granted ALA agreements, have not been made publicly available in their entirety. The following references to the ALA agreements are based on the perspectives of the parties and not substantiated by Tirias Research.)
The Core of the Dispute
The crux of the argument revolves around Arm's claim that the Nuvia technology in question is covered by the ALA agreement. Consequently, Arm asserts that Nuvia does not have the right to assign the IP without its consent, which it did not seek prior to or after the acquisition by Qualcomm. Arm also maintains that its ALA agreement with Qualcomm does not encompass the transfer or use of the Nuvia IP.
In contrast, Nuvia and Qualcomm argue that Arm violated the terms of the Nuvia ALA by waiting one year to seek termination of the agreement. Furthermore, they contend that the ALA does not cover all technology developed by Nuvia, particularly the microarchitecture, which is the underlying hardware design of a processor. Nuvia developed a custom processor to utilize the Arm instruction set architecture, or Arm architecture, and, hence, the ALA does not apply. Qualcomm, moreover, asserts that its ALA with Arm is more comprehensive than the Nuvia ALA and covers the joint development of new CPU cores developed following the acquisition. Qualcomm also asserts that Arm aims to renegotiate its ALA with Qualcomm at higher royalty rates equivalent to those of the Nuvia ALA.
The dispute appears to rest on a zero-sum game between both parties. Arm seeks to prevent Qualcomm from utilizing the Nuvia technology and selling its latest chips, while Qualcomm attempts to leverage its existing ALA agreement and expand its market presence utilizing Nuvia technology and expertise. There are, however, no specifics about the actual damages and their value, as per the available public disclosures.
Remaining Questions
There are numerous other concerns arising from this case, such as:
- Does a licensor have the power to approve or reject an acquisition of a licensee, or can they impose contractual conditions that make an acquisition impractical, particularly when dealing with a startup?
- Does an architecture license, in essence, an instruction set license, extend to the microarchitecture, the design of the actual hardware?
- Does the acquisition of other Arm licensees, which is common, establish a precedent? Even the acquisition of P.A. Semi by Apple to build its own engineering group that developed custom Apple SoCs could be considered a precedent.
- With the ISA published and accessible to everyone, what aspects of the architecture does the architecture license cover?
- What is a reasonable time and conditions for terminating a technology license?
Potential Impact of the Verdict
The outcome of this trial carries significant ramifications for the parties involved as well as intellectual property licensing, mergers and acquisitions, and potential contract law in the tech industry. The decision will also have a broader impact on the entire electronics ecosystem, particularly the supply chains and customer bases of both parties.
A favorable judgment for Arm could necessitate Qualcomm to alter its course, either by adhering to standard Arm cores or switching to using another ISA, like RISC-V, with existing or new custom CPU cores. While transitioning to a new ISA is viable, it could take a year or more. Moreover, the RISC-V software ecosystem is still maturing, and optimizing the ISA would necessitate changes to the microarchitecture for optimal performance.
A positive decision regarding Arm could have substantial consequences for the broader Arm community, particularly the Windows PC market. It would necessitate Microsoft and the Windows PC market to revise their aspirations for integrating the Arm architecture into the main PC sector since the Qualcomm Snapdragon is the sole Arm-compatible PC processor supported by Windows, with the latest Snapdragon X Elite serving as the first Snapdragon processor to challenge x86 processors from AMD and Intel in terms of performance. Furthermore, a favorable decision could adversely affect Qualcomm's top-tier mobile processors for premium smartphones, which rely on the new CPU architecture and are designed for areas such as the automotive and IoT industries, among others.
The Arm architecture is employed by more CPU designers and companies than any other architecture, with a significant portion of the innovation originating from startups. However, these startups frequently seek to be acquired by larger, more established companies that can further advance their technology. A positive ruling on the transfer of technology through an acquisition could deter innovation through the use of an Arm license.
A favorable decision in favor of Qualcomm would allow them to advance in various new markets while reducing their reliance on standard Arm technology and maintaining their long-term licenses with Arm. This would also limit Arm to the royalties of the Qualcomm ALA at a time when they are aiming to boost revenue growth. It is assumed that the Qualcomm royalties are lower than what Nuvia anticipated, but Qualcomm is deploying this technology in a broader range of markets than Nuvia targeted.
A possible third outcome is a new contract that allows Qualcomm to proceed and compensates Arm more generously. Although Arm is not advocating for this outcome, it is still a plausible scenario, even up until a judgment is rendered. Most contractual disagreements in the tech industry are resolved out of court, resulting in new contracts and/or comprehensive cross-licensing agreements. However, this particular dispute appears to be heading for judicial resolution.
Further Developments
I will be attending the court proceedings in person at the Delaware U.S. District Court and providing updates and analysis on any additional contractual information, the verdict, and the potential impact on the semiconductor and broader tech industry.
Note: The term “Arm” is often used to refer to three different entities: Arm the company, the Arm CPU architecture, and the Arm ecosystem.
Disclosure: The author and the Tirias Research team do not hold equity positions in any of the companies mentioned. Tirias Research provides consulting services for companies throughout the electronics ecosystem, from semiconductors to systems and sensors to the cloud. The Tirias Research team has consulted for companies such as Apple, AMD, Arm, Intel, Nuvia, Qualcomm, and various other semiconductor and electronics companies.
- The dispute between Arm and Qualcomm revolves around the use of Nuvia technology, which Arm licensed to Nuvia through an architecture license agreement (ALA).
- Qualcomm acquired Nuvia in 2021 and planned to integrate Nuvia's technology into various markets, including smartphones, PCs, and IoT devices.
- Arm argues that Qualcomm's use of Nuvia technology violates the ALA and has initiated legal action to compel Qualcomm to stop using and destroy any related material.
- Qualcomm, on the other hand, asserts that its ALA with Arm is more comprehensive and covers the joint development of new CPU cores following the acquisition.
- The outcome of this trial could have significant implications for intellectual property licensing, mergers and acquisitions, and contract law in the tech industry, as well as the broader electronics ecosystem.
