Arm Qualcomm Legal Battle Over Friendship

Recently, British chip design company Arm is planning to revoke a crucial license from Qualcomm, which allows Qualcomm to develop chips based on Arm's architecture. Once the license is revoked, Qualcomm may be forced to stop selling products based on Arm's designs. According to a document, Arm has issued a 60-day notice to Qualcomm to cancel its architecture licensing agreement.

The news caused a temporary decline in the stock prices of both Arm and Qualcomm, indicating that investors are concerned about the impact of this conflict on both parties. The latest development is that the two companies will resolve Arm's breach of contract claims and Qualcomm's counterclaims through a trial in December.

A spokesperson for Qualcomm stated: 1729915949583772000_640

"Arm has always been like this—threatening long-term partners with baseless threats, interfering with our performance-leading CPU product line, and solely focused on raising patent royalty rates, completely disregarding the extensive rights we should enjoy under the architecture license. With the supervision of the December trial, Arm's desperate tactics seem to be disrupting the legal process, and its request to terminate the agreement is completely unfounded. We firmly believe that Qualcomm's rights under the agreement with Arm will be upheld. Arm's anti-competitive behavior is simply intolerable."

Arm's side of the story is:

"After Qualcomm repeatedly seriously violated Arm's licensing agreement, we had no choice but to take formal action to demand that Qualcomm correct its breach of contract, otherwise, it will face the consequences of terminating the agreement. This move is important for protecting Arm itself and maintaining the unparalleled ecosystem built by various partners over 30 years. Arm has fully prepared for the December trial and firmly believes that the court will rule in Arm's favor."

The Origin of the Dispute

Arm and Qualcomm have been embroiled in legal disputes for two years, with the focus of the dispute centered on Nuvia. The company was acquired by Qualcomm in 2021 and is also a licensee of Arm. Nuvia has deep expertise in microprocessor design and is now responsible for selling new personal computer chips to customers such as HP and Microsoft under Qualcomm, with these processors becoming key components in the new generation of AI PC laptops.

Not long ago, Qualcomm announced plans to introduce Nuvia's Oryon design into its widely deployed Snapdragon smartphone chips. Arm mentioned that this violates its license with Qualcomm and requires the latter not to use the processor achievements designed before Nuvia was acquired. According to Arm's original lawsuit filed in the Delaware District Court in the United States, these design achievements cannot be directly transferred to Qualcomm without permission. As negotiations failed to reach a settlement, Arm's license to Nuvia was terminated in February 2023.

Arm believes that Qualcomm should now renegotiate the licensing terms with it, rather than directly inheriting Nuvia's version. Qualcomm argues that its existing agreement already covers the operations of the acquired company, the chip design startup Nuvia.

Arm is controlled by Japanese giant SoftBank, and its basic business model is to provide semiconductor design blueprints to other companies in the form of licensing, mainly targeting two types of customers: those who use its designs as the basis for chips and those who manufacture semiconductors themselves and only use Arm's instruction set, where the instruction set is the basic computer code for the chip to run operating systems and other software. Like other companies in the chip industry, Qualcomm also relies on the instruction set provided by Arm.

If Arm insists on terminating the license, Qualcomm will not be able to conduct its own designs based on Arm's instruction set. Although they can still obtain authorization for Arm's design blueprints through independent product agreements, this will cause serious delays in projects and waste a lot of manpower and material resources to repeat necessary work, with costs likely to be quite high.

Bloomberg Intelligence analysts Tamlin Bason and Kunjan Sobhani wrote in a research report, "Arm's move to revoke the architecture license from Qualcomm seems to be about accumulating chips before the December 16th trial. Our view is that Arm's lawsuit against Qualcomm is likely to end in a negotiated form, with Qualcomm continuing to have the right to design custom chips based on Arm's architecture, but with higher patent royalty rates than what Nuvia enjoyed."

Behind Arm's "Onslaught"

Some opinions suggest that for Arm, this may be a "self-destructive struggle." In addition to NVIDIA and Apple, Arm's harsh suppression may be forcing customers to migrate to the RISC-V architecture.

So, why is Arm doing this?

The first thing that comes to mind is that the new generation of Snapdragon Elite smartphone chips will affect Arm's upcoming quarterly performance and revenue expectations. Calculated by patent royalty income, Qualcomm is Arm's largest customer. The previous third-generation Snapdragon 8 smartphone chip used Arm v9 Cortex cores under the TLA agreement. The transition from v9 TLA to v8 ALA protocol will significantly reduce the patent royalty rate. According to public information, this will reduce the patent royalty rate paid by Qualcomm for each chip from 4.5% to 5% to 2% to 2.5%.

However, this reduction of one-quarter to one-half is not enough to justify Arm's crazy "onslaught." So there is another possible reason, which is that the Oryon v2 chip is too strong. It seems to adopt a new microarchitecture, and the power consumption and performance figures announced by Qualcomm do not seem to be simply explained by the transition from TSMC's N4P to N3E process, so it should not just be a small design change from Oryon v1.

Moreover, Oryon v2 seems to be a new design achievement created by the Nuvia team after joining Qualcomm. If this is the case, it means that the CPU's IP is theoretically not within the scope of the lawsuit.

Let's look at the core legal contradictions of both parties:

Can Nuvia's IP (design and RTL code) be transferred and take effect under Qualcomm's Architecture Licensing Agreement (ALA)?
Does Arm have the right to revoke Qualcomm's ALA agreement on the grounds of breach of contract?

If Oryon v2 is truly independently developed from scratch without using any of Nuvia's original IP, then it should theoretically not be affected by the first point. Qualcomm may have frozen all Nuvia IP and started a new design at some point in 2021. The newly released Oryon v2 (scheduled for market launch in January 2025) fits the typical semiconductor product life cycle.

Arm seems to have realized this and prepared a large number of evidence documents. So whether the lawsuit itself wins or not is no longer the key point; Arm is clearly determined: the first point is not important, and making the second point a reality is the key demand of their next strategic step. After all, the market value of Oryon v1 laptop chips is less than $200 million, but the Oryon v2 smartphone chips, which are expected to be shipped next year, have a potential value space of hundreds of billions of dollars.

At the same time, there are also views that the cooperation between the two companies is profitable for both sides, but if the cooperative relationship ends, Arm will continue to survive. Because Qualcomm relies on Arm, but Arm still has many other customers. Qualcomm may sue to demand a refund for any remaining parts of the contract, but companies like Apple, NVIDIA, Samsung, MediaTek, and many others will continue to work hard and continue to pay Arm.

The Strategies of Both Companies Have Changed

Before this dispute erupted, the two companies were close partners, jointly promoting the development of the smartphone industry. Qualcomm sells hundreds of millions of processors every year, with its chips built into hundreds of millions of smartphones shipped each year. But now, under the management of the new leadership, the new strategies implemented by the two companies are forcing these former "good brothers" to stand more on opposite sides.

Under the leadership of CEO Rene Haas, Arm is shifting to provide more complete designs and can directly deliver the results to contracted manufacturers. Haas emphasized that Arm is still controlled by the Japanese SoftBank Group, which requires it to set higher investment returns for its engineering achievements. However, this business transformation encroaches on the business of some of Arm's old customers, including Qualcomm, who have been using Arm's technology to develop their own final chips.

Meanwhile, under the guidance of CEO Cristiano Amon, Qualcomm is gradually abandoning the use of Arm's designs, giving priority to adopting original solutions. This not only makes Qualcomm a less profitable customer in Arm's eyes but also expands into more new fields, the most notable of which is the computing field long dominated by Arm.

It is worth noting, however, that Qualcomm has rich experience in licensing disputes. A large part of the company's profits come from selling its own technology licenses, which are a key component of mobile wireless communications.

Qualcomm's main customers include two major smartphone manufacturers, Samsung Electronics and Apple. In 2019, Qualcomm won a major legal battle with Apple. In addition, they won an appeal in court against the Federal Trade Commission, which had accused Qualcomm of adopting "predatory" licensing strategies in its operations.

Conclusion

If the two companies cannot resolve their contradictions, the entire tech world may suffer a significant impact. Currently, most high-end phones on the market use chips manufactured by Qualcomm, and several manufacturers have confirmed that they will use the new Snapdragon 8 Elite chip in their upcoming phones. At the same time, the recently emerging AI PC laptops equipped with Qualcomm Snapdragon X Elite chips also use the same Arm technology architecture.

Unlike the traditional high-heat, high-power Intel/AMD chips (using the x86 technology architecture) used in laptops for many years, this new type of computing device, AI PC, is attracting widespread attention in the market. Once Qualcomm loses its authorization, computer, smartphone, and other device manufacturers will have to seek alternative chips for their next-stage products, and they must act quickly.

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