Arm and Qualcomm have a court date in mid-December, but they may be better off settling … [+]
The long history of litigation in the semiconductor industry gained a new entry a few weeks ago. Before meeting Qualcomm in court in mid-December to pursue its license infringement lawsuit, Arm issued a 60-day notice informing Qualcomm that Arm would revoke its license to use Arm’s chip architecture, as reported Bloomberg.
That being said, if Arm goes ahead with the threatened cancellation — thus preventing Qualcomm from shipping many of its chips — it could have major ramifications not only for Qualcomm (for obvious reasons) but also for Arm (which will asserted its IP rights while cutting its own revenue), but also for many different OEMs in the computer, mobile phone and automotive markets. There are even scenarios where Arm could prevail on the ITC to enforce a block on any of Qualcomm’s products that have Arm IP in them. I find those scenarios unlikely, but they are there and would be devastating.
Not one to be shy, Qualcomm responded to Arm’s 60-day notice with a statement that said, in part, “This is more of the same from Arm—more baseless threats designed to arm a longtime partner. . . Arm’s anti-competitive behavior will not be tolerated.” Arm’s related statement said, “Following Qualcomm’s repeated material violations of Arm’s license agreement, Arm has no choice but to take formal action requiring Qualcomm to remedy the violation or face termination of the agreement.”
To no one’s surprise, each company has also expressed its confidence that it will prevail in court.
Why are arms and Qualcomm fighting?
Qualcomm and Arm have a symbiotic relationship. As mentioned above, Arm’s IP is in most Qualcomm chips. Conversely, Qualcomm is likely to be Arm’s largest customer, which makes the importance of Arm’s lawsuit against it all the more salient.
The legal and financial issue in question dates back many years. Qualcomm used to have an architecture license from Arm, under which Qualcomm could develop and design its own chips using Arm IP — very similar to what Apple has today with Arm. Then there was a period when Qualcomm licensed Arms designs on a royalty basis. (Arm gets about half of its revenue from licensing and half from royalties.) So far, so good.
But then in 2021, Qualcomm bought a chip design company called Nuvia, which had its own license agreement with Arm. A key issue at play in the upcoming court case is whether Qualcomm automatically won the rights to use Nuvia CPU designs that incorporate Arm IP. Qualcomm believes so and has acted on this basis. Conversely, Arm’s position is that Arm’s architecture license with Nuvia was not transferable without Arm’s permission – something it could use to trigger a renegotiation of the license on more favorable financial terms for Arm.
This has led to a massive debate between Qualcomm and Arm about the license provisions that apply today and how much Qualcomm should pay. You won’t be surprised to learn that Arm favors an interpretation that would make Qualcomm pay more, while Qualcomm wants to keep things running as they have been—and avoid paying more.
Arm sued Qualcomm in 2022 for infringement in an attempt to force it to pay the higher amount. If Arm wins, Qualcomm will have to pay up, or else face the prospect of seeing its chips containing Nuvia designs pulled from the market — with potentially disastrous financial implications for Qualcomm.
What happens now?
It’s no coincidence that Arm has timed its threat to revoke Qualcomm’s license with the December 16 date for the two companies to meet in court. That said, I believe the companies will find a happy ending to this dispute, presumably out of court. As with most negotiations, the final terms will probably be settled somewhere between what Arm wants and what Qualcomm wants.
I understand the positions that each company has taken so far. Arm is highly motivated to pursue the case because there are billions of dollars at stake over the next few years, especially at a time when Qualcomm is looking to redefine the PC processor segment—starting with Copilot+ PCs—using designs that include Arm IP. (I’ve written about Qualcomm’s big wins in this regard, and my colleague Anshel Sag has covered Qualcomm’s role in Copilot+ PCs extensively.) Qualcomm has nowhere to go but the PC market, and I think it can gain market share. with the chips it is online. Right now it may have 1% or less of the PC processor market share, but I believe its goals are deep into the double digits. So based on revenue, I can understand Arm wanting a bigger reward for its part in Qualcomm’s success.
However, Qualcomm is far from a pushover when it comes to litigation, and it employs an army of lawyers. In fact, Qualcomm came out on top after a years-long legal battle with Apple, and is one of the few companies that Apple has lost in a licensing dispute. Another anecdotal observation: I spent a lot of time around Qualcomm’s top executives at their Snapdragon Summit a few weeks ago, and Armi’s threat to revoke their license didn’t seem to bother them at all. I never had a conversation with any of the Qualcomm executives about this – I didn’t ask and they didn’t bring it up.
However, in the bigger picture, this situation is not good for the industry, and the consensus among third parties orbiting the dispute is that Arm and Qualcomm need to fix this one way or another. Their customers don’t like it, their ecosystem doesn’t like it, and a protracted fight over it — let alone a complete pull-out from Qualcomm — could push PC OEMs back to PC makers. x86, AMD and Intel. Qualcomm is also the number one provider of commercial silicon for smartphones; I don’t think its role can be fulfilled by MediaTek which is a lower ranked SoC brand.
Another point: Qualcomm has no choice but to use Arm technology. I’ve heard some people talk about Qualcomm moving to the RISC-V chip architecture, but it would take eight to 10 years for a new software ecosystem to be fully built around that instruction set. So I think it’s in the best interest of Arm and Qualcomm to settle now: negotiate a new license, presumably at a higher royalty rate for Arm that Qualcomm can still accept, then move on with building market share and making money.
That would be the smart play, anyway. Let’s hope cooler heads prevail in this case.