On September 30, 2022, Qualcomm Inc. quietly filed a counterclaim to Arm’s lawsuit against Qualcomm/Nuvia. It was a long-awaited rebuttal as it seemed Qualcomm had gone dark after the company’s General Counsel, Ann Chaplin, released a brief retort shortly after Arm went very public with their lawsuit on August 31, 2022, arguing simply that Arm had overreached itself in its claims and that Qualcomm had existing license rights as one of Arm’s biggest licensees that it would assert in its defense.
“Arm has no right, contractual or otherwise, to attempt to interfere with Qualcomm’s or NUVIA’s innovations,” Chaplin said. “Arm’s complaint ignores the fact that Qualcomm has broad, well-established license rights covering its custom-designed CPUs, and we are confident those rights will be affirmed.” – Ann Chaplin, General Counsel, Qualcomm
So, why did Arm sue? According to their complaint, Arm claims that Qualcomm “inappropriately acquired Nuvia” without securing the requisite consent to be assigned Nuvia’s Architecture License Agreement or ALA. Arm further exerts that their right of refusal applied to Nuvia’s proprietary technologies and know-how. This appears to be an unusual set of demands on Arm’s part given the general understood nature of ALAs.
Whose technology is it anyway?
As a point of reference, ALA licensees such as Apple and Qualcomm retain the IP rights to the custom core and chip designs and technologies that they develop on top of Arm’s Instruction Set Architecture (ISA). This is only one of many fundamental ways that ALA arrangements differ from the far more common Technology License Agreements (TLA) type.
How do they differ?
In terms of IP rights, the TLA involves licensing Arm’s own Cortex or Neoverse (for data center and edge servers) CPU core designs and other IP in Arm’s portfolio. This is basically like buying Arm’s off-the-shelf designs which makes sense for most general-purpose applications and needs of the vast majority of Arm’s 500-plus licensees.
While it might be determined that Nuvia was obligated to seek Arm’s agreement on the assignment of their ALA license to Qualcomm, it seems a stretch for Arm to demand that Qualcomm destroy or desist in the use and continued development of acquired Nuvia technologies. Did Arm have any rights to it to begin with? If they didn’t, what was there to transfer through the ALA license other than commercial terms?
Qualcomm asserts that there is nothing in either the now-terminated Nuvia ALA contract language or across their own broad licensing agreements with Arm that obliges them to disregard or dispose of Nuvia’s technology. This probably explains why Qualcomm acquiesced to and seemingly supported Arm’s motion to terminate Nuvia’s ALA license. To Qualcomm, it was redundant.
It’s all about the money
At the end of the day, the dispute boils down to commercials. It appears that upon learning of Qualcomm’s plan to acquire Nuvia in January of 2021, Arm sought to maintain the commercial terms of Nuvia’s ALA license as a condition for transferring the license to Qualcomm. From Qualcomm’s perspective, Arm had sought what it characterizes as “substantial monetary tribute” for rights on acquired Nuvia technologies and know-how.
According to Qualcomm, Arm had negotiated a much higher royalty rate with Nuvia’s ALA license than what it had with Qualcomm. Arm cites that the reason for the higher licensing fee and royalty rate was due to the investment Arm anticipated in supporting Nuvia’s development of their custom Phoenix CPU core design specifically for the server market.
Qualcomm points out in their rebuttal that chips for servers is a lower volume, nascent segment of the chip market for Arm compared to the PC, smartphone and IoT markets that Qualcomm intends to target with the Phoenix core and derivatives thereof. For this reason, Qualcomm argues that the higher commercial rate Arm had negotiated with Nuvia for the server market should not apply to Qualcomm’s broader portfolio. Moreover, Nuvia had not shipped a single chip as a standalone company prior to being acquired.
As Softbank seeks to sell off Arm after Nvidia’s failed acquisition attempt earlier this year, Qualcomm shifting its Snapdragon SoCs for smartphones from Kyro to a Phoenix-based core would prove problematic. Softbank is likely concerned that the commercial terms of Qualcomm’s ALA entail lower per unit royalty revenues for Arm for a mature but lucrative smartphone business.
On the bright side, Qualcomm would be well positioned to reboot its foray into the PC market with a Phoenix-based CPU. This would mean new licensing revenue opportunities for Arm in a nascent market currently dominated by x86. Indeed, Arm could see further upside as Qualcomm executes on its diversification strategy with its expansion into automotive, IoT, network infrastructure, and possibly into data center. One has to wonder if this factors into SoftBank and Arm’s calculus.
Would Arm scorch its own Earth?
On a potentially troubling note, Qualcomm’s amended filing of October 26, 2022, alleges that Arm approached more than one of Qualcomm’s OEM customers misinforming them of the state and future validity of Qualcomm’s licenses. Qualcomm also claims that Arm attempted to “coerce” their customers into direct licenses by “falsely asserting that Qualcomm would not be able to provide Arm-compliant chips beginning 2025.”
We can only assume that direct licensing to OEMs would constitute a dramatic change in Arm’s business and licensing models that would likely prove disruptive to the Arm ecosystem. It would present a significant amount of risk to current licensees who might consider accelerating any plans they might have to seek more stable ground with open technologies, in particular RISC-V. Needless to say, this would bode very poorly for Arm in the short and the long term.
In its amended counterclaim, Qualcomm affirms that their broad and exhaustive licenses extend well beyond 2025. This would likely preclude Arm from licensing directly with Qualcomm’s OEM customers. Though Arm has the right to license its IP the way it sees fit in the future, it is doubtful that Arm would be legally able to alter or terminate Qualcomm licenses currently in effect without proving to a court a material breach of contract on the part of the licensee, Qualcomm.
Can they get along?
It’s an ugly situation with deep implications for the Arm ecosystem. At a minimum, this litigation slows innovation that might help Arm technology leapfrog the perennially dominant x86 in the data center and PC markets. These markets are frontier territories for Arm and its licensees. This lawsuit only serves to push these frontiers further out into the future. This is not good for anyone in the Arm ecosystem, especially Arm.
One can only hope that Qualcomm and Arm can get beyond acrimony and preserve the symbiotic relationship that both parties have benefited from for years. Needless to say, it would be good for the industry and healthy for the Arm ecosystem at large and in the near and far future.
