When the legal struggle between long-term allies Qualcomm and Arm became public, everybody thought it was an innocuous case that would quickly settle. Although I believe that is still the case, the recent uptick in hostilities points to a more convoluted battle.
It all started when Qualcomm announced and finally acquired processor design startup Nuvia in 2021. Nuvia was developing a new CPU architecture that it claims is superior to anything in the market. Qualcomm has publicly stated that it will use Nuvia designs and the team for its entire portfolio, including smartphones, tablets, PCs, Automotive, IoT and others.
Nuvia's designs run Arm's instruction set. It had an Instruction Set Architecture (ISA) license from Arm, with certain licensing fees. This license is also known as Architecture License Agreement (ALA) in legal documents. Since Qualcomm also has an ALA with Arm, with a different licensing fee structure, there is a difference of opinion between Qualcomm and Arm on which contract should apply to Nuvia's current designs and its evolutions.
If you want to know more about the types of licensing Arm offers and other details, check out this article.
According to the court documents, the discussions between Qualcomm and Arm broke down, and unexpectedly, Arm unilaterally canceled Nuvia's ALA and asked it to destroy all its designs. It even demanded Qualcomm not to use Nuvia engineers for any CPU designs for three years. Arm officially filed the case against Qualcomm on August 31, 2022.
Qualcomm filed its reply on September 30, 2022, summarily rejecting Arm's claims. Following that, on October 26, 2022, Qualcomm filed an amendment alleging that Arm misrepresented Qualcomm's license agreement in front of Qualcomm's customers. Further, it asked the court to enjoin Arm from such actions.
Why is Arm really suing Qualcomm? Is it about the PC market?
Easy question first. No, it's not just about the PC market. Qualcomm's intention to use Nuvia designs across its portfolio is an issue for Arm.
Qualcomm has both ALA and Technology License Agreement (TLA) with Arm. The former is required if you are using only Arm's instruction set, and the latter if you use cores designed by Arm. TLA fees are magnitudes higher than ALA. Qualcomm currently uses Arm cores and TLA licensing. According to Strategy Analytics analyst Sravan Kundojjala, it pays an estimated 20 – 30 cents per chip to Arm.
Since Qualcomm negotiated the contract years ago, its ALA rate is probably very low. So, if Qualcomm adopts Nuvia designs for its entire portfolio, it will only pay this lower ALA fee to Arm. For Arm, that puts all the revenue coming from Qualcomm at risk. That is problematic for Arm, especially when it is getting ready for its IPO.
With the Nuvia acquisition, Arm saw an opportunity to renegotiate Qualcomm's licensing contract. Moreover, Nuvia's ALA rate must be much higher than Qualcomm's. That is because of two reasons. First, Nuvia was a startup with little negotiation leverage. And second, it was designing higher-priced, low-volume chips, whereas Qualcomm primarily sells lower-priced, high-volume chips. So, it is in Arm's favor to insist Qualcomm pay Nuvia's rate. But Qualcomm disagrees, as it thinks its ALA covers Nuvia designs.
Core questions of the dispute
Notwithstanding many claims and counterclaims, this is purely a contract dispute and boils down to these two core questions:
- Does Nuvia's ALA require mandatory consent from Arm to transfer its designs to a third party, Qualcomm?
- Does Qualcomm's ALA cover the designs they acquire from a third party, in this case, Nuvia?
Clearly, there is a disagreement between the parties regarding these questions. Since the contracts are confidential, we can only guess and analyze them based on the court filings. I am sure many things are happening behind the scenes as well.
Let's start with the first one. Since Nuvia was a startup, its acquisition by a third party was given. I am assuming there is some language about this in the ALA. But, interestingly, Arm, in its complaint, hasn't cited any specific clause of the contract supporting this. Arm only claims Nuvia requires consent. The argument that Arm didn't want to disclose that in a public document doesn't also hold. They could have cited the clause with the details redacted, just like other clauses mentioned there.
In the amended Qualcomm filing, there is some language about needing consent to "assign" the license to the new owner. But according to Qualcomm, it doesn't need this license "assignment" as it has its own ALA.
If there is no specific clause in the Nuvia ALA regarding the acquisition by an existing Arm licensee. Then shame on the Arm contract team.
There is not much clarity on the second question. Most of Arm's claims in the case are related to Nuvia ALA. Qualcomm claims it has wide-ranging licensing contracts with Arm that cover using Nuvia's designs. But I am sure this question about Qualcomm ALA will come up as the case progresses.
Closing thoughts
Qualcomm and Arm have been great partners for a long time. Together they have created a vast global ecosystem. However, recent developments point to a significant rift between the two. Especially, Qualcomm's allegation about Arm threatening to cancel its license in front of Qualcomm's customers is troubling. There was some alleged talk of Arm changing its business model and other extremities, which might also unnerve other licensees. We are yet to hear Arm's reply to these allegations.
I think the widely anticipated out-of-court settlement is still the logical solution. When the case enters the discovery phase, both parties will have access to each other's evidence and understand the relative strengths. Usually, that triggers a settlement.
In my opinion, both parties wouldn't be interested in a lengthy court battle. Arm is looking for IPO and doesn't need this threat hanging over its head, which will spook its investors. Qualcomm is planning a major push into the PC market in collaboration with Microsoft, and supposedly planning its future SoC roadmap on Nuvia designs. So, it would also like to end the uncertainty at the earliest. Notwithstanding this case, Qualcomm seems to be going ahead with its plans.
We are still in the very early stage of this case. Arm lawyers have extensive licensing experience, and Qualcomm's lawyers are battle-hardened from their recent lawsuits against Apple and FTC. I will be closely watching the developments and writing about them. So, be on the lookout.
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Prakash Sangam is the founder and principal at Tantra Analyst, a leading boutique research and advisory firm. He is a recognized expert in 5G, Wi-Fi, AI, Cloud and IoT. To read articles like this and get an up-to-date analysis of the latest mobile and tech industry news, sign-up for our monthly newsletter at TantraAnalyst.com/Newsletter, or listen to our Tantra's Mantra podcast.
Industry Voices are opinion columns written by outside contributors — often industry experts or analysts — who are invited to the conversation by Fierce Wireless staff. They do not necessarily represent the opinions of the Fierce Wireless editorial board.