Arm Holdings Plc has taken a significant step in its ongoing legal conflict with Qualcomm Inc., signaling an escalation by moving to cancel a key license agreement.
This agreement, known as the architectural license, allowed Qualcomm to use Arm’s intellectual property to design chips that power a wide range of devices, particularly in the smartphone market.
According to a document obtained by Bloomberg, Arm has issued a 60-day notice to Qualcomm, warning of the impending cancellation of their architectural license agreement. This move intensifies a legal battle that began in 2022 when Arm sued Qualcomm for breach of contract and trademark infringement. The cancellation, if enforced, could disrupt Qualcomm’s chip production, which underpins much of its $39 billion in annual revenue, particularly in the Android smartphone sector.
Both companies are major players in the semiconductor industry, and this dispute could have widespread ramifications. Qualcomm is a dominant supplier of processors for smartphones, selling hundreds of millions of units annually. If Arm’s cancellation takes effect, Qualcomm could face the need to halt or revise its chip production, which would ripple through the smartphone and personal computer markets. This could also lead to significant financial losses or damages for Qualcomm, impacting the wider tech industry.
Following the news, Qualcomm’s shares fell by about 5% in premarket trading, reflecting investor concern over the potential impact. Arm’s shares also dropped, though by a smaller margin, about 1.1%.
The origins of this legal dispute trace back to Qualcomm’s 2021 acquisition of Nuvia, a startup specializing in chip design that held its own licensing agreements with Arm. Arm claims Qualcomm has breached its licensing agreement by using Nuvia’s designs without proper authorization. Qualcomm counters that its existing license with Arm covers Nuvia’s work, and that Arm’s lawsuit is an attempt to increase royalty rates and disrupt the chipmaker’s business.
Arm’s lawsuit seeks to stop Qualcomm from using Nuvia’s chip designs, claiming that they are based on Arm’s intellectual property and cannot be transferred to Qualcomm without permission. Arm has demanded that Qualcomm destroy any Nuvia-related designs, a key point of contention as Qualcomm plans to integrate Nuvia’s innovations into its Snapdragon chip lineup, including a new generation of artificial intelligence (AI) processors.
Qualcomm has strongly denied Arm’s claims, calling the license termination an “attempt to disrupt the legal process” and accusing Arm of using “strong-arm tactics.” The company maintains that its rights under the architectural license agreement will be upheld, and that Arm’s move to revoke the license is unjustified.
The two companies are set to go to trial in December to resolve their conflicting claims. Analysts suggest that Arm’s notice to cancel the license may be a strategy to gain leverage ahead of the trial, which could ultimately result in Qualcomm securing a new licensing deal with Arm, but potentially at higher royalty rates.
This legal clash reflects broader shifts within the semiconductor industry. Under the leadership of CEO Rene Haas, Arm has shifted its focus toward offering complete chip designs rather than just licensing its instruction sets. This move places Arm in direct competition with its customers, including Qualcomm, who have traditionally used Arm’s architecture as the basis for their own chip designs.
With input from Bloomberg and the Financial Times.
