Arm Moves to Cancel its Design License with Qualcomm

Last night, Bloomberg reported that Arm has taken a step to cancel its design license with Qualcomm. The full story is here, but watch out for popups, ads, and such there. Since I weighed in on the original Qualcomm and Arm filing over the former Nuvia IP, I will not rehash that. Instead, let me provide some perspective on what is going on.

Disclaimer: None of this should be construed as legal advice. I have a JD, but I do not practice. If you want legal advice, please seek licensed counsel in your required jurisdiction.

Arm Moves to Cancel its Design License with Qualcomm

To clarify what is going on here, Arm has provided notice that it will cancel its design license with Qualcomm. Usually, in big contracts like this, it would be strange to see an immediate termination, and it would also not look great with pending litigation. We have heard a few folks saying Qualcomm’s Arm license is done, but that is not accurate. Also, the main IP here is coming from the Nuvia acquisition, and Qualcomm, from what we understand, has different Arm licenses. At issue here seems to be the IP coming from the custom design work around its Oryon cores from the team at Nuvia. Given the notice, in December, Qualcomm’s license would be terminated unless something happens.

Since we are 2+ years on from the initial suit, we are also getting close to the trial date. I have not closely covered the suit, but I would also imagine this is a high-level at where we are at:

• Both companies should have been doing discovery for some time at this point. There is still time before a December trial, but it would be hard to imagine each side does not have some sense of where they stand at this point.
• Legal bills are probably wild. Between 1L and 2L, when I was an intern at WSGR (a big-time tech law firm in that era), I will never forget sitting in on a series of motions for a case with a huge search engine and advertising firm. The other side’s attorney was one of the best in the southeastern US and said to the judge something to the effect of, “I am having to make the trip out here at a cost of $850 an hour to my client.” As we were leaving the courtroom, the partner I was helping said something along the lines of, “That is nothing. Do you know how much we charge?” That was 20 years ago. Both Arm and Qualcomm are IP licensing companies, so they should both have top-notch in-house and external counsel. The big “winners” in all of this are going to be the attorneys.
• Often, there are semi-regular or regular touchpoints where executives and, given the magnitude, the board need to be briefed on the status of the case and what they feel the likely scenarios are.
• Usually, those touchpoints can lead to settlements. When you see a settlement this far out from a trial date, it often means one side is getting spooked. A settlement before December would be a strong signal that something big had come up in the discovery.
• My sense is that Qualcomm will file for an injunction to Arm’s termination. That feels like it should be the next move.
• Realistically, this is about who keeps what share of each chip sold. Qualcomm is a big revenue source for Arm that would be bad for both companies if it went to zero with Qualcomm stopping shipments. Qualcomm, of course, wants to shift chips. This feels like a negotiating tactic.
• The BIG risk in all of this is if Qualcomm decides to stick a RISC-V front-end instead of Arm in front of future designs that are a few years out. That is painful from a software standpoint, but it might fix the Arm license side.
• What is less clear, given the initial suit, is whether Qualcomm’s other work on Oryon cores would be deemed part of the Nuvia-Arm collaboration, and thus, even if a new RISC-V front-end were added, would other work on those designed be poisoned by the Nuvia license as well?

This week, Qualcomm announced new generations of Nuvia-derived Oryon products amid this litigation. Since Arm has asked for one of the remedies that Qualcomm destroys all Nuvia-related designs that it asserts cannot transfer to Qualcomm, yet Qualcomm has done the opposite, it makes sense that Arm needs to respond to demonstrate it is enforcing its rights. If we think about this from the opposite angle, and Arm did nothing, we would all ask why Arm is not responding. Again, this feels like a negotiating tactic for a pre-trial settlement talk rather than the case where Qualcomm stops making chips, and both companies lose large chunks of revenue.

Final Words

The litigation will have an outcome that will easily be in the high tens of billions or hundreds of billions of dollars. When you combine the future royalty payments plus the potential market cap impact to both companies of a positive or adverse outcome, this is big-time litigation.

Major OEMs are sophisticated. They all knew or should have known about the Arm and Qualcomm legal dispute and can plan accordingly. In the past two years, I have not heard anyone at major OEMs excited that this litigation is ongoing.

Arm and Qualcomm have invested a ton in this matter, and the stakes are enormous. It will be neat to see what happens.