Highlights:

  • Qualcomm and Arm are two of the world’s most influential chip companies, and their standoff is bound to be closely watched in the industry.
  • Qualcomm claimed its licenses with Arm encompass custom processors, which the complaint does not take into account.

Arm Ltd has sued Qualcomm Inc for breach of contract and trademark infringement, setting up a legal showdown between the SoftBank Group Corp-owned chip company and one of its biggest customers.

The conflict centers on Qualcomm’s acquisition of chip startup Nuvia Inc last year. According to the suit filed in the US District Court in Delaware, the business developed chip designs using Arm licenses, which can’t be transferred to Qualcomm without permission. Nuvia’s licenses were terminated in February after negotiations failed to resolve, Arm said.

Qualcomm and Arm are two of the world’s most influential chip companies, and their standoff is bound to be closely watched in the industry. San Diego-based Qualcomm is the biggest maker of smartphone processors and modems. But like many others in the chip industry, it relies on an instruction set from UK-based Arm. This company has created much of the underlying technology for mobile electronics. An instruction set is the basic computer code that chips use to run software such as operating systems.

Arm said in a statement, “Because Qualcomm attempted to transfer Nuvia licenses without Arm’s consent, which is a standard restriction under Arm’s license agreements, Nuvia’s licenses terminated in March 2022.” Before and after that date, Arm made multiple good faith efforts to seek a resolution.”

Qualcomm claimed its licenses with Arm encompass custom processors, which the complaint does not take into account.

“Arm’s lawsuit marks an unfortunate departure from its longstanding, successful relationship with Qualcomm,” the company commented. “Arm has no right, contractual or otherwise, to attempt to interfere with Qualcomm’s or Nuvia’s innovations.”

Qualcomm acquired Nuvia to beef up its technology and allow it to field more powerful chips. It’s part of a broader strategy by Qualcomm Chief Executive Officer Cristiano Amon to decrease his company’s reliance on the smartphone industry and grab a share of the laptop chip market and – eventually – the lucrative server processor business. But the suit threatens to hamper those efforts.

Nuvia was acquired at a time when Arm was much in the news of being taken over by Nvidia Corp from SoftBank for USD 40 billion. The CEO of Qualcomm spoke out against the acquisition, claiming that it would threaten Arm’s autonomy in the chip sector. After the US Federal Trade Commission filed suit to stop the acquisition in February, Nvidia decided to back out of the deal.

This week in New York, Qualcomm’s shares dropped 1.6% to USD 132.27. The firm has lost 28% of its value this year, following a larger rout for chip stocks.

SoftBank purchased Arm in 2016 and is preparing to float it separately on the stock market. Some of the greatest names in tech are already on Arm’s customer list, drawn in by the company’s low prices and efficient designs. Arm’s technologies have expanded from mobile devices to become standard in desktop PCs.

Using Arm’s technology as a foundation for in-house chip designs, companies like Amazon.com Inc.’s AWS challenge Intel Corp.’s monopoly on data center server CPUs. Each of these chips can fetch upwards of USD 10,000.

Arm’s customers can be classified into two categories: One’s that implement its designs as the basis for their chips and one that designs their semiconductors but just license the Arm instruction set. Over the years, Qualcomm has had both types of partnerships with Arm. However, the Nuvia acquisition is a part of an effort to design more of its chips in-house. As far as Arm is concerned, it has been argued that Qualcomm still doesn’t have the right to use the technology that the Nuvia products rely on.

Arm regulates technological use by checking the compatibility of new processors. Because of this, it provides a rare glimpse into the practices of businesses across the sector. It will also be able to check if the work done by Nuvia before its acquisition is included in Qualcomm chips. Arm claims that any job done under expired licenses must be destroyed.

Qualcomm is familiar with legal battles over licenses. Profit for the company comes mostly from licensing its proprietary technology, which is crucial in modern wireless communication systems. Samsung Electronics Co. and Apple Inc., the two largest smartphone manufacturers, are among its clients.

After years of litigation, Qualcomm finally emerged victorious against Apple in 2019. It also won a court appeal against the US Federal Trade Commission, which had charged it with predatory licensing practices.