(Bloomberg) — Arm Holdings Inc. is revoking a license that allowed longtime partner Qualcomm to design chips using Arm’s intellectual property, amid a legal dispute over key smartphone technology. It’s intensifying.
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U.K.-based Arm required Qualcomm to give it 60 days’ notice to terminate its so-called architecture license agreement, according to documents obtained by Bloomberg. The deal will allow Qualcomm to develop its own chips based on standards owned by Arm.
The showdown threatens to disrupt not only the smartphone and computer markets, but also the finances and operations of two of the semiconductor industry’s most influential companies.
Qualcomm sells hundreds of millions of processors a year. This is the technology used in the majority of Android smartphones. If the cancellation takes effect, the company would have to stop selling products that make up the bulk of its roughly $39 billion in revenue, or face huge damage claims.
The move kickstarts a legal battle that began in 2022 when Arm sued San Diego-based Qualcomm, one of its largest customers, for breach of contract and trademark infringement. With the latest termination notice, Arm will give the U.S. company an eight-week grace period. to resolve disputes.
A representative for Arm declined to comment. A Qualcomm spokesperson said the British company was looking to “strengthen our long-standing partner.”
“The dismissal claims appear to be an attempt to obstruct the legal process and are completely baseless,” a spokesperson said in an emailed statement. “We are confident that Qualcomm’s rights under the Arm agreement will be affirmed.”
The two companies will now go to trial to resolve Arm’s breach of contract claims and Qualcomm’s counterclaims. The disagreement focuses on Qualcomm’s acquisition of another Arm licensee in 2021 and Arm’s failure to renegotiate the terms of the agreement. Qualcomm claims the existing contract covers the activities of acquired chip design startup Nubia.
Nuvia’s microprocessor design efforts are at the heart of new personal computer chips that Qualcomm sells to companies such as HP Inc. and Microsoft Corp. The processor is a key component of a new line of artificial intelligence-focused laptops called AI PCs. Qualcomm announced earlier this week that it plans to bring Nuvia’s design (called Oryon) to its widely used Snapdragon chips for smartphones.
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Arm says the move violates Qualcomm’s license and requires the company to discard Nuvia designs created before the Nuvia acquisition. Arm’s original lawsuit filed in the U.S. District Court for the District of Delaware says it cannot be transferred to Qualcomm without permission. Nuvia’s license was terminated in February 2023 after negotiations were not finalized.
Like many other companies in the chip industry, Qualcomm relies on the instruction set of Cambridge, England-based Arm, which has developed much of the foundational technology for mobile electronics. The instruction set is the basic computer code that a chip uses to run software such as an operating system.
If Arm agrees to terminate the license, Qualcomm will no longer be able to use Arm’s instruction set to create its own designs. It would be possible to license Arm’s blueprints under separate product agreements, but that would cause significant delays and force the company to waste work it has already completed.
Before the dispute, the two companies were close partners supporting the development of the smartphone industry. Now, under new leadership, both companies are pursuing increasingly competitive strategies.
Under CEO René Haas, Arm has moved to offering more complete designs that companies can bring directly to contract manufacturers. Haas believes his company, which is still majority-owned by Japan’s SoftBank Group Corp., should be better compensated for its engineering work. The change would hurt the business of Arm’s traditional customers like Qualcomm, which uses Arm’s technology in its final chip designs.
Meanwhile, Qualcomm, under CEO Cristiano Amon, has stopped using Arm designs in favor of its own work, potentially making it a less profitable customer for Arm. He’s also branching out into new areas around computing, where Arm is developing its own efforts. However, the two companies’ technologies are still intertwined, and Qualcomm is not yet in a position to completely break away from Arm.
Arm was acquired by SoftBank in 2016, and a portion of its shares went public in an initial public offering last September. Japanese companies still hold more than 80% of Arm shares.
Arm has two types of customers. Companies that use their designs as the basis for their chips and companies that manufacture their own semiconductors and only license the Arm instruction set.
Qualcomm is no stranger to licensing disputes. The company derives most of its profits from selling the rights to its technology, which is a key part of mobile wireless communications. The company’s customers include Samsung Electronics and Apple, the two largest smartphone manufacturers.
Qualcomm won a wide-ranging legal battle with Apple in 2019. It also won an appeals court ruling against the Federal Trade Commission that found the company engaged in predatory licensing activities.
(Updates with Qualcomm answer in 6th paragraph)
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