During its second day of deliberation and with just a few hours before the holiday break, the jury reached a decision in the Arm-Qualcomm case. They determined that Qualcomm did not breach the Nuvia ALA (question 2) and that custom Qualcomm CPUs developed after the agreement using Nuvia technology as a baseline are covered under the Qualcomm ALA agreement (question 3 – the counterclaim). The jury could not reach a decision on whether Nuvia breached the Nuvia ALA agreement (question 1). This is of no surprise given the conflicting language in the license agreement that created the dispute in the first place. It’s no wonder that a jury could not interpret it if the parties that signed it cannot agree on the meaning of its terms and conditions.
Disclosure: My company, Tirias Research, has consulted for Arm, Qualcomm and other companies mentioned in this article.
The outcome is positive for Qualcomm. The jury decided that Qualcomm did not breach an agreement that it was not a party to and, perhaps more importantly, it can move forward with its efforts under its current license agreement. However, it leaves a cloud hanging over Nuvia. As for Arm, it loses its leverage to push for a new ALA with Qualcomm and faces lower royalties from its largest customer as Qualcomm rolls out its new line of custom CPU cores throughout its product lines. Note that it may take a few years before the custom CPU cores replace off-the-shelf Arm CPU cores across Qualcomm’s entire product line, and Qualcomm will still be using other Arm technology covered in its TLA agreement. Additionally, Arm will receive additional TLA and ALA royalties from Qualcomm as it pushes into new market segments. Arm will just receive a lower royalty rate on the custom CPU cores than it would have if Qualcomm was using off-the-shelve Arm cores or if were forced to operate under the Nuvia ALA, but this was inevitable as Qualcomm sought to develop more competitive CPUs one way or another.
This may be a wake-up call for the rest of the Arm ecosystem as it considers taking new Arm licenses and/or acquisitions. The licenses need to be clear and should provide protection for all parties without limiting the operation, including a potential acquisition, of the licensee. In terms of ALA licensees, this is of little concern because most of the remaining ALA licensees are large, established tech companies like AMD, Intel, Microsoft, Google, and Samsung.
The trial also highlighted Arm’s efforts to raise royalty rates in general, which is well known throughout the industry. However, it exposed some of the amounts and tactics Arm is leveraging to accomplish this goal. It also confirmed Arm’s efforts to design complete processors and SoCs for customers. This may benefit some customers and pose a competitive risk to others.
When the lawsuit was first filed, most of the industry was questioning why Arm would sue its largest customer, something that the judge questioned as well. For the past few decades, Arm has been the Switzerland of the semiconductor industry. It was an independent vendor providing technology and support across the entire industry. Prior to this suit, Arm had never brought legal action against any customer, which it refers to more accurately as “partners,” and it had achieved huge success as its customers succeeded.
What changed and how did things come to this? The answer requires looking at the changes in both Arm and Qualcomm over a little more than a decade, the inherent competitive threat created by Arm’s competing business models, and the changing dynamics of the industry. That will be the focus of my next article. For now, the industry is breathing a sigh of relief that this is over and that there is little, if any, impact on the existing Arm agreements, but with a bit of caution for the future.