*Updated with Arm response to Fierce Electronics
Arm and Qualcomm are ensnared in a complex legal battle in US district court over licensing of intellectual property with potentially far-reaching impact. A recent filing in the case suggests fundamental changes could be underway in how Arm works with chipmakers and OEM partners.
A document filed by Qualcomm in the lawsuit stipulates Arm is dramatically changing its business model so that OEM partners making servers and other computers must obtain licenses directly from Arm. Normally, Arm licenses its architectural designs and related IP to chipmakers such as Nvidia or Qualcomm, which in turn produce chips that are then sold to companies known as Original Equipment Manufacturers (OEMs) that use those chips to make servers and other computers and devices.
In an updated Qualcomm counterclaim made public Oct. 26, Qualcomm argues that Arm is no longer going to license its central processing unit (CPU) designs after 2024 to Qualcomm and other chip companies under technology license agreements (TLAs). Instead, Qualcomm asserts, Arm will only license to a broad array of device makers. The 83-page counterclaim was filed, complete with redactions of specific license terms between Arm and Qualcomm, in case # 22-1146 before the US District Court in Delaware.
Arm has not yet formally responded to Qualcomm's latest counterclaim but told Fierce Electronics via email on Friday that Qualcomm’s complaint is “riddled with inaccuracies” that Arm will address in a formal legal response in coming weeks. (A fuller response from Arm can be found below.*)
Qualcomm's counterclaim was first noticed by Dylan Patel in SemiAnalysis. “Arm is allegedly telling OEMs that the only way to get Arm-based chips will be to accept Arm’s new licensing terms,” noted Patel. “Qualcomm claims that Arm is lying to Qualcomm’s OEM partners about Qualcomm’s licensing terms.”
Patel also said the counterclaim shows Arm is not planning to allow external GPUs, NPUs or ISPs in Arm-based SoCs. “It seems that Arm is effectively bundling its other IP with the CPU IP in a take-it-or-leave-it model,” Patel said. “That would mean Samsung’s licensing deal with AMD for GPU or Mediatek with Imagination GPU is not longer allowed after 2024.”
In its counterclaim filing, Qualcomm argues it is being strongarmed by Arm in a “baseless lawsuit.” Qualcomm argues Arm is making it clear to the marketplace that “it will act recklessly and opportunistically, threatening the development of new and innovative products as a negotiating tactic, not because it has valid license and trademark claims.”
Further, the counterclaim asserts Arm falsely told a longstanding OEM customer of Qualcomm that “unless they accept a new direct license from Arm on which they pay royalties on the sales of the OEM’s products, they will be unable to obtain Arm-compliant chips from 2025 forward. Arm has also threatened at least one OEM that if the OEM does not do so, Arm will go on to license the OEM’s large competitors instead…”
The Qualcomm counterclaim further asserts that Arm told one or more Qualcomm customers that when TLA agreements expire, “Arm will cease licensing CPUs to all semiconductor companies—including Qualcomm—under an Arm TLA. Arm claimed that it is changing its business model and will only provide licenses to the device-makers themselves…
“Arm is trying to coerce such customers into accepting its direct license by falsely asserting that Qualcomm will not be able to provide them with Arm-compliant chips beginning in 2025 because Qualcomm’s Arm license agreements terminate in 2024, that Arm will not extend its licenses with Qualcomm and that Arm will not allow Qualcomm to ship products from 2025 forward.”
“If Arm pursues the new approach that Qualcomm claims in its counterclaim, then they are really in big trouble long term,” said Jack Gold, an analyst at J. Gold Associates. “Technology licenses, which allow a chip company such as Qualcomm to use modified Arm IP, is at the heart of many designs, not just with Qualcomm. If Arm is saying you can only use our complete and unaltered IP in your chips and not make modifications, then none of the chip companies will have any competitive advantage. This is obviously a crazy position to take…”
If Arm were to get rid of tech licensing as described by Qualcomm, it would give rise to RISC-V use, something Arm “should be worried about,” Gold said.
If Qualcomm’s counterclaim is accurate, “this is a troubling step for the industry,” Gold added.
Patel, in SemiAnalysis, said Qualcomm’s counterclaim seems to indicate “Arm is playing very dirty with their threats to Qualcomm and OEMs. Mediatek, Samsung and other Arm partners should be very scared.” He said Nvidia, Broadcom and Apple have good licensing terms with Arm and might be less affected.
*In addition to calling Qualcomm's latest claims "riddled with inaccuracies," Arm said via email to Fierce Electronics Friday that its original claim against Qualcomm filed in early September is “aimed at protecting the Arm ecosystem and partners who rely on our intellectual property and innovative designs. Qualcomm has violated the terms of the Nuvia license agreement and yet it continues to use the technology, unlicensed. Arm is seeking to enforce Qualcomm’s obligation to destroy and top using the Nuvia designs that were derived from Arm’s technology.”
Qualcomm purchased CPU and tech design company Nuvia in March 2021 for $1.4 billion. In September, Arm sued Qualcomm and Nuvia for breach of license agreements and trademark infringement.
Patel discussed the original Arm suit against Qualcomm and Qualcomm’s response on Oct. 9 and argued that Arm’s lawsuit was primarily an attempt by Arm to renegotiate with Qualcomm to extract higher licensing revenue.
Patel has also questioned if Arm’s original lawsuit is more than just about money and might be because Softbank (owner of Arm) and Arm remain angry that Qualcomm, as Patel puts it, worked with regulators to block Nvidia’s $40 billion acquisition of Arm.
After working for more than a year to seal the deal, Nvidia and SoftBank announced the termination of the proposed deal on Feb. 7, 2022, due to “significant regulatory challenges.“ Arm was expected to go public within a year, but an IPO has not occurred as of late October.