Qualcomm emerged largely victorious in a crucial legal battle against Arm Holdings, with a U.S. federal court jury affirming that Qualcomm’s central processors are duly licensed under their existing agreement. This verdict significantly reduces uncertainty surrounding Qualcomm’s ambitious expansion into the laptop market, although one unresolved question resulted in a mistrial.
The week-long trial, culminating in extensive deliberations, concluded with the jury unable to reach a consensus on whether startup Nuvia, acquired by Qualcomm in 2021 for $1.4 billion, violated the terms of its license with Arm. This point of contention will likely be revisited in future legal proceedings, as Arm expressed its intent to pursue a new trial. Despite this, the jury definitively found in favor of Qualcomm on two key issues. First, they determined that Qualcomm did not breach the Nuvia license agreement. Critically, they also confirmed that Qualcomm’s latest chips, developed using Nuvia technology and central to its foray into the personal computer market, are properly licensed under Qualcomm’s separate agreement with Arm. This clears a major hurdle for Qualcomm to continue selling these chips.
Qualcomm’s latest chips, developed with Nuvia technology, are key to its PC market strategy.
Following the verdict, Qualcomm shares saw a 1.8% increase in after-hours trading, while Arm shares dipped 1.8%. While Judge Maryellen Noreika encouraged mediation between the two chip giants, she acknowledged neither side achieved a decisive victory, suggesting a potential retrial could yield a similar outcome.
Qualcomm celebrated the verdict as a validation of its innovation rights, emphasizing that all disputed products are protected under its contractual agreement with Arm. Conversely, Arm expressed disappointment in the jury’s inability to reach a full consensus, reiterating its commitment to safeguarding its intellectual property.
This outcome allows Qualcomm to confidently advance its “AI PC” initiative, focusing on laptop chips optimized for tasks like chatbot interactions and image generation. This burgeoning market is also attracting significant investment from Nvidia, Advanced Micro Devices, and MediaTek, all of which are developing Arm-based processors. Industry analysts, such as Stacy Rasgon of Bernstein, highlighted the significance of the verdict in alleviating concerns about Qualcomm’s future product roadmap, which heavily relies on Nuvia’s computing cores.
Arm’s licensing model is central to the dispute with Qualcomm.
The core dispute revolved around the royalty rates Qualcomm should pay per chip. Nuvia was obligated to pay higher rates than Qualcomm prior to the acquisition. Qualcomm subsequently integrated Nuvia’s technology into its chips, leveraging its own existing license agreement with Arm, which stipulates lower royalty fees. Ben Bajarin, CEO of Creative Strategies, noted that Arm’s current growth projections haven’t factored in higher royalty revenues from Qualcomm’s entry into the PC market, suggesting the dispute primarily concerns contractual interpretation rather than immediate financial impact.
However, the trial leaves unresolved the fundamental question of the boundaries of Arm’s technology. While Arm licenses its computing architecture broadly, it also sells pre-designed computing cores. Advanced customers like Apple, Qualcomm, and Nuvia license the architecture but design custom cores. Arm asserted in court that its architecture license with Nuvia granted it the right to demand the destruction of Nuvia’s custom core designs. This raises significant implications for the entire industry, as highlighted by Jim McGregor of Tirias Research, impacting a vast range of devices utilizing Arm’s architecture. The long-term consequences of this unresolved issue remain to be seen.
This legal battle underscores the complex and evolving landscape of intellectual property rights within the semiconductor industry, particularly as companies push the boundaries of innovation in rapidly growing markets like AI-powered computing.
