Three years ago Qualcomm acquired CPU designer Nuvia, triggering a legal battle with Arm. Licensors (e.g., Arm) routinely grant an acquirer’s request to transfer agreements from an acquired company. In the Qualcomm-Nuvia case, Arm withheld consent, but Qualcomm nonetheless plowed ahead. At Microprocessor Report, we editorialized that Qualcomm was in the right and, in the alternative, Arm was besmirching its reputation by going after the chipmaker. Two years later, the two faced off in a courtroom, doing little to sway our previous opinion but revealing new information.
Bad Blood Predates Nuvia and Is Set to Continue
- In the era leading up to the acquisition, Qualcomm was dissatisfied with Arm. The chipmaker had given up designing proprietary Arm-compatible CPUs under an architecture license (ALA), only to find (1) Arm subsequently raising royalty rates on its CPU designs and (2) performance falling behind that of rivals (which we infer to mean Apple).
- For its part, Arm was not happy, either. CEO Rene Haas called Qualcomm an enemy, a notion agreed to by a lieutenant in one of numerous embarrassing text exchanges Qualcomm showed the court. Haas tried to dismiss his words as a product of frustration in the slow negotiations, but it’s clear that the two companies aren’t loving partners.
- Courtroom styles differ, too. Arm presented itself as amiable and surprised that it would have to take the extraordinary steps of withdrawing Nuvia’s (and soon Qualcomm’s) licenses and litigating. Qualcomm—itself a technology licensor twice Arm’s size and no stranger to litigation—is out for blood. Haas’s mild demeanor contrasted with the Qualcomm attorney’s pettiness and badgering, but that combativeness had paid off earlier when Team Q eviscerated Arm’s poorly coached Will Abbey on cross examination.
- Arm is interested in making chips. Shown documentation in the courtroom, Haas conceded that when interviewing for the CEO position, he proposed Arm move away from soft IP and make silicon—chips and chiplets. The Financial Times had revealed Arm’s silicon aspirations last year, and we have other intelligence corroborating ongoing chip-design activity. This revelation has little bearing on the case but demonstrates that Qualcomm is playing rough and intent on portraying Arm in a negative light to other licensees.
It’s Only About Money
- As we noted in our MPR piece, the central issue is that Arm wanted Qualcomm to pay Nuvia’s royalty rate instead of the Qualcomm ALA’s much lower rate. Moreover, Arm wanted a sizable one-time fee to grant consent. Arm and Qualcomm explored various compromises but couldn’t agree. When Haas took the CEO reins from Simon Segars—whom Haas characterized as a soft negotiator—he took a firmer stance with the support of Arm and SoftBank chairman Masayoshi Son.
- Qualcomm displayed various Arm communications showing various programs to raise royalty rates from existing licensees. As with its chipmaking interest, Arm’s greed has little bearing on the case, but it looks bad.
- Other communiques, such as chat and email messages, showed Arm recognizing that in the hands of Qualcomm, Nuvia would reduce Qualcomm’s royalty payments unless Arm could force a renegotiation. Overall, Arm’s paper trail damaged the company.
Nuvia’s Impact
- One Haas missive indicates that Arm would have to outdo Nuvia. Indeed, the Arm Cortex-X4 and Cortex-X925 (Blackhawk) CPUs released after the contested acquisition provide a big performance boost. We doubt Arm would’ve pushed performance as much were it not for the startup CPU designer.
- Part of the X925’s performance boost applies only to the hard macro (CSS) version, suggesting that the Nuvia deal may have accelerated Arm’s steps toward supplying silicon. Although it wasn’t discussed at trial, Arm is also taking on custom-chip companies such as Broadcom and Marvell by designing data-center processors for hyperscalers.
Relevant Arguments
- Qualcomm’s assertion is that while it requested Arm to consent to transferring Nuvia’s agreements, it doesn’t require Arm to do so because of preexisting Arm-Qualcomm contracts. Conversely, Arm is suing because it argues Nuvia breached its contract, which Qualcomm dismisses because it is separate from the no-longer-extant startup and didn’t inherit the relevant agreements. Ultimately, this is what the eight-man jury must decide, but neither party is clear in its arguments.
- Arm claims it has been harmed, but Qualcomm claims that Arm hasn’t, while simultaneously documenting that it would have to pay more if it gave in to Arm. Here, too, neither side is making matters easy for the jury or the bored-looking judge.
Bottom Line
On Day 1, Arm ate more punches than it threw. Juries are impossible to read, but the company hasn’t yet persuaded us that Qualcomm’s position is incorrect. We noted at MPR that even if it prevailed, Arm would risk losing licensing business by appearing capricious and greedy. The trial documented the billions in additional annual revenue Arm was trying to squeeze out of licensees, with a big chunk coming from Qualcomm. Arm’s revenue goals were shown to be high enough that we now understand why it is risking its reputation to pursue the chipmaker. Even if Arm prevails, however, Qualcomm is making sure it pays dearly by publicizing an ugly paper trail.