(Bloomberg) — Arm Ltd. sued Qualcomm Inc. for breach of contract and trademark infringement, setting up a legal showdown between the SoftBank Group Corp.-owned chip company and one of its biggest customers.
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The conflict centers on Qualcomm’s acquisition of chip startup Nuvia Inc. last year. That business developed chip designs using Arm licenses and they can’t be transferred to Qualcomm without permission, according to the suit filed in the US District Court in Delaware. Nuvia’s licenses were terminated in February after negotiations failed to reach a resolution, Arm said.
Qualcomm and Arm are two of the world’s most influential chip companies, and their standoff is bound to be closely watched in the industry. San Diego-based Qualcomm is the biggest maker of the processors and modems used in smartphones. But like many others in the chip industry, it relies on an instruction set from UK-based Arm, a company that has created much of the underlying technology for mobile electronics. An instruction set is the basic computer code that chips use to run software such as operating systems.
“Because Qualcomm attempted to transfer Nuvia licenses without Arm’s consent, which is a standard restriction under Arm’s license agreements, Nuvia’s licenses terminated in March 2022,” Arm said in a statement. “Before and after that date, Arm made multiple good faith efforts to seek a resolution.”
Qualcomm said its licenses with Arm cover custom-designed processors, something that the complaint ignores.
“Arm’s lawsuit marks an unfortunate departure from its longstanding, successful relationship with Qualcomm,” the company said in a statement. “Arm has no right, contractual or otherwise, to attempt to interfere with Qualcomm’s or Nuvia’s innovations.”
Qualcomm acquired Nuvia to beef up its technology and allow it to field more powerful chips. It’s part of a broader strategy by Qualcomm Chief Executive Officer Cristiano Amon to decrease his company’s reliance on the smartphone industry and grab a share of the laptop chip market and — eventually — the lucrative server processor business. But the suit threatens to hamper those efforts.
The Nuvia acquisition took place while Arm was itself the subject of a takeover attempt by Nvidia Corp., which planned to buy it from SoftBank for $40 billion. Qualcomm’s CEO was vocal in opposing that deal, saying it would compromise Arm’s independence in the chip industry. Nvidia abandoned the purchase in February after the US Federal Trade Commission sued to block it.
Qualcomm shares fell 1.6% to $132.27 on Wednesday in New York. They’ve lost 28% of their value this year, in line with a broader rout for chip stocks.
Arm was acquired in 2016 by SoftBank, which is now preparing to spin it off in an initial public offering. Arm’s customer list already includes the biggest names in technology, which have embraced its designs because they’re relatively inexpensive to use and require less power. After gaining a foundation in mobile devices, Arm’s innovations are now increasingly part of computers.
Companies such as Amazon.com Inc.’s AWS are using Arm’s technology as the basis for in-house chip designs, allowing them to break Intel Corp.’s hold on the market for data-center server processors. Such chips can sell for more than $10,000 each.
Arm has two types of customers: companies that use its designs as the basis for their chips and ones that create their own semiconductors and only license the Arm instruction set. Qualcomm has had both kinds of arrangements with Arm over the years, but the Nuvia deal is part of a push to design more of its chips itself. Arm is arguing that the Nuvia products still rely on technology that Qualcomm hasn’t negotiated the right to.
Arm acts a traffic cop on the use of technology by verifying each new processor’s compatibility. That gives it a unique window into what companies are doing across the industry. It should also allow it to see whether Qualcomm chips include work done by Nuvia ahead of its acquisition. According to Arm, anything created under those canceled licenses should have been destroyed.
In May, Qualcomm asked Arm for verification of a new processor core.
“Based on the timing and circumstances surrounding Qualcomm’s request, discovery is likely to show that Qualcomm’s processor core design is based on or in part the processor core design developed under the prior Nuvia licenses,” the suit said.
Qualcomm is no stranger to licensing disputes. The company gets a large chunk of its profit from selling the rights to its own technology — a key part of mobile wireless communications. Its customers include Samsung Electronics Co. and Apple Inc., the two biggest smartphone makers.
Qualcomm emerged victorious in 2019 from a wide-ranging legal fight with Apple. It also won a court decision on appeal against the US Federal Trade Commission, which alleged that the company was using predatory licensing activities.
(Updates Qualcomm response in sixth paragraph.)
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