SoftBank's Arm suing Qualcomm for licensing and trademark violations

Qualcomm is the biggest maker of the processors and modems used in smartphones. PHOTO: REUTERS

SAN FRANCISCO - Arm Limited has sued Qualcomm for breach of contract and trademark infringement, setting up a legal showdown between the SoftBank Group-owned chip company and one of its biggest customers.

The conflict centres on Qualcomm's acquisition of chip start-up Nuvia last year. That business developed chip designs using Arm licences and these cannot be transferred to Qualcomm without permission, according to the suit. Nuvia's licences 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 stand-off is bound to be closely watched in the industry.

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 British-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 licences without Arm's consent, which is a standard restriction under Arm's licence agreements, Nuvia's licences 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 licences with Arm cover custom-designed processors, something that the complaint ignores.

Qualcomm acquired Nuvia to beef up its technology and allow it to field more powerful chips. It is 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 US$40 billion (S$60 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 United States Federal Trade Commission (FTC) sued to block it.

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 are relatively inexpensive to use and require less power. After gaining a foundation in mobile devices, Arm's innovations are now increasingly part of computers.

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 has not negotiated the rights to.

Arm acts a traffic cop on the use of technology by verifying each new processor's compatibility, giving it a unique window into what companies are doing across the industry. This 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 cancelled licences 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 licences," 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 and Apple, 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 FTC, which alleged that the company was using predatory licensing activities. BLOOMBERG

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