Recently, the lawsuits between Arm and Qualcomm have frequently made headlines, and the question of "whether Arm plans to change its licensing model" has become a focal point of attention in the industry.

The author has read through the lawsuit documents between Arm and Qualcomm, which span over 100 pages, from beginning to end. This article strives to adhere to the principle of being concise and to clarify the ins and outs of the matter.

This must start with the licensing model of Arm.

The reputation of Arm in the semiconductor circle needs no explanation. For decades, Arm has been the industry leader in developing chip architectures, including instruction set architectures and processor core designs.

Arm does not produce chips itself but licenses its technology to customers for use. It earns income from licensing fees and royalties based on the number of Arm chips sold by customers.

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Arm's licensing methods are divided into two categories: TLA (Technical License Agreement) and ALA (Architecture License Agreement). The licenses granted by ALA and TLA are necessary conditions for using Arm, covering a wide range of intellectual property portfolios of the Arm architecture.

TLA refers to customers directly purchasing Arm's IP for use, allowing for some modifications, such as Qualcomm's Snapdragon series chips; ALA allows customers to design their own IP based on the instruction set under the Arm architecture and develop customized processor cores, with Apple's chips being a typical representative.

Different licensing types have different prices because the royalties of TLA include the work of Arm in developing a complete CPU, resulting in higher licensing fees; while the licensees under ALA invest a lot in developing their own CPU, so the licensing fees are also lower. At the same time, Arm will also sign different cooperation terms according to the size and application market of different companies.

To some extent, this is also the starting point of the current contradiction between Arm and Qualcomm.Arm's Accusations

Nuvia Obtains Arm License

In 2019, Nuvia was founded by several chip engineers who left Apple and Google, with plans to design energy-efficient CPUs for data center servers based on the Arm architecture.

In September 2019, Arm granted Nuvia the ALA and TLA, providing the rights to design custom processor cores based on the Arm architecture and modify certain offline architecture designs, as well as the rights to use the Arm trademark in products developed by Nuvia.

Arm stated in the lawsuit that the license protects Arm's rights and expectations by prohibiting transfers without Arm's consent, regardless of whether the prospective transferee has its own Arm license.

From September 2019 to early 2021, Nuvia used Arm-licensed technology to design and develop processor cores. Arm provided good support for Nuvia's development work, and Arm was also seeking to accelerate the research and development of the next generation of processors for data center servers to support the transition of Arm technology to the data center market.

In August 2020, Nuvia announced the launch of its first-generation custom core "Phoenix" CPU based on the Arm architecture, and also released benchmark test results showing that the performance of Phoenix may be twice that of competitors such as Apple, Intel, AMD, and Qualcomm. Based on these results, Nuvia claimed that the "Phoenix" CPU core has the potential to become a market benchmark.

Breakdown: Qualcomm Acquires Nuvia

On the other hand, Arm stated in the lawsuit: "Despite Qualcomm having an Arm ALA license, Qualcomm's previous attempts to design custom processors have failed. A custom processor based on the Arm architecture for data center servers, which Qualcomm invested in the development of, was canceled in 2018, and the company laid off hundreds of employees."

As a result, Qualcomm's commercial products rely on processor designs prepared by Arm engineers and are licensed to Qualcomm under the Arm TLA model. The lawsuit pointed out that as of early 2021, Qualcomm had no plans to develop custom processors in its development roadmap for the foreseeable future. To fill this gap, Qualcomm began to seek to purchase and use Nuvia's custom designs without Arm's consent.On January 13, 2021, Qualcomm announced the acquisition of Nuvia for $1.4 billion.

In its announcement, Qualcomm stated, "The 'Nuvia CPU'—that is, the products and technologies developed by Nuvia under the Arm license will be incorporated into Qualcomm's extensive product portfolio, powering flagship smartphones, next-generation laptops and digital cockpits, as well as advanced driver assistance systems, extended reality, and infrastructure network solutions."

Arm claims that neither Qualcomm nor Nuvia notified Arm of this transaction in advance, and they did not obtain Arm's consent for the transfer of Nuvia's license.

The lawsuit cites analyst comments stating, "Qualcomm's acquisition of Nuvia is a significant move to expand its scale. The acquisition of Nuvia was very quick in time, and Qualcomm even provided a specific roadmap, which further confirms the importance of this acquisition for Qualcomm to fill the 'lagging' intellectual property design 'gap'."

Using the newly acquired intellectual property from Nuvia, Qualcomm announced that Nuvia's processors will be used in high-end laptops in the second half of 2022. In addition, the schedule also indicates that the design of data center processors will be completed as soon as possible after the acquisition of Nuvia."

Arm believes that this time indicates that the cores designed by Nuvia using Arm technology and intellectual property are actually ready for the final stage of Qualcomm's chip design, which can be quickly realized in product integration and manufacturing. By acquiring Nuvia and transferring the rights and technologies developed by Nuvia under the license without Arm's consent, Qualcomm has greatly accelerated its ability to launch custom-designed processor cores to the market, which is the leading advantage that Qualcomm is willing to pay more than $1 billion to obtain.

Shortly after the merger announcement, Arm notified Qualcomm in writing that Nuvia could not transfer its license, and Qualcomm could not use the product designs developed by Nuvia under the ALA license without Arm's consent. For more than a year, Arm has been trying to reach an agreement on the "process technology" and licensing of Qualcomm's unauthorized acquisition of Nuvia.

At the same time, Qualcomm continues to promote its intentions to bring Nuvia products to the market.

On February 1, 2022, Arm sent a letter to Nuvia and Qualcomm, terminating Nuvia's license, effective from March 1, 2022. The letter also reminded Nuvia and Qualcomm of their obligations to stop using and destroy the Nuvia technology developed under the now-terminated license upon the termination of the agreement.Despite Arm's termination of the Nuvia license, Qualcomm continues to assert that its Nuvia chips will soon join the industry-wide "ecosystem" transition to Arm.

In June 2022, Qualcomm's CEO reiterated that the company will soon begin to provide "samples" of Nuvia chips. Starting from 2024, the industry will see Windows personal computers powered by Snapdragon, featuring CPUs designed by Nuvia.

For the aforementioned series of actions, Arm accuses in the lawsuit:

The past and present breach of contract by Nuvia and Qualcomm has directly caused Arm to suffer irreparable and substantial losses, including but not limited to damaging Arm's global licensing program, misusing Arm's technology, and harming Arm's position and reputation in the industry ecosystem.

Arm demands that Qualcomm comply with the termination provisions of the Nuvia ALA, including ceasing the use and destruction of any technology developed under the Nuvia ALA, ceasing the use of any Arm trademarks related to the technology developed under the Nuvia ALA, including the relevant Nuvia technology, and a series of monetary compensation measures...

Qualcomm countersues

In response to Arm's allegations, Qualcomm is also well-prepared.

The counterclaim states that Qualcomm has its own licensing agreement with Arm, according to which the intellectual property licensed and paid for by Qualcomm is the same as the intellectual property licensed by Nuvia under its separate agreement with Arm. Therefore, despite Arm's termination of the Nuvia license, Qualcomm has an independent license for the same Arm technology and information, enabling it to provide Arm-compatible products to customers for many years in the future—Arm clearly ignored this fact in its lawsuit, attempting to confuse the public with aggressive misinformation. Thus, Arm has no right to demand the destruction of Qualcomm's CPU technology, as Qualcomm's use of Arm technology and information is licensed under its overlapping licensing agreement.

Regarding the acquisition of Nuvia, Qualcomm plans to apply its Phoenix Core to various SoCs, especially for "computing" (such as laptops/personal computers), "mobile" (such as smartphones), and "automotive" (such as digital cockpits) markets, and will also continue to develop SoCs for data centers and servers.

After completing the acquisition, this change in model will mean that Qualcomm will pay lower royalties for these custom CPUs under the Nuvia ALA in the future, instead of higher fees under the TLA.Therefore, Arm began to attempt obstruction. If Arm could not force Nuvia to levy royalties on Qualcomm's customized CPU within Qualcomm's extensive SoC product portfolio, its alternative strategy was to try to prevent Qualcomm from continuing to develop its customized CPU, and even force the purchase of Arm's off-the-shelf CPUs.

Without warning, Arm "unexpectedly" terminated the Nuvia licensing agreement, and Qualcomm did its utmost to distance itself from Arm's "accusations."

Qualcomm stated that Arm insisted, without foundation, that Qualcomm needed Arm's consent to "transfer any design, rights, or licenses under the Nuvia agreement to Qualcomm."

At the same time, in order to obtain Arm's consent, Qualcomm had to: (I) incorporate the much higher patent fees in Nuvia's license into Qualcomm's existing license; (ii) restrict the ability of Qualcomm employees to participate in the design of Qualcomm's customized CPU, so that any individual with access to Arm's confidential information would have to wait at least three years before participating in Qualcomm's "any architecture CPU design"; (iii) discuss and decide on the design transfer fee related to the CPU design transfer; (iv) sign a separate license for the implementation of intellectual property and software tools, which would include another undisclosed "design transfer fee."

Qualcomm believes that the timing of Arm's demands is evident in two aspects:

On the one hand, Arm has been waiting until Qualcomm has spent a year of engineering effort and hundreds of millions of dollars to further develop the core technology of Phoenix and plans to integrate it into multiple SoCs. In addition, Qualcomm has spent $1.4 billion to acquire Nuvia. Arm is trying to maximize any advantage it has to threaten Qualcomm's investment and Qualcomm's SoC roadmap, and to extort excessive fees and royalties.

On the other hand, just three days before Arm publicly announced the failure of the merger deal with Nvidia, Arm terminated the Nuvia agreement, which Qualcomm and many others in the industry opposed. This timing suggests that, to some extent, Arm is seeking revenge against Qualcomm for publicly opposing the Nvidia deal.

On August 2, 2022, Arm told Qualcomm, "Qualcomm is not authorized to manufacture, use, sell, or import products containing designs or derivatives with Nuvia technology." In other words, Arm claims that Qualcomm cannot use any intellectual property, proprietary design, or confidential information of Nuvia, including technology that Arm does not own or develop, which is unfounded. Arm's demands far exceed the scope of Arm's confidential information or Arm's technology. This logic also violates the customary norms of technology ownership, as well as the rights in the Nuvia and Qualcomm agreements with Arm.

In the defense, Qualcomm stated: Qualcomm and Nuvia have not violated Nuvia's ALA or any other licensing agreement. They have not abused Arm's trademark either. Any reasonable interpretation shows that Arm has no right to demand that Qualcomm stop using or destroy technology of Qualcomm or Nuvia.Qualcomm stated that through this lawsuit, Arm has demonstrated to the market that it will recklessly engage in speculative behavior, using the threat of new and innovative product development as a negotiation strategy.

In the nearly hundred-page counterclaim, Qualcomm responded to each of Arm's allegations one by one, but most expressed a denial of the views and suggested that the court refer to the complete pre-research and content of the publications cited by Arm.

Among them, the phrase "The defendant denies the allegations in paragraph ** of the complaint, unless they claim that the statement does not require a response to the legal conclusion," has appeared countless times in the counterclaim content. It seems that Qualcomm has used the "four two thousand catties to move the power of a thousand catties," to resolve most of the allegations, and requested the court to dismiss all claims against them with prejudice, and ordered to provide further relief that the court deems just and appropriate.

Overall, both parties are almost all maneuvering between Nuvia's transfer agreement to Qualcomm and its related interest conditions, repeatedly pulling around the scope, terms, or rights granted by the agreement.

Two commercial companies are playing for interests, and the pros and cons are naturally reasonable for each party, and the complexity of the situation is indeed difficult for the outside world to judge.

However, the key point is the "big news" at the end of Qualcomm's counterclaim document, which mentions that Arm plans to change or try to distort the way of technology authorization, causing an uproar in the industry, and the spearhead has begun to reverse to Arm.

Is Arm changing its business model?

Qualcomm mentioned in the counterclaim that as early as October 2022, Arm falsely claimed to one or more of Qualcomm's long-term original equipment manufacturers ("OEM") customers that they would not be able to obtain Arm-compatible chips from 2025 unless they accepted Arm's new direct license and paid patent fees based on the sales of OEM products.

Arm also threatened at least one OEM manufacturer that if the OEM manufacturer did not do so, Arm would instead license the large competitors of the OEM manufacturer - implying that the OEM manufacturer would be excluded from the market and would not be able to obtain any Arm-compatible chips from Qualcomm or any other supplier, including Arm's "off-the-shelf" chips under the TLA.

Arm also told one or more Qualcomm customers that when the existing TLA agreement expires, Arm will stop authorizing all semiconductor companies under the Arm TLA (including Qualcomm) to authorize the CPU. Arm claims to be changing its business model and will only provide licenses to equipment manufacturers. Arm explained to the original equipment manufacturers that direct original equipment manufacturer licenses will be the only way for equipment manufacturers to obtain Arm-compatible chips.In order to exert greater pressure, Arm further indicated that Qualcomm and other semiconductor manufacturers will also be unable to provide other components of the SoC (such as GPU, NPU, ISP, etc.) to OEM customers, as Arm plans to bundle the licensing of these components with the CPU licensing of device manufacturers.

Qualcomm stated that Arm is attempting to force these customers to accept its direct licensing, falsely claiming that Qualcomm will be unable to provide Arm-compatible chips to them starting from 2025. These statements are undoubtedly incorrect and are intended to damage the relationship between Qualcomm and its customers in order to seek its own substantial profits.

At present, Arm has not announced any modifications to its licensing agreements.

To briefly summarize: Under the usual cooperation model, Arm authorizes its architectural designs and related IPs to chip design companies such as Qualcomm or Nvidia. These companies then produce chips through wafer foundries and sell them to companies that use these chips in servers and other computer terminal devices.

However, documents submitted by Qualcomm in the lawsuit show that Arm is changing its business model. OEM partners will have to purchase licenses directly from Arm and pay royalties based on the sales of OEM products, otherwise, they will not be able to obtain chips compatible with the Arm architecture starting from 2025.

As soon as this rumor emerged, it immediately caused a huge shock in the industry.

On October 28, shortly after Qualcomm's "counterclaim document" was exposed and caused a sensation, Arm sent an email to the media. Arm stated that Qualcomm's complaint "is full of inaccuracies," and Arm will address them in a formal legal response in the coming weeks.

In response, some have pointed out: "If the news is true, the RISC-V architecture may be about to usher in a spring, and all chip manufacturers capable of self-research will join the RISC-V camp; even if the news is false, it will also serve as a reminder to other manufacturers to start investing in the RISC-V environment."

Although Arm may not regard RISC-V as a threat today, as we have observed, with the development of RISC-V, Arm has changed the way it licenses its cores. For example, facing a royalty-free, open, and modular competitor, Arm has taken measures to reduce the upfront cost of its IP licensing in some cases and allow licensees to add custom instructions.In the midst of this turmoil, Arm's industry status has subtly shaken again.

Written at the end

After a round of contention, the lawsuit between Arm and Qualcomm has not yet been concluded.

But the underlying intentions are not difficult to discern, as the saying goes—"The world is bustling, all for the sake of profit; the world is bustling, all for the sake of profit."