Royalty rates are generally lower under ALAs and higher under TLAs, because the TLA royalties account for ARM’s work in developing complete CPUs, whereas the licensees under an ALA make the significant investment to develop their own CPUs.
With the Phoenix (custom) Core, Qualcomm will begin incorporating more of its own custom CPUs in its products. Qualcomm is making this change because it believes its own innovation will generate better performing cores than ARM’s cores. This paradigm change will mean Qualcomm will in the future pay to ARM the lower royalty rate under its ALA for these custom CPUs, rather than the higher royalty rates under Qualcomm’s TLA.
ARM’s demands for additional payments from Qualcomm made little sense and were inconsistent with Qualcomm’s long-standing agreements. As ARM acknowledges in its complaint, NUVIA was focused on developing a CPU for use in low-volume, high-cost SoCs for the server market, whereas Qualcomm intended to use the technology NUVIA had started developing to build high-volume, lower cost SoCs for Qualcomm’s traditional markets, such as the “mobile” and “compute” markets. For its data center and server products—which would be of a lower volume and higher per-unit cost than, for example, Qualcomm’s higher volume and lower cost mobile products—NUVIA and ARM had negotiated a royalty rate that was many multiples higher than Qualcomm’s rate. ARM’s strategy, in light of Qualcomm’s more favorable terms, has been to ignore Qualcomm’s license rights and royalty rates and attempt to force upon Qualcomm NUVIA’s substantially higher royalty rate established for its server product.
create the illusion of ARM achieving greater profitability—either by effectively strongarming Qualcomm into paying additional, unjustified royalties or through eliminating Qualcomm as a competitor in the custom CPU and server SoC space
At the time of the acquisition, NUVIA and Qualcomm had separate, but broadly overlapping, license agreements with ARM. Qualcomm’s ALA included all the rights granted to NUVIA, as well as additional rights. Both ALAs granted rights to use version 8 of the ARM instruction set architecture, including the ARM [redacted] instruction set architecture (“ISA”) with which the Phoenix Core was compatible. Qualcomm’s ALA is also broader, granting Qualcomm rights to the next generation v9 ISA.
Qualcomm must: (i) incorporate the much higher royalty rates from NUVIA’s licenses into Qualcomm’s pre-existing licenses; (ii) restrict the ability of Qualcomm employees from working on Qualcomm’s custom CPU designs such that “at a minimum” any individual with access to ARM Confidential Information wait three years before working on “any architecture CPU design” at Qualcomm; (iii) “discuss and decide on the design transfer fee associated with such CPU design transfer”; and (iv) enter into a separate license for implementation IP and software tools, which would include another undisclosed “design transfer fee.”
Moreover, to the extent ARM seeks damages, ARM’s damages are limited pursuant to [Redacted] of the ALA
Qualcomm also notified ARM that, to the extent NUVIA was utilizing any ARM Technology not currently covered under Qualcomm’s then-current ALA and TLA, Qualcomm would work with the ARM team to complete any necessary license annexes to cover such items.
ARM’s position is a threat to the industry generally. Unless this Court rejects ARM’s arguments, ARM’s extreme position could be weaponized against all of its licensees, allowing ARM to claim ownership over all its licensees’ innovations.
ARM’s threats are baseless. ARM apparently contends that it has rights over all technology developed at NUVIA, including technology that had absolutely nothing to do with ARM. But ARM has no right to demand destruction of that technology. ARM does not own CPU and/or SoC designs of its licensees, as ARM’s license agreements make clear.
While many in the industry see in this pivotal moment the opportunity for technological advancement, ARM sees an opportunity to strongarm Qualcomm into renegotiating the financial terms of the parties’ longstanding license agreements, using this baseless lawsuit as leverage. With this lawsuit, ARM makes clear to the marketplace that it will act recklessly and opportunistically, threatening the development of new and innovative products as a negotiating tactic, not because it has valid license and trademark claims.
In February 2021, ARM contended that “any transfer of designs, rights, or licenses under NUVIA’s agreements with ARM to Qualcomm will require and be subject to ARM’s prior consent.” ARM insisted, without basis, that Qualcomm needed ARM’s consent to “any transfer of designs, rights or licenses under NUVIA’s agreements” to Qualcomm.
First, it was attempting to secure supplemental payments and royalties for rights for which Qualcomm had already paid or was continuing to pay under its own license agreements. Qualcomm’s license agreements, on their face, make clear that Qualcomm’s use of ARM Technology in connection with the further development of the technology it acquired from NUVIA would be covered by Qualcomm’s pre-existing license agreements. For example, Therefore, NUVIA’s technology was fully licensed under Qualcomm’s license agreements as soon as Qualcomm acquired NUVIA. Nonetheless, and although not necessary, Qualcomm sought ARM’s consent to assign NUVIA’s ARM licenses to Qualcomm.
Second, ARM was claiming a right to control the transfer of NUVIA technology when NUVIA’s ALA provided no such rights to ARM
Third, ARM was trying to interfere with Qualcomm’s business by preventing Qualcomm engineers from working for three years with absolutely no basis for such a demand in NUVIA’s or Qualcomm’s license agreements.
After the acquisition closed, ARM doubled down, asserting that Qualcomm needed to destroy NUVIA’s engineering work and start over unless it agreed to ARM’s demands, including tens of millions of dollars in both additional “transfer” payments and increased royalties.
While the parties had intermittent discussions to resolve the dispute, in or about September 2021, ARM stopped communicating with Qualcomm about the dispute. Meanwhile, throughout 2021 to the present day and with full knowledge by ARM, Qualcomm continued development work on the Phoenix Core and SoCs incorporating the Phoenix Core, as was its right under Qualcomm’s own license agreements with ARM.
First, ARM waited until Qualcomm had expended a year of engineering effort and hundreds of millions of dollars to further develop and integrate Phoenix Core technology into multiple SoCs, in addition to the $1.4 billion Qualcomm spent to acquire NUVIA. ARM was seeking to maximize whatever leverage it had to threaten Qualcomm’s investment and Qualcomm’s SoC roadmap and extract exorbitant royalty payments.
ARM terminated the NUVIA agreements just three days before ARM publicly announced the failure of its merger transaction with NVIDIA—a deal that Qualcomm and many others in the industry had opposed. This timing suggests that, in part, ARM was seeking payback for Qualcomm’s public opposition to the NVIDIA deal.
February 1, 2022 (but not received by Qualcomm until February 4, 2022), ARM terminated, effective March 1, 2022, the NUVIA ALA and TLA license agreements and demanded that NUVIA and Qualcomm destroy all ARM Confidential Information, and certify by April 1, 2022 that they had complied with ARM’s demands. Prior to the February 2022 letter, it had been over six months since ARM last suggested that NUVIA or Qualcomm violated NUVIA’s license agreements. ARM’s demand came out of nowhere, especially as ARM had continued to support Qualcomm in the development of the technology acquired from NUVIA.
on April 1, 2022, NUVIA certified that it had destroyed and quarantined all NUVIA-acquired ARM Confidential Information.
on April 12, 2022, just a few weeks after NUVIA made its certification, ARM accepted test results verifying that the implementation of the Phoenix Core in the Server SoC complied with the requirements necessary to execute the ARM instruction set. ARM confirmed that “Qualcomm . . . has validated their CPU core in accordance with the Verification requirements set out in the Architecture agreement.” ARM explicitly confirmed that the validation testing was conducted under Qualcomm’s ALA. Therefore, ARM was not only well aware that Qualcomm was working on the Phoenix Core under Qualcomm’s license agreements, but ARM also affirmed this work and understood that Qualcomm had implemented of the ISA.
ARM explicitly told regulators in December 2021, in connection with the proposed NVIDIA acquisition, that technology created by its ALA licensees belongs to the licensees, not ARM, stating: “architectural licensees do not use ARM’s CPU designs. ARM architectural licensees create their own proprietary CPU designs using their own engineering teams.” ARM specifically referred regulators to Qualcomm’s acquisition of NUVIA as an example of Qualcomm’s efforts to create its own proprietary CPU.
Qualcomm is licensed to use ARM Technology in connection with Qualcomm’s CPU core technology, even if any aspects trace back to NUVIA’s work.
Rather than litigate its case in court, ARM attempted to maximize the negative impact of its filing this lawsuit by campaigning with members of the media and customers to generate additional publicity for ARM’s positions.
Qualcomm explained that ARM’s demand that Qualcomm pay the NUVIA licensing rates was not appropriate because “ARM has not proposed giving Qualcomm any additional rights or benefits in exchange for” its demand for additional payments and because there was no contractual support for ARM’s imposition of NUVIA’s royalty rates on Qualcomm.
Qualcomm also explained that ARM’s proposed restrictions on Qualcomm’s engineers were inappropriate, as the proposed three-year restriction period would make it nearly impossible to develop products, thus endangering Qualcomm development work and would adversely impact ARM through the loss of licensing revenue.
in July 2021, ARM delivered to Qualcomm four design-only licenses for Qualcomm internal testing. It also delivered to Qualcomm twelve single-use licenses, allowing the development of a single chipset design using the licensed ARM Technology. Subsequently, in October 2021, ARM delivered three perpetual licenses allowing for use of some of that same ARM Technology in unlimited designs. Like other licenses from ARM, Qualcomm paid for these licenses.
Moreover, ARM waited to terminate the NUVIA agreement until Qualcomm had already completed the design of the Phoenix Core for its Server SoC—and even after ARM had accepted Qualcomm’s core design as ISA compatible.
Qualcomm and NUVIA removed NUVIA-acquired ARM Confidential Information from its designs and redesigned its products to replace it with information acquired under Qualcomm’s license—even though it was the exact same information—then quarantined a copy. Qualcomm also removed NUVIA-acquired ARM Confidential Information from its design environment and systems and quarantined it.
During this period, Qualcomm’s engineers were not working on further development of products because their attention was focused on the removal of NUVIA-acquired ARM Confidential Information.
Similarly, in May of 2022, Qualcomm received an email from ARM stating that the Compute SoC—which integrated technology acquired from NUVIA and was first developed after Qualcomm’s acquisition of NUVIA—had passed all relevant tests and was ARM-compatible. Yet, ARM’s engineering team noted that it could not yet send a formal compliance waiver because ARM’s legal team was withholding it.
Since filing the Complaint in this case on August 31, 2022, ARM has persistently and wrongfully attempted to disrupt Qualcomm’s business and customer relationships by spreading misinformation about the nature of Qualcomm’s ARM licenses to customers that purchase Qualcomm’s ARM-compatible cores and chipsets.
ARM has engaged in this misinformation campaign directly through its leadership and through the leadership of its owner, SoftBank, acting on ARM’s behalf, in an attempt to damage Qualcomm, disparage its products, disrupt Qualcomm’s relationships with its customers, and create uncertainty where there is none.
At least as early as October 2022, ARM falsely stated to one or more of Qualcomm’s longstanding original equipment manufacturer (“OEM”) customers that unless they accept a new direct license from ARM on which they pay royalties based on the sales of the OEM’s products, they will be unable to obtain ARM-compliant chips from 2025 forward. ARM has also threatened at least one OEM that, if the OEM does not do so, ARM will go on to license the OEM’s large competitors instead—the implication being that the OEM would be excluded from the market and could not obtain any ARM-compliant chips from Qualcomm or any other supplier, including “off-the-shelf” chips from ARM under a TLA. ARM has done this despite already having approached the OEM’s competitors with a direct licensing offer, while acting as if ARM would only approach the competing OEMs if the threatened OEM declined the license in the first instance.
ARM also told one or more Qualcomm customers that, when the existing TLA agreements expire, ARM will cease licensing CPUs to all semiconductor companies—including Qualcomm—under an ARM TLA. ARM claimed that it is changing its business model and will only provide licenses to the device-makers themselves. ARM has explained to the OEMs that a direct OEM license will be the only way for device-makers to get access to ARM-compliant chips.
ARM is trying to coerce such customers into accepting its direct license by falsely asserting that Qualcomm will not be able to provide them with ARM-compliant chips beginning in 2025 because Qualcomm’s ARM license agreements terminate in 2024, that ARM will not extend its licenses with Qualcomm, and that ARM will not allow Qualcomm to ship products from 2025 forward.
These statements are unequivocally false and are intended to harm Qualcomm’s relationships with its customers—and to secure lucrative contracts with those customers for ARM—by calling into question Qualcomm’s ability to maintain its ARM licenses beyond 2024 and provide products to its customers, despite Qualcomm having a clear right to do so for years to come under its ARM licenses.
Qualcomm is licensed for several years past 2025 under its ALA, which provides Qualcomm with the unilateral right to extend the contract past the initial term for several more years. Specifically, the ALA states:
Accordingly, because the Qualcomm ALA has not been terminated—and because no event has occurred that would give rise to a right to terminate—the initial term of the license will continue until [REDACTED]. Qualcomm then has the right to extend the license until [REDACTED]. Accordingly, ARM does not have the right to refuse to extend Qualcomm’s license or stop Qualcomm from shipping its products in 2025.
Moreover, ARM has no right to require additional royalties from Qualcomm’s customers. Qualcomm’s ALA provides Qualcomm with an exhaustive license, meaning that ARM is not entitled to go and seek another royalty from Qualcomm’s customers on the same products for which ARM has received a royalty from Qualcomm.
ARM’s coercion efforts did not stop with these false statements about Qualcomm’s license agreements. To apply more pressure, ARM further stated that Qualcomm and other semiconductor manufacturers will also not be able to provide OEM customers with other components of SoCs (such as graphics processing units (“GPU”), neural processing units (“NPU”), and image signal processor (“ISP”)), because ARM plans to tie licensing of those components to the device-maker CPU license.
ARM also claimed that it had already informed Qualcomm about its new business model that requires a direct license with the OEMs. That statement is false. ARM has not notified Qualcomm that it will be requiring direct licenses from device-makers. ARM did not tell Qualcomm that it intends to stop licensing CPU technology as a standalone license, that it will no longer license CPU technology to semiconductor companies, or that it will require licensees to obtain other technologies (notably ARM’s GPU and NPU technology) only from ARM. As noted above, these attempted or threatened changes in ARM’s business model do not account for Qualcomm’s existing agreements with ARM.
While ARM’s statements about Qualcomm have no basis in fact, they cause significant reputational damage and harm Qualcomm’s customer relationships. Moreover, while ARM’s goal may be to harm Qualcomm—and to coerce contracts with Qualcomm’s customer that are unnecessary in view of the fully exhaustive rights it has granted Qualcomm under its contracts—its tactics will result in harm to ARM’s customers and licensees throughout the industry.
Qualcomm’s use of any ARM Technology utilized in NUVIA’s technology was fully licensed under Qualcomm’s license agreements as soon as Qualcomm acquired NUVIA.
There are no provisions in either the NUVIA-ARM agreements or the Qualcomm-ARM agreements that:
a. prohibited Qualcomm from purchasing NUVIA or acquiring NUVIA’s technology;
b. required Qualcomm to obtain ARM’s consent to purchase NUVIA or access NUVIA’s technology;
c. mandate that Qualcomm stop using any NUVIA technology it acquired;
d. mandate that Qualcomm destroy NUVIA’s technology;
e. prohibit the transfer or disclosure of NUVIA’s technology or confidential information to Qualcomm;
f. limit the use of NUVIA technology only to NUVIA; or
g. require Qualcomm to obtain ARM’s consent to further develop any in-process
h. designs or technology that Qualcomm acquired from NUVIA.
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