M&A
September 5, 2022
5 minutes read

Chip Design Giant Arm Sues Qualcomm For Alleged Contract Breach

There’s a major tussle between Arm, the British chip design firm; Qualcomm, an American chipmaker; and Nuvia, a Qualcomm subsidiary.…

There’s a major tussle between Arm, the British chip design firm; Qualcomm, an American chipmaker; and Nuvia, a Qualcomm subsidiary. Qualcomm paid $1.4bn to acquire Nuvia in 2021, barely two years into the startup’s existence.

Here’s a rundown of the lawsuit filed in a Delaware district court;

Arm licensed its intellectual property (chip designs) to Nuvia, but its sale to Qualcomm breached the terms of its Arm agreement, leading the British company to terminate the licenses. Arm claims that Nuvia has continued to use those licenses for its product development efforts in violation of the former’s trademarks.

Thus, Arm is seeking a court order for Qualcomm and Nuvia to cease using its intellectual property and scrap any products based on them.

This lawsuit is consequential given that Qualcomm aims to use Nuvia’s processor designs to compete with Apple’s chips for iPhones and Mac desktops and possibly set foot in the lucrative server chip market dominated by Intel and AMD. Nuvia was founded by former Apple chip designers, including a senior director whom Apple sued for breach of contract for his work on the startup.

If the court rules in Arm’s favor in this lawsuit, it’ll set back Qualcomm’s expansion plans to a considerable extent.

Arm claims that Qualcomm, despite acknowledging the termination of Nuvia’s licenses, used Arm’s intellectual property to develop a new chip for PCs that it planned to release this year. It also claims that Qualcomm’s ongoing work on data center chips is likely “based on or incorporates” technology developed under Nuvia’s now-terminated license.

In March last year, Qualcomm paid $1.4bn for Nuvia, a two-year-old chip startup with no product on the market. The high price pointed at Qualcomm eyeing something crucial in the startup; expertise and intellectual property.

For years, Qualcomm’s attempts to build custom processors based on Arm technology have faltered. In 2018, it laid off the majority of employees working on Centriq, an Arm-based server chip, and canceled the project which employed over 1,000 people at its peak. With Nuvia, Qualcomm apparently sensed another opportunity to develop an ARM-based product and paid big bucks to secure it.

But, this lawsuit poses yet another major roadblock to Qualcomm building processors based on Arm’s designs. Both companies will have to battle it out in court or work toward an out-of-court settlement. If Qualcomm loses in court, it could switch to RISC-V, an open-source alternative to Arm’s designs, but that would still mean losing years’ worth of research and development efforts spearheaded by Nuvia.

Arm is owned by SoftBank, a Japanese technology conglomerate, which paid $31bn to buy the company in 2016. In 2020, SoftBank agreed to sell Arm for $40bn to Nvidia, an American chipmaking titan, but antitrust pushback put an end to the agreement.