Why Arm and Qualcomm's legal battle could have big implications for the chip world

• Arm and Qualcomm are heading to trial this week in Delaware after two years of legal disputes.
• The legal battle over a licensing agreement puts Arm in conflict with one of its largest customers.
• The trial could have big implications for the entire chip industry, from M&A to IP.

A legal battle between two of the world's biggest chip companies, Arm and Qualcomm, is heading to trial this week — and its outcome could have wide-ranging consequences for the entire industry.

The jury trial in Delaware, starting Monday, is the result of a two-year fight between the two major chip companies. The dispute centers on a licensing arrangement connected to Qualcomm's $1.4 billion acquisition of chip startup Nuvia in 2021.

The fight has put Arm in conflict with one of its largest customers. Qualcomm pays Arm roughly $300 million a year in fees, Reuters reported, citing Stacy Rasgon, a senior analyst at Bernstein Research.

The trial is expected to last until Friday, with each side given 11 hours to present its case. It is set to include testimony from the CEO of Arm, Rene Haas, the chief executive of Qualcomm, Cristiano Amon, and the founder of Nuvia, Gerard Williams.

The legal battle

Arm first filed the lawsuit against Qualcomm in August 2022, alleging a breach of contract and trademark infringement.

The suit revolved around Qualcomm's 2021 acquisition of Nuvia, a chip design startup.

Nuvia had a license to use Arm's architecture to design server chips before Qualcomm acquired it. After the deal closed, Qualcomm reassigned Nuvia engineers to work on a laptop processor. Arm claims that Qualcomm failed to properly transfer the license after the acquisition.

Arm has argued Qualcomm should have renegotiated the licensing agreement because it had different financial terms with each company. Arm, which is majority-owned by SoftBank, has accused Qualcomm of continuing to use its intellectual property in products designed with Nuvia's technology despite not having the required licensing agreements.

In response, Qualcomm has said its existing license with Arm is sufficient and countersued the company, accusing Arm of overstepping its rights. Qualcomm has also said the lawsuit is harming its business and ability to innovate.

Haas addressed the case in a recent interview with The Verge's Alex Heath.

"I can appreciate — because we talk to investors and partners — that what they hate the most is uncertainty," the Arm CEO said. "But on the flip side, I would say the principles as to why we filed the claim are unchanged."

The company has previously said the lawsuit was a last-resort move to protect its intellectual property.

Arm is not seeking monetary damages from Qualcomm but is asking it to destroy any products built using Arm's IP without proper licensing.

Consequences for the chip industry

The trial could have ramifications for IP licensing agreements, mergers and acquisitions, and contract law in the tech industry, wrote Jim McGregor, a principal analyst and partner at TIRIAS Research, in an article for Forbes.

"In addition, it will have an impact on the entire electronics ecosystem, especially each party's supply chains and customer bases," he continued.

Arm and Qualcomm are longtime allies, and the trial is an unusual escalation for two companies so closely tied together.

"It's really not in either of their best interests to go nuclear," Rasgon told The Financial Times. "I think it would make sense to see a settlement — they need each other."

The case could also disrupt a wave of AI computers. Arm said in June that Qualcomm used designs based on Nuvia engineering to create new low-power AI PC chips, which launched earlier this year. Should Arm win the legal battle, it could halt shipments of laptops made by partners — including Microsoft — that contain disputed Qualcomm chips.

Representatives for Arm and Qualcomm did not immediately respond to a Business Insider request for comment.