This is perhaps one of the more interesting afternoon stories. Arm is suing Qualcomm over Nuvia IP misappropriation and trademark infringement. The basic claim is that Qualcomm does not have a license to develop Nuvia IP after Qualcomm purchased the company for $1.4B. Let me break this down as simply as I can for folks on what is going on.
For those that do not know, I actually have a JD from Loyola Law. When I was 21 years old I was just finishing my MBA and I thought I wanted to be a criminal defense attorney like Johnnie Cochran, Robert Shapiro, Gloria Allred, Mark Geragos, and the folks on TV from that era so I started at Loyola Law in Los Angeles where they all went. It took all of about six weeks of criminal law classes to realize that was not my calling. I ended up graduating but never practicing since after working at a large firm on mostly a very large search engine’s litigation between 1L and 2L, I worked at a big management consulting firm between 2L and 3L. After school, I ended up joining PwC’s management consulting practice. Since I had a JD (again, I never wanted to practice) I found myself working on M&A and divestiture deals specifically working on contracts among other projects often related to technology company legal departments.
While I have never practiced, I spent many years doing the diligence and work that a Qualcomm and Nuvia deal would require with large technology companies in my management consulting role. With that, I have a certain view of what Arm is alleging that may be different from others. This is not legal advice, just my own thoughts.
Also, I am typing this quickly just after the news broke, so please excuse typos. Rushing this one out much faster than our normal pieces.
Arm Sues Qualcomm over Nuvia IP Misappropriation and Trademark Infringement
Let us be clear, this is a complaint. Arm has to set out the reasons it believes it is wronged by other parties (e.g. Qualcomm and Nuvia.) It also needs to provide a basis for those claims, the types of remedies it is seeking, satisfying jurisdiction and venue, and how it would like the claims to be addressed by the court.
Let me break down a bit more on what Arm is alleging in its complaint. All citations herein will be to Case 1:22-cv-01146-UNA Document 1 Filed 08/31/22.
The first part is understanding arm Technology License Agreements (TLAs) or Architecture License Agreements (ALAs):
17. There are two main types of Arm licenses for Arm’s technologies:
Technology License Agreements (“TLAs”), which allow the use of specific “off-the-shelf” Arm processor core designs with only minor modifications, and Architecture License Agreements (“ALAs”), which allow for the design of custom processor cores that are based on particular architectures provided by Arm.
18. Arm grants few ALAs. Custom processor cores can take years to design, at great expense and requiring significant support from Arm, with no certainty of success. If successful, ALA licensees can sell custom processor cores for use in other companies’
19. Arm ALAs typically authorize licensees only to develop processor cores based on specific Arm technology provided by Arm under the licenses, rather than granting broader licenses to use Arm-based technology generally.
Here is the basic premise that Arm is working from. It is saying that while Qualcomm and Nuvia both have ALAs, allowing them to make significant modifications to core architectures, it only provides those licenses and support for those licenses in certain use cases. In the complaint, Arm is basically saying that its licenses tie IP to the company that developed the IP. In this case, Nuvia had an ALA and developed cores based on what Arm provided in that ALA plus Nuvia’s engineering efforts. Nuvia selling data center chips under Nuvia would have been fine under its ALA it seems from the complaint. The wrinkle comes that Nuvia was purchased by Qualcomm.
Qualcomm has not responded yet, but frankly, to get to this point it would be shocking if they did not know it was coming. From Arm’s version of events in the complaint:
37. Soon after the announcement of the merger, Arm informed Qualcomm in writing that Nuvia could not assign its licenses and that Qualcomm could not use Nuvia’s in-process designs developed under the Nuvia ALA without Arm’s consent. For more than a year, Arm negotiated with Qualcomm, through Qualcomm Inc. and Qualcomm Technologies, Inc., in an effort to reach an agreement regarding Qualcomm’s unauthorized acquisition of Nuvia’s “in-process technologies” and license.
This is strongly worded. Reading behind this, Arm basically told Qualcomm that a change-in-control of Nuvia required Arm’s agreement per the ALA. This is common in the industry. Qualcomm decided whatever Arm was asking for to get this agreement was not warranted.
Why is Qualcomm in this Position?
Qualcomm has not responded. My best guess on what they will lean on is:
- Qualcomm has its own ALA and agreements with Arm
- Qualcomm had products like Qualcomm Centriq 2400 (I actually saw a demo of this running before the project was halted) in the data center that Nuvia was targeting
- Qualcomm develops products in other lines as well
- It may claim that Nuvia’s architectural IP is separate from the Arm ALA
- Qualcomm should therefore be able to use its Nuvia acquired IP under the terms of its existing Arm ALAs across product segments
The issue will likely come down to a really interesting argument. Arm seems to be posturing that it provides an ALA licensee with IP and support but that it is doing so with the express knowledge that it is only for that licensee’s use in the licensee’s products. If it is used by another company’s products without Arm’s consent, then it falls outside of the agreement. Qualcomm using Nuvia’s cores without Arm’s consent is thus outside of the ALA.
To give an example, what if Apple decided to give Patrick Co. its M2 cores so I could start a company and make server chips derived from those M2 cores and perhaps my modifications without paying for an Arm ALA. I could then sell my Apple M2-derived server cores to others without paying for an Arm ALA. I would also be competing against Arm Neoverse cores, using Arm’s IP, without holding an ALA. Most would understand why this is an issue.
The wrinkle to the above scenario is that Qualcomm has its own ALA(s). So Qualcomm will likely have to argue that its existing ALAs cover its use of Nuvia’s IP, despite the license grantor’s (Arm’s) claims otherwise.
If Qualcomm’s Arm ALA covers IP it acquires from other companies, then its stance makes sense. Both Arm and Qualcomm are sophisticated multi-billion dollar IP companies. They know how to read contracts. I cannot imagine Qualcomm’s diligence team would not look at the Nuvia ALA as well as its own before spending $1.4B on Nuvia. Perhaps it thought Arm would acquiesce and allow the transfer as part of Qualcomm’s ALA, and that did not happen.
The reason this is a fascinating case is because of what it means for the industry. Arm licenses its IP, and therefore wants to control who has access to it, and where they compete with Arm. That makes a lot of sense.
The license itself is valuable. By limiting who has the license Arm is able to generate value from the IP. If the license was broadly available for free, then Arm’s IP would be near worthless.
Arm is arguing that the IP Nuvia generated stemmed from that ALA, and therefore is not transferrable without Arm’s consent. That makes sense on many levels.
What will probably be interesting to folks is that Arm is saying that the IP developed by Nuvia cannot be transferred, per the Nuvia ALA, without Arm’s consent. If that is the actual text in the change-in-control provision, then Qualcomm will likely either need text in its ALA stating it can acquire Arm ALA licensee IP and integrate it under its own ALA, or convince a jury that it should be covered in this way even if it is not written in such a manner.
Arm Sues Qualcomm over Trademark and False Designation of Origin
Arm has two other claims but these are frankly less interesting. One is saying that due to the lack of proper license post-Nuvia license termination, calling them “ARM” CPUs or technology is not permitted. Arm also contends that this would be a false designation of origin.
Those two are not the main show in this, but Qualcomm will have to respond to them.
Personally, I can see the case for both sides. We do not have the actual ALA contract language in this complaint for both licenses. It is fairly extreme to see Arm sue Qualcomm. Normally this is the type of issue that gets negotiated out of court.
Perhaps the biggest immediate impact is on Ampere. Ampere is developing its next-gen custom core for server CPUs using an Arm ALA. If Arm is successful in its suit against Qualcomm and Nuvia, then Ampere’s prospect of being purchased by another ALA holder may not diminish, but the cost of Arm’s consent to transfer the ALA needs to be baked into the valuation of Ampere.
Also, if Arm wins, and Qualcomm must destroy IP from Nuvia, then it would likely need some mechanism to ensure that Nuvia IP did not “magically” reappear in future Qualcomm products. Since, in theory, Qualcomm is a competitor to Arm using its ALA, then that is not a simple process either.
If Arm loses, then selling ALAs will be an exceedingly risky business. The cost would need to skyrocket as it would no longer have the ability to control the competition using Arm’s own IP to compete against Arm.
Time will tell on this one, but there is one surefire winner in all of this: the attorneys. This is going to be a massive lawsuit.