A contentious legal fight between Arm and Qualcomm over intellectual property rights is sending shockwaves throughout the chip industry, and for a good reason: the dispute highlights the complicated supply chain, the often-misunderstood value of IP, and sky-high stakes involved in chip production. This production is driven by a massive chip ecosystem built on a shared success model between Arm and more than 500 chip makers who are combining to ship nearly 30 billion chips yearly. It's the very reason it's critical to protect IP and the ecosystem that relies on it.
Adding to the corporate drama, the legal dispute comes right as the U.S. government takes historic steps to invest in industry onshoring and impose heavy restrictions on Chinese access to cutting-edge technology, given its history of forced partnerships and IP breaches.
Such context is important when analyzing the dispute and understanding the issues that are genuinely at play beneath the salacious accusations, corporate theatricality, and rote recitation of intellectual property law. At its core, the lawsuit, initially brought by Arm against Qualcomm back in August, is about trade secrets and international security.
The U.S. government understands that there is a link between IP and national security. As stated in a Congressional report from October 2020, "the possibility of intellectual property loss due to the need to share details of chip design and production" has "raised national security concerns."
In part, these concerns underpinned many of the Biden administration's recent moves to bolster onshore chip production leading to the current $100 billion public-private investment deal involving Micron Technology and New York State. It is not difficult to understand the risks to American national security and economic prosperity, nor that of its closest allies.
The Arm/Qualcomm dispute originated after ex-Apple, and Google engineers founded the chip startup Nuvia in 2019. Arm then granted a license to Nuvia, enabling it to use Arm's chip architecture so that Nuvia could design its cores. These licenses – Arm's product by which the industry's semiconductors are built – are legally complex and relatively rare. The Financial Times says Nuvia was one of roughly a dozen companies with this type of license from Arm, known as an Architecture License Agreement (ALA).
The trouble began when Qualcomm acquired Nuvia in 2021, which started negotiations between Arm and Qualcomm over the proper use of the technology built on Arm IP. Arm claims that Qualcomm had a contractual obligation to obtain Arm's prior consent to transfer Nuvia's license to Qualcomm – a standard contract provision found in corporate licensing agreements in nearly every industry. Because that did not happen, Arm is asking that the terms of the contract be upheld such that all technology developed under its licensing be destroyed even after a year of negotiations.
That last point is key: Arm is not seeking damages but rather the destruction of IP, which explains why Arm is taking this otherwise surprising and borderline antagonistic action against an industry force with a longstanding business relationship on chips. As always, it is important to take a big-picture perspective.
Leave aside the particulars of this specific case, and a clearer picture emerges: a startup working on an Arm licensing agreement to develop chips was acquired by a larger company. During that acquisition, neither party adhered to the contractual requirement to obtain Arm's consent to transfer the license. As a result, the acquiring company may now have access to significant intellectual property and proprietary technology blueprints it should not have. This perspective clarifies the stakes.
Imagine, for example, that the startup in question is based in another country like Israel, Taiwan, or South Korea. Although it is plausible, you'd be hard-pressed to find a country with a significant chip ecosystem without Arm being a player. Now, imagine that a company acquires this startup with ties to an individual or government on the U.S. sanction list.
In this scenario, the Committee on Foreign Investment in the United States (CFIUS) has no authority, nor would the U.K. government, where Arm is based. The situation would present an obvious security risk – and it is no secret that U.S. policymakers have tried to prevent scenarios like it.
The real motivations are clear when placing the Arm/Qualcomm corporate battle in this context. Arm understands these risks and recognizes that the private sector has a role in maintaining physical and economic security. Arm also knows its actions against Qualcomm could potentially cause some short-term financial pain and confuse some domestic analysts.
Short-term losses are a small price to pay for a loud signal to international actors in the semiconductor industry that intellectual property violations are serious and industry-standard contractual provisions protecting that IP needs to be respected. The industry now knows that Arm supports its licenses under any circumstances – even when the opposition is a business partner otherwise. It is, in other words, a strategy of deterrence.
American policymakers and their allies across the globe certainly understand the importance of IP protection in the chip industry. Arm, it appears, does too. And for that, we should all be glad.
