Arm vs Qualcomm – No Score Draw

The end of the road is v10.

• The case has ended in what looks like a no-score draw, with Qualcomm winning only 2 out of 6 of its claims against Arm and getting nominal damages, but it opens a way for Qualcomm to spike Arm’s guns in the real battle to come: the v10 licence.
• Both companies immediately claimed victory, with Arm rightly stating that it had won 4 and no real damages had been awarded on the claims that it lost and Qualcomm stating that Arm’s misconduct has now been proven.
• When two sides can both lay claims to a victory, it is obvious that the result is a draw.
• To the non-lawyer and an outside observer, this looks like the end of the road being reached with no one winning, no material damages being awarded, and everyone going their separate ways.
• This would be an excellent time to let bygones be bygones (as Apple has done), kiss and make up and begin working together again to further the reach of the Arm-based device ecosystem.
• Unfortunately, this is not the case, as at some point in the future, Qualcomm is going to need to negotiate a new licence with Arm, and here there is nothing to stop Arm from being as difficult, expensive or as unreasonable as it wants.
• Qualcomm currently has a licence for the 9^th version (v9) of Arm’s instruction set architecture (ISA), for which Qualcomm is licensed until 2028, but has an option to extend until 2033.
• However, it does not have a licence for v10, and at some point, it is going to need one, and this could be a real problem with the way things stand between the two companies right now.
• Arm’s IP is not standard essential IP, which means that when it comes to licensing, it does not have to meet the fair, reasonable, and non-discriminatory (FRAND) requirement when issuing its IP licenses.
• Hence, it can be as unfair, unreasonable and discriminatory as it wants in its dealings with Qualcomm, which has been a problem on the back burner but looming for the last few years.
• This is where the two counts (breach of its Architecture Licence Agreement and intentional interference with a customer) that Qualcomm won come into play.
• There are other matters that were not part of the jury trial but will be decided by a judge, where the two findings above could have significant bearing.
• I suspect that the endgame for Qualcomm is not a fat cheque but an injunction against Arm that will preclude it from continuing the activities that led to the two claims that Qualcomm won.
• This would make it far more difficult for Arm to treat Qualcomm differently from any other licensee without breaching the terms of the injunction, greatly increasing Qualcomm’s negotiating leverage when it comes to a v10 licence.
• This would not be negative for Arm as it would not affect its revenues or profits in any material way, but it would help fix a potentially very serious problem for Qualcomm.
• I continue to think that the real winners in this whole fracas are the lawyers and the x86 camp, which is benefiting from reduced competition from Arm and Qualcomm working together as they have done in the past.
• None of this affects the forecasts that Qualcomm raised at its analyst day in June, meaning that whatever happens, the shares are still trading at a very attractive valuation.
• Qualcomm remains the only stock that has not had a very large upside move due to the AI boom, meaning that there is more upside in the shares than there is for anybody else.
• I continue to have a large position in Qualcomm, pretty safe in the knowledge that one of these days the market will get it.