Qualcomm wins a significant battle against Arm in the chips trial.

In a trial in a U.S. federal court, a jury determined that Qualcomm’s central processors are appropriately licensed under a deal with Arm Holdings, which eliminated some but not all of the doubt around the mobile chipmaker’s entry into the laptop market. After a week of courtroom arguments and deliberations, the trial between the two chip titans ended in a mistrial when the jury was unable to decide one of the three questions posed to it. Arm promised to request a fresh trial, while Qualcomm stated that the outcome validated its right to innovate.

After the news, Qualcomm’s (QCOM.O) shares opened higher by 1.8%, while Arm’s shares fell 1.8% in extended trading.

In a statement after the verdict, Arm promised to explore the possibility of a future trial as the outcome leaves the matter open.

Judge Maryellen Noreika, who oversaw the lawsuit in a U.S. district court in Delaware, urged Qualcomm and Arm to resolve their disagreement through mediation.
Noreika informed the parties, “I do not consider either side had a clear victory or would have had a clear victory if this matter is tried again.”

After more than nine hours of discussion over two days, the eight-member jury was unable to reach a unanimous decision on whether startup Nuvia violated the conditions of its license with Arm.

However, the jury determined that Qualcomm, which paid $1.4 billion to acquire Nuvia in 2021, had not violated that agreement.

Additionally, the jury determined that Qualcomm’s chips—which were developed using Nuvia technology and were essential to the company’s entry into the personal computer market—are appropriately licensed under its contract with Arm, allowing Qualcomm to keep selling them.

Qualcomm said in a statement, “The jury has upheld Qualcomm’s innovation rights and confirmed that Qualcomm’s contract with Arm protects all of the Qualcomm devices at issue in the dispute.”

A representative for Arm stated that the firm was “disappointed” that the jury could not “reach unanimity” about the company’s claims and that the company’s intellectual property protection had always been the main objective.

For the time being, the result opens the door for Qualcomm to keep promoting what it refers to as the “AI PC” in laptop chips designed to perform functions like image producers and chatbots. MediaTek (2454.TW), Advanced Micro Devices (AMD.O), and Nvidia (NVDA.O) also want to produce Arm-based chips for that market.

Stacy Rasgon, an analyst at Bernstein, stated, “My major concern was what would happen to the future roadmap if they (Qualcomm) no longer have access to Nuvia (computing) cores.” “At this stage, that risk is much more likely to disappear.”

The main point of contention between Qualcomm and Arm was the royalty rate Qualcomm ought to pay for every chip. Before Qualcomm purchased the fledgling company and integrated its technology into chips under a separate license with Arm at reduced royalties, Nuvia was expected to pay higher rates than Qualcomm.

As Arm chips penetrate the PC market, Ben Bajarin, CEO of tech advisory firm Creative Strategies, stated that Arm’s current growth plans have not relied on obtaining higher prices from Qualcomm.
Bajarin stated, “They have not factored in, via their quarterly (earnings) calls, a win.” “So, their economic upside is unaffected by any of this. It is only a disagreement over the contract.

However, the trial’s success raises concerns about the boundaries of Arm’s technology. Arm supplies off-the-shelf designs for computing cores in addition to licensing its computing architecture to businesses.
Apple (AAPL.O), Qualcomm, and Nuvia are among Arm’s more affluent clients; they license Arm’s architectures but create their unique cores. Arm’s lawyers argued during this week’s trial that the terms of its architecture license with Nuvia allowed them the authority to order the destruction of Nuvia’s unique core designs.

During an interview, Jim McGregor of Tirias Research stated, “This does have consequences for the entire sector.” “Arm cores have been the foundation of everything from satellites to electric toothbrushes, whether you are using a conventional Arm core or creating your own.”