(Bloomberg) — Arm Holdings Plc (ARM) is canceling a license that allowed longtime partner Qualcomm Inc. (QCOM) to use Arm intellectual property to design chips, escalating a legal dispute over vital smartphone technology.
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Arm, based in the UK, has given Qualcomm a mandated 60-day notice of the cancellation of their so-called architectural license agreement, according to a document seen by Bloomberg. The contract allows Qualcomm to create its own chips based on standards owned by Arm.
The showdown threatens to roil the smartphone and personal computer markets, as well as disrupting the finances and operations of two of the most influential companies in the semiconductor industry.
Qualcomm shares fell about 5% in premarket trading on Wednesday after closing at $173.18 in New York on Tuesday. Arm dropped about 1.1% before US markets opened after previously closing at $152.58.
Qualcomm sells hundreds of millions of processors annually — technology used in the majority of Android smartphones. If the cancellation takes effect, the company might have to stop selling products that account for much of its roughly $39 billion in revenue, or face claims for massive damages.
The move ratchets up a legal fight that began when Arm sued San Diego-based Qualcomm — one of its biggest customers — for breach of contract and trademark infringement in 2022. With the cancellation notice, Arm is giving the US company an eight-week period to remedy the dispute.
Representatives for Arm declined to comment. A Qualcomm spokesperson said the British company was trying to “strong-arm a longtime partner.”
It “appears to be an attempt to disrupt the legal process, and its claim for termination is completely baseless,” the spokesperson said in an emailed statement. “We are confident that Qualcomm’s rights under its agreement with Arm will be affirmed.”
The two are headed to a trial to resolve the breach-of-contract claim by Arm and a countersuit by Qualcomm. The disagreement centers on Qualcomm’s 2021 acquisition of another Arm licensee and a failure — according to Arm — to renegotiate contract terms. Qualcomm argues that its existing agreement covers the activities of the company that it purchased, the chip-design startup Nuvia.