(This Dec. 16 story has been refiled to add Arm CEO’s full name and designation in paragraph 7)
By Tom Hals and Max A. Cherney
WILMINGTON, Delaware (Reuters) - The chief executive of Arm on Monday downplayed the company's ambitions to become a chip supplier in its own right at a trial against Qualcomm (NASDAQ:QCOM), a major customer that pays Arm an estimated hundreds of millions of dollars per year.
The crux of the litigation is a clash over Qualcomm's license agreement for the use of Arm's intellectual property following Qualcomm's $1.4 billion acquisition of chip startup Nuvia in 2021.
The remedy Arm is seeking in the case is the destruction of Nuvia's designs, which it alleges form the basis of the low-powered AI PC chips that Nuvia's executive team helped Qualcomm design. Microsoft (NASDAQ:MSFT) and others expect those chips, launched earlier this year, will help the Windows operating system regain ground lost to laptops made by Apple (NASDAQ:AAPL).
Arm is central to the chip industry, licensing out underlying technology to almost every company in the industry as a neutral player. The British firm alleged that Qualcomm was required to honor Nuvia's royalty rates for the chip designs it was using in Qualcomm's chips, rather than paying Qualcomm's much lower rates.
At the trial in U.S. federal court in Delaware on Monday, jurors were shown documents that indicated Nuvia's royalty rates were "many multiples" more than Qualcomm's, and allowing Qualcomm to pay the lower rates would have damaged Arm's business model.
Qualcomm's acquisition of Nuvia potentially trimmed $50 million from Arm revenue, according to estimates in internal documents that were shown to the jury.
"We've never had an issue like this," Arm CEO Rene Haas told the court.
During a cross-examination of Haas, Qualcomm's attorney tried to portray the royalty dispute with Qualcomm as part of a strategy for Arm to confront a customer that it increasingly viewed as a competitor.
Qualcomm's legal team showed a document that Haas prepared for Arm's board outlining a strategy for Arm to start designing its own chips, which would pit it against Qualcomm and other Arm customers.
Haas was dismissive of the documents. He said that Arm doesn't build chips and never got into the business but said he is always considering various possible strategies.
"That’s all I think about, is the future," he told the eight-person jury.
Qualcomm's attorneys also questioned Haas over letters that Arm sent to dozens of Qualcomm's customers, including Samsung Electronics (KS:005930). The letters said the Arm dispute could result in the forced destruction of Nuvia technology, against Qualcomm's demands.
A Qualcomm attorney called those letters "misleading" and many chip industry insiders have wondered whether Arm's appetite for destruction would disrupt Qualcomm's ability to supply chips to the PC industry.
"I felt we had a reason," Haas said. "We were getting lots of questions from partners and customers at almost every meeting with senior executives."
Arm is expected to call its final witnesses on Tuesday and show some video from depositions before it rests. Qualcomm might call its CEO Cristiano Amon.
The judge indicated on Monday that the jury might begin deliberations as soon as Thursday.
Arm has not asked for monetary damages. According to Bernstein analyst Stacy Rasgon, Qualcomm pays Arm roughly $300 million a year in fees.
Britain-based Arm is owned by SoftBank Group, which listed Arm in the U.S. in 2023.