Tantra Analyst

Coverage of previous days:

Day 1: Opening Statements, CEOs take the stand

Day 2: ALA Commitments and Bloomberg leak in focus

Day 3: Focus on License Rates, Judge’s Questions on Remedy, and XXXXXX

Day 4: More XXXXX, Companies Rest Their Case, and Other Considerations

Summary of Day 5:

The day began with closing statements from the plaintiff, Qualcomm, followed by defendant Arm. Qualcomm’s statement was presented jointly by Karen Dunn and Bill Isaacson. Karen made a rather emotional and animated presentation. The lawyers reiterated the allegations against Arm: 1) Breach of ALA by not offering OOBs and patches; 2) Breach of TLA by not offering the license in a timely manner, and when offered, it was not in good faith, and charged more than 10% of the previous best deal; 3) Interfering with Qualcomm’s business with Meta by sending letters to its customers and leaking its termination letter to Bloomberg. The statement was sprinkled with key highlights and findings from the testimonies, along with the damage claims. Karen also said this was a fight of principles for Qualcomm.

Arm’s closing statement was presented by its lawyer Gregg LoCascio. His presentation was more businesslike, reiterating Arm’s points denying Qualcomm’s claims: 1) Made a rather new argument which was not ever made during the arguments—OOBs and patches are customizations, and are part of the support and maintenance contract, not ALA; 2) TLA didn’t have the option to request license offers after the first year of the contract; even then Arm offered the license in good faith, and Arm didn’t overcharge Qualcomm; 3) Arm’s publicizing of the license letter didn’t harm Qualcomm at Meta, and whatever damage Qualcomm showed was because of other factors. Arm’s statement also included key highlights from the testimony.

The jury received a long, complex verdict sheet with more than 30 questions and options. They spent a few hours deliberating till end of the day and will continue Tuesday.

While the jury deliberated, the bench trial resumed with testimony from Qualcomm economics expert Eric Posner on “Input Foreclosure,” damage expert Patrick Kennedy, and Arm’s Chief Legal Officer Spencer Collins (both sealed). It concluded with testimony from Arm’s economic expert, Timothy Simcoe.

Both Qualcomm and Arm CEOs and their General Counsels were present today, underscoring the case’s importance to both companies.

Key points from Qualcomm’s closing statement:

• Arm withheld OOBs and patches – key deliverables owed to Qualcomm under ALA

• Despite the lack of support, Qualcomm was able to reallocate resources to verify and ship its chips – but this came at a cost in time, salaries, and manpower

• Qualcomm made an Initial Request for a new TLA that Arm failed to respond to promptly and, when offered (for peripheral IP), it wasn’t in good faith

• This caused Qualcomm to postpone and finally cancel chips

• Arm was charging more than 10% of the last best deal for TLA, and switched from Samsung to MediaTek

• Arm stated that it will make money no matter if Qualcomm makes chips or not; other Arm licensees can address the demand

• Arm discussed unwinding its ALA and called Qualcomm an “enemy” during Qualcomm’s Nuvia acquisition

• Arm interfered with Qualcomm’s business with Meta by sending the license cancellation letter to Qualcomm’s customers, including Meta, and leaking the license notice to Bloomberg News, and caused significant harm

• Arm insisted on a distinction between its legal entities: Arm Ltd and Arm Holdings Plc, but Arm’s testimony showed that it’s one Arm, and Rene Haas is its CEO

• Reminded the jury that their decision would be based on the preponderance of the evidence, i.e., whether it is more likely than not that Arm did what Qualcomm alleges. This is a different threshold than “beyond a reasonable doubt,” which is reserved for criminal cases.

• This is a flight of principles for Qualcomm

Key points from Arm’s closing statement:

• OOBs and patches are “custom,” and customizations are not “Arm technology” and part of the support and maintenance contract, not ALA – this is a new argument by Arm and was never used during the arguments. Would be interesting to see how the jury treats this

• Lack of OOBs and patches did not harm Qualcomm – no chip delays, no catastrophic failure, etc.

• Qualcomm’s request for a renewal of TLA was not considered an initial request

• Arm was not obligated to give a TLA offer after 12 months of the initial offer, but offered it anyway; Qualcomm did not show proof of any harm because of this

• That Arm was reasonable in completing its previous best deal analysis by including its “total financial considerations,” and did not overcharge Qualcomm

• Arm did not know about Qualcomm’s relationship with Meta regarding data center chips

• Any delay and alleged harm in Qualcomm’s Meta relationship is because of Meta’s low confidence in Qualcomm’s abilities, and not because of Arm’s letter or publicizing license notice

• This case by Qualcomm was all about payback for Arm suing it (first case) and getting leverage for negotiations

• QC is vigorously pursuing RISC-V

• Hostilities escalated on both sides after Nuvia acquisition

Jury verdict form:

There are really only three questions: 1) ALA breach; 2) TLA breach; 3) Interference. However, because of differing opinions about Arm’s entities (Arm Holdings Plc and Arm Ltd) and multiple products in the claims, the jury form has become ridiculously long, with more than 30 questions (downloadable here).

Key points from economics experts’ testimony:

• Eric Posner presented “Input Foreclosure” analysis of Arm, illustrating that, as an upstream supplier dominating a critical input (the Arm ISA), it can foreclose access to customers (Qualcomm and others) by raising prices or degrading the input

• Arm questioned its lack of market definition, and the dominance of x86, and the judge asked how Arm can foreclose on major players like hyperscalers – Eric replied that the need for power-efficient compute for data centers might give that kind of power to Arm

• Timothy Simcoe testified that Arm was engaging in “coopetition” in which it both cooperates with and competes with companies in the same market. He argued that Arm’s entry into chipmaking would benefit customers by increasing their options and improving quality. Timothy also said that x86 is a competitor to Arm, even though it is only working with Intel/AMD, and that in the long term RISC-V could compete with the Arm ISA as well

• Qualcomm questioned the feasibility of RISC-V becoming a competitor to Arm in the near future

Tantra’s take:

Here is my take on the jury trials, FWIW:

1. On the ALA breach, Qualcomm has made a strong case, except for Arm’s last-minute “customization” argument, which the jury might disregard as they have not heard it before

2. On the TLA breach, Qualcomm has made good arguments, but Arm has brought some interesting questions on motivation, etc., to sow doubt in the jury’s mind

3. On the interference claim, Qualcomm has an airtight case, with solid arguments and proof

Since most of the views I expressed in yesterday’s blog remain unaddressed, I am including them here as a reference and for continuity.

• No clarity on when and how the motion for judgment was moved by Arm will be decided. It seems the jury verdict might nullify that

• Both parties will also present closing arguments in the bench trial tomorrow, which the judge will decide. The biggest issue here is judgment on the v10 license and the rates. This decision will most likely take several months

• If, in this bench case, Qualcomm prevails, then there is an even bigger question about the remedy. The judge is unwilling to arbitrate the license rates. So, there is a lot of uncertainty

• There was a bench trial for this case earlier in the month, where the validity of the remedy mentioned in the contract vis-à-vis California law was debated. The judge has indicated that she will most likely rule in favor of Arm. But she is yet to give an official ruling

• Of course, there is a strong possibility that, no matter which party wins, the losing party will appeal. And that applies to all the cases mentioned above

• Added to that, the appeal for the first case is coming up in the United States Court of Appeals for the Third Circuit later this month.

Keep checking on my social X (@MyTechMusings )and LinkedIn handles to get updates on jury progress and decision, and bench trial and other open issues.