Tantra Analyst

Coverage of previous days:

Day 1: Opening Statements, CEOs take the stand

Day 2: ALA Commitments and Bloomberg leak in focus

Summary of Day 3:

Today was the most interesting day in the trial so far. So many things happened today. I witnessed some, but others were inside a sealed courtroom. The most interesting and likely consequential was Rene Haas’s testimony during a bench trial (without the jury), during which Judge Noreika asked Rene how she should believe his testimony that Arm wanted to work with Qualcomm to fight against the common enemy x86, in the wake of such negativity in the evidence presented (e.g., mentions of “enemy, ending ALA etc.). Many interesting nuggets of information were also revealed during that testimony.

During a break, the Judge also asked Qualcomm what remedy it would seek if it won the ALA/TLA breach claims. She made it clear she would not be interested in setting the royalty rates. Qualcomm’s lawyer promised a comprehensive reply tomorrow. 

Another interesting point was that the courtroom was sealed several times at the request of Meta, Apple, Samsung, and Renesas’ representatives, including during testimony about the harm Qualcomm claimed at Meta.  The reps from Apple, Samsung and Renesas came forward, identified themselves, and requested the sealing (Hence the xxxxxxxxx in the title!). 

Apart from that, today’s discussion focused mostly on how Arm calculated the licensing rates for the offer it presented to Qualcomm, the harm Qualcomm claims Arm’s letter and the Bloomberg leak created at Meta, Arm’s view on the ALA licensing process, and more. The testimonies included Arm’s chief legal officer Spenser Collins, licensing rate expert Karthik Shivashankar, Qualcomm’s advisor Jonathan Wisner, Meta account lead Pavan Mulabagal, and, of course, the final session of Rene Haas.

Key points from Rene Haas’s Testimony (continued):

• Some companies with v10 license (could be more)

Apple – Started in 2023, didn’t remember the duration

Nvidia – Started in Sep 2020, lasts for 20 years; Was part of the acquisition breakup fee settlement

• Qualcomm lawyer talked about the gravity of the v10 license to Qualcomm, and emphasized how important it is for Qualcomm to continue to be competitive in the marketplace

• Qualcomm lawyer tried to get information about Apple’s ALA rates using an article from The Information, as well as other means, but was not successful

• Rene said that the ALA contract is a long process, and starts with understanding what products customers want to build, what markets they want to serve, what the duration is, etc.

• Don’t have any ALAs with MFN (Most Favored Nation) pricing, only TLAs

• Talked about the meeting with Cristiano. He thought it was for the settlement, but it turned into a royalty discussion. Cristiano offered segment-based rates, etc. But replied that’s not how Arm discusses ALA contracts

• 2013 rates can’t be the basis for ALA renewal, because the market landscape has substantially changed, and rates offered to Qualcomm were fair

• Estimated the Nvidia chip (RTX Spark) used in Microsoft Surface laptops announced today is in the $400 range

• Said they can’t be beholden to FRAND rates, as Arm IP is not industry standard, and Arm is the sole decider of licensing rates

• Interaction with the Judge on the outcome of meeting with Cristiano and the discussion mentioned above; Arm’s lawyer clarified that most of the negativity was from the Nuvia acquisition time

• Qualcomm’s lawyer asked if Arm is expecting 2/3^rd of its revenue in 2031 from its chips business, wouldn’t it be competing with its own customers who make chips (based on Arm ISA)?

Key points from Karthik Shivashankar’s testimony :

• Licensing/commercial expert who worked on the contracts that were offered to Qualcomm

• Agreed that the offer has to be within 10% of the next best rates

• Samsung was used as the next best rate; disagreement with the Qualcomm lawyer on what was stated during deposition vs. today’s testimony

• Big difference between the rates calculated from a workbook and the final rates offered; the rates offered were based on total financial considerations and adjustments

• No numeric formula for these considerations. Seemed subjective

Key points from Spencer Collins’ testimony:

• Instructed Richard Grisenthwaite to stop Qualcomm support

• One Arm, and Rene Haas is CEO of Arm group, no reason to confuse between different legal entities

• Was responsible for the license termination letter and authorized FPS Global to show the letter to Bloomberg News

• The notice was not about termination, but the intent to terminate

• Arm had not made up its mind to terminate the contract; Was hoping Qualcomm would cure the breach, and termination may not be needed

Key points from Jonathan Wisner’s testimony:

• He was leading the legal team supporting the ALA and TLA negotiations in 2013

• The option of requesting a second offer for the licenses within a 12-month time was included in the contract for price guarantee purposes

• Once the license notice became public, Meta was overly concerned about the effect on its own products. It had to be consoled with the fact that its AR/VR/XR products were using TLA and were not affected by the notice

Pavan Mulabagal’s entire testimony was behind closed doors (sealed courtroom), hence couldn’t hear any of it. Based on his responsibilities and the initial questions, it was mostly about the harm Qualcomm is claiming because Arm publicized the license notice. The claimed harm is mostly on the data center business side. 

Tantra’s take:

The most important part of this case is about Qualcomm’s complaint about inability to get v10 license at a rate it deems acceptable. The judge, not the jury, will decide that claim. Although she clearly said she has not yet made any decision, the fact that she is thinking about remedies and questioning Arm’s CEO about the negativity is significant and somewhat revealing.

An even bigger thing is her lack of interest in being the arbitrator of “fair” rates. We will see what Qualcomm proposes tomorrow.

Note that the decision on the jury trial might be sooner, right after the closing statement. But the bench trial decision, which the Judge has to make, will probably take much longer. The closing statements are only the starting point for that process.

Be sure to come back here tomorrow to read about Day-4’s highlights.