Bloomberg Law
May 17, 2023, 8:00 AM

A Vibrant Semiconductor Market Is a National Security Priority

Eric Miller
Eric Miller
The Wilson Center

Semiconductor chips power technology that runs the world, but the US let much of the chip industry migrate to Asia—in the last 30 years, the US share of global chip manufacturing capacity has fallen 37% to 12%. Without manufacturing, design increasingly left as well.

With the passage of the Chips and Science Act of 2022, the US is attempting to accelerate its semiconductor industry. The $52.7 billion public investment in the chips sector is expected to leverage up to $500 billion in research, design, and manufacturing. Tens of billions of dollars in investments in the sector have already been announced, spreading from Phoenix to New York.

If successful, that law and other similar investments in the marketplace could ultimately return America to the heart of the global semiconductor manufacturing ecosystem—for established chip designs and those on the cutting edge. But for these investments to work long term, US innovation needs to function optimally.

The innovation system tends to marry significant public investments on the front end with dynamically contestable markets as they mature. The linchpin in the commercialization of any technology is robust intellectual property protection. Respect for these rights is fundamental to giving innovators the confidence to invest in deployment and improvement of their technology over the longer term.

As the historic investment in semiconductor onshoring unfolds, this core principle can’t be abandoned. Yet a contentious lawsuit could have major economic, geopolitical, and national security implications.

The case involves two industry leaders: Arm and Qualcomm. Arm is a leading provider of semiconductors for computer processing. It makes money from two primary sources: fees for licensing its technology to partners and royalties once its chips are deployed in a device.

In 2019, Arm issued licenses to Nuvia, a Silicon Valley firm started by former Apple and Google technology architects. These licenses allowed Nuvia to use Arm-designed microprocessor cores and gave Nuvia the tools needed to build its own designs based on the Arm architecture.

The trouble began when Qualcomm, a leading global chip firm, purchased Nuvia in 2021. Arm was concerned about Qualcomm misusing the intellectual property Arm had licensed to Nuvia. First, Arm’s lawyers reportedly told Qualcomm that it couldn’t use any related patent without its approval. Arm then reportedly tried without success to negotiate an agreement with Qualcomm for use of its technology in Nuvia products that were already in train. These efforts failed.

Ultimately, Arm canceled the licenses in February 2022. It nevertheless believes Qualcomm has continued to design chips using the intellectual property licensed to Nuvia. Bloomberg has reported that in recent months, Qualcomm is “seeking customers for a product stemming from last year’s purchase of chip startup Nuvia.” Perhaps accessing these licenses were central to Qualcomm’s post-merger plans.

From its perspective, Arm can’t let Qualcomm use unlicensed technology. It therefore sued Qualcomm in August 2022 for violating the licensing agreement it had with Nuvia. The outcome of this case will be crucially important to the configuration of the semiconductor industry for years to come.

Given the renewed centrality of chips to US economic and foreign policy, a dispute between two industry leaders inherently matters. Yet, a bigger principle is at play. Will the US government and legal system insist that western companies respect each other’s intellectual property rights? Or will industry players be allowed free rein to take what they wish from whom they wish? The US government has complained for years about improper transfer of intellectual property to China.

Intangible assets, of which intellectual property is a central component, account for an estimated 90% of the value of the S&P 500. If Qualcomm can access and profit from unlicensed intellectual property from Arm by simply purchasing Nuvia, it could upend the chip ecosystem, leading to consolidation, reduced investment, and limited innovation.

After all, why would any company license its intellectual property—especially to a start-up—if it can be effectively seized by another company through a relatively low-cost acquisition?

Anticompetitive behavior and improper accessing of intellectual property may benefit those engaged in such behavior, but they create pernicious effects for the innovation ecosystem.

The Arm-Qualcomm dispute is not just about two companies fighting over some tech, it implicates nothing less than America’s national security and its economic competitiveness. Failure to respect intellectual property rights is one of the surest ways to raise the odds that the US government’s semiconductor strategy fails. This is something that China would surely love—and America cannot afford.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Eric Miller is a global fellow with the Wilson Center, a non-partisan policy forum for tackling global issues through independent research and open dialogue.

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