Arm faces possible 5-year halt to Qualcomm royalties after licensing breach verdict

Key Facts

Arm faces the possibility that Qualcomm could be allowed to stop paying royalties for 5 years after a jury found in an October 2026 verdict that it had breached the architecture license agreement between the companies, according to a Qualcomm statement and Reuters coverage. The payments at risk could total billions of dollars, while permission to suspend them remains subject to a decision by Judge Maryellen Noreika. Qualcomm said in its statement that "the jury found that Arm breached its longstanding architecture license agreement with Qualcomm." The breach involved Arm's obligation to provide software updates and tools for its designs, according to Reuters' account of the verdict. The jury also found that Arm intentionally and negligently interfered with Qualcomm's relationships with Meta, extending the verdict to the company's conduct toward those relationships as well as its fulfillment of licensing obligations. The jury awarded Qualcomm only $2 in nominal damages, while the potentially more valuable royalty issue remained before the judge.

The legal risks surrounding royalty payments come as Arm reports growth in that business, according to results for its fiscal first quarter ended June 2026, which the company announced in July. Total revenue reached $1.29 billion, up 22% from the corresponding quarter a year earlier, according to Arm's filing with the U.S. Securities and Exchange Commission. Royalty revenue totaled $715 million, rising by the same annual rate of 22%, in the business tied to the payment issue in the Qualcomm lawsuit. Licensing revenue reached $574 million over the same period, growing 23% year on year, faster than royalty and total revenue. The increase in quarterly revenue thus spanned both licensing and royalties, with royalties remaining larger than licensing revenue in the reported results.

In markets, stocks linked to artificial intelligence came under selling pressure during trading on Thursday, October 22, 2026, according to Associated Press coverage of the session. Nvidia shares fell 4.3% during trading, part of what the agency described as a global wave of pressure on AI stocks. The decline was steeper for Lam Research, which dropped 11.1% during the same session despite reporting profit and revenue growth that slightly exceeded analysts' expectations. The agency linked the turmoil in these stocks to concerns about the rising cost of borrowing to finance data centers and chip purchases, increasing the financing costs of spending on AI infrastructure. It also pointed to concerns about elevated stock valuations, with the cited losses in Nvidia and Lam Research occurring during trading in that session.

Looking ahead, Arm had issued a revenue forecast in July for the second quarter of fiscal 2027, putting its estimate at about $1.38 billion, according to Reuters. That estimate exceeded analysts' average forecast of $1.34 billion, according to data compiled by the London Stock Exchange Group and reported by the agency. The company was thus expecting quarterly revenue above the reported fiscal first-quarter level, as well as above analysts' average estimate for the following period. On the legal front, the next stage remains tied to Noreika's decision on whether to allow royalties to be suspended, a possibility left open by the jury's verdict. That leaves the revenue forecast issued in July and the continuation of Qualcomm's payments facing separate milestones: the following quarter's financial performance and the judicial decision on payments.