Arm Holdings (ARM.O) has escalated its legal dispute with Qualcomm (QCOM.O), issuing a notice to cancel a vital architectural license agreement that allows Qualcomm to design its own chips using Arm’s intellectual property. Qualcomm, a major player in the mobile chipset market, has been given a 60-day notice to resolve the issue, according to reports from Bloomberg.

The tension between the two tech giants centers on Qualcomm’s 2021 acquisition of Nuvia, a startup that was already licensing Arm’s technology. Arm argues that Qualcomm failed to renegotiate the license following the acquisition and alleges that Qualcomm has been using Nuvia’s designs in breach of their agreement. Arm is also demanding that Qualcomm destroy Nuvia's pre-acquisition designs, further intensifying the dispute.

The fallout from the potential license cancellation could severely impact Qualcomm, which generates billions in revenue from selling chips that rely on Arm’s instruction sets—used in the vast majority of Android smartphones. Without the license, Qualcomm may have to cease selling products, risking its business and leading to substantial financial and operational consequences.

Despite the escalating legal wrangle, Qualcomm remains defiant. The company has accused Arm of using "unfounded threats" and attempting to disrupt its business and hike royalty fees. Qualcomm insists it will prevail in court and has vowed to defend its rights under the agreement, confident that its partnership with Arm will be upheld.

The ongoing legal battle is expected to go to trial in December 2023, with some analysts predicting a settlement before then due to the substantial risks for both parties. An Arm victory could have far-reaching implications, potentially halting Qualcomm's shipment of new laptops and unwinding one of its biggest strategic acquisitions in recent years. The legal face-off underscores the shifting dynamics between the two companies, once close collaborators but now increasingly competing for dominance in the semiconductor industry.