We want to implement a processor that is functionally identical to ARM, but the op-codes it accepts are completely different. Hence, it cannot run an ARM binary directly. However, we can apply a simple translator, that translates from ARM op-codes into our op-codes. After translation, our processor will run the translated binary flawlessly. Does this violate ARM patent and/or copyright protections?
The ISA is in fact the bit that's not protected. The opcodes themselves are mere numbers, without a lot of meaning. A function like "add R2 to R3" needs to have a unique number, to distinguish it from "multiply R2 by R3", but this is essentially an arbitrary number.
Now ARM's idea to throw in a "free" shift instruction as part of the opcode is non-trivial, and not an arbitrary number. And by your description of the translator, you did copy that part.
So, in essence you copied the bits that are protected, and changed the bits that aren't. Exactly the wrong way around.