FTC sues to block Nvidia’s $40 billion acquisition of Arm

The Federal Trade Commission on Thursday sued to block Nvidia‘s $40 billion acquisition of Arm from SoftBank on antitrust grounds.

The deal has faced scrutiny from regulators since it was announced last year. The U.S. action is the biggest hurdle it has faced yet, and threatens whether the deal will be completed.

“The proposed vertical deal would give one of the largest chip companies control over the computing technology and designs that rival firms rely on to develop their own competing chips,” the FTC said in an announcement.

Nvidia stock was up over 2% on Thursday before the announcement, and did not move significantly on the news. The FTC complaint is not yet public.

Arm is a core supplier of architecture technology to most semiconductor companies. Its Arm instruction set is at the core of nearly all mobile processors powering smartphones, including those made by Apple and Android devices that use Qualcomm chips.

But the company’s role in the chip industry was historically as a neutral supplier, raising concerns that Nvidia could cut off competitors from essential Arm technology. Some of Nvidia’s processors also use Arm-designed cores and its Arm architecture, although the company is best known for graphics processors, which use different architecture.

“The complaint alleges that the proposed merger would give Nvidia the ability and incentive to use its control of this technology to undermine its competitors, reducing competition and ultimately resulting in reduced product quality, reduced innovation, higher prices, and less choice,” the FTC said in its statement.

FTC Chair Lina Khan, who was appointed by President Joe Biden to lead the agency shortly after her confirmation to the agency earlier this year, has signaled an interest in more robust antitrust enforcement. Khan spent her time as an academic and a congressional staffer prior to her nomination studying large technology companies and the unique ways these firms can amass power in digital markets.

During the Trump administration, the FTC sued Facebook on antitrust grounds and outlets including Bloomberg have reported that it began investigating Amazon during that period as well.

The FTC said on Thursday that Arm’s licensees, which include Nvidia’s competitors, share competitive information with the technology firm. The FTC’s lawsuit focuses on chips for driver assistance, networking products, and Arm microchips for cloud computing servers. The FTC voted unanimously to issue the complaint, it said.

The Arm deal has also received scrutiny overseas. The European Commission announced an in-depth investigation into the deal in October.

“As we move into this next step in the FTC process, we will continue to work to demonstrate that this transaction will benefit the industry and promote competition,” an Nvidia representative said in a statement.

“NVIDIA will invest in Arm’s R&D, accelerate its roadmaps, and expand its offerings in ways that boost competition, create more opportunities for all Arm licensees and expand the Arm ecosystem. NVIDIA is committed to preserving Arm’s open licensing model and ensuring that its IP is available to all interested licensees, current and future,” it continued.

The trial before the FTC’s own administrative law judge is set to begin on Aug. 9, 2022. The FTC has the option of bringing cases either through this in-house process or in federal court. Under the administrative process, the ALJ will make an initial determination based on the trial, which can be appealed to the full commission for a vote. That decision can still ultimately be appealed in federal court.

Previously, Nvidia said that it expected the Arm transaction to close in 2022.