Nvidia had submitted commitments to the EC earlier this month to address some of its preliminary concerns but they were found to be insufficient in removing the doubts concerning the effect of the deal on the market

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Nvidia’s deal with Arm faces lawsuit in the US. (Credit: NVIDIA Corporation)

The US Federal Trade Commission (FTC) has filed a lawsuit to block chip supplier Nvidia’s $40bn acquisition of UK-based chip design provider Arm citing competition concerns.

The US federal agency said that the vertical deal proposed by the parties will result in one of the largest chip companies controlling the computing technology and designs that rival players depend on to build their own competing chips.

FTC Bureau of Competition Director Holly Vedova said: “Tomorrow’s technologies depend on preserving today’s competitive, cutting-edge chip markets. This proposed deal would distort Arm’s incentives in chip markets and allow the combined firm to unfairly undermine Nvidia’s rivals.

The FTC’s lawsuit should send a strong signal that we will act aggressively to protect our critical infrastructure markets from illegal vertical mergers that have far-reaching and damaging effects on future innovations.”

In its complaint, the FTC alleged that the combined entity will have the ability as well as incentive to suppress innovative next-generation technologies used in driver-assistance systems in cars, for running data centres, and other applications.

The FTC further said that Arm’s technology is a key input that allows competition between Nvidia and its rivals in various markets.

The proposed merger could eventually lead to inferior product quality, lesser innovation, inflated prices, and limited choice, thereby impacting the millions of Americans who benefit from Arm-based products, alleged the FTC.

Additionally, the FTC has complained that the deal will harm competition by enabling Nvidia access to the competitively sensitive details of Arm’s licensees. With some of the licensees being Nvidia’s rivals, it could potentially dilute the incentive for Arm to pursue innovations that are thought to be conflicting with the business interests of Nvidia, said the agency.

Announced in September 2020, the cash and stock deal between Nvidia and Arm has been facing regulatory hurdles in the European Union and the UK as well. Arm is currently owned by Japan-based Softbank Group.