On December 2, 2021, the Federal Trade Commission (FTC) in the United States released a statement, announcing its intention to file an administrative lawsuit against Nvidia's acquisition of Arm. The administrative trial is scheduled to begin on August 9, 2022. In September 2020, Nvidia announced its plan to acquire Arm for $40 billion, making it the largest semiconductor industry acquisition in history. However, the deal has faced scrutiny from regulatory authorities in the UK, the EU, the United States, and other regions and countries. The main concern is whether the acquisition can ensure fair competition and innovation in the semiconductor industry. Discussions on the pros and cons of the deal for the semiconductor industry are also continuing to evolve.
Whether it "harms competition" is a key consideration for regulatory authorities in the UK, the EU, and the United States.
Nvidia's acquisition of Arm is a "vertical acquisition," which involves the merger of companies along the supply chain. Typically, vertical mergers face less resistance from antitrust agencies compared to horizontal mergers between similar companies. However, the importance of Arm to innovation in the semiconductor industry has prompted the UK and EU antitrust agencies to take a close look at this deal.
According to the report, the FTC has the authority to review mergers and acquisitions and to take legal action if they suspect that a merger is anti-competitive.
The FTC's move to file an administrative lawsuit against the acquisition is motivated by its concern for fair competition and technological innovation.
"The Federal Trade Commission is filing a lawsuit to stop the largest semiconductor chip acquisition in history, to prevent the chip group from strangling the innovation channels of the next generation of technology," said Holly Vedova, Director of the FTC's Bureau of Competition. "This proposed transaction would distort Arm's incentives in the chip market and allow the merged company to unfairly weaken Nvidia's competitors."
The FTC believes that the acquisition will harm competition in three global markets, including advanced driver-assistance systems, DPU SmartNICs, and Arm-based CPUs for cloud service providers. The acquisition could also damage innovation competition by eliminating the innovations that Arm was originally pursuing. The merged company may lack the motivation to develop or enable features or innovations that Nvidia deems detrimental to itself, even if they are beneficial to the industry.
"In the UK, the United States, and the EU, the purpose of antitrust review and enforcement of mergers is to maintain fair competition," said Xue Kai, a lawyer at Deheng Law Firm, to China Electronics News. "In the United States, the Federal Trade Commission is one of the two agencies responsible for reviewing whether a proposed acquisition involves competition issues, the other being the antitrust division of the Department of Justice. These two agencies will question the proposed acquisition and, in some cases, file lawsuits, and ultimately require significant remedies to maintain fair competition. There is a lot of room for interpretation regarding the meaning of maintaining competition."
In the UK, the Competition and Markets Authority (CMA) determines whether a merger has already or could lead to a substantial "reduction in competition." If so, the CMA will initiate an in-depth assessment, which involves forming an independent investigation team for a second-stage review. If the second-stage investigation finds that the merger constitutes a substantial reduction in competition, the CMA will take necessary relief measures, including prohibiting the sale or divestiture of part of the business.
For the acquisition of Arm by Nvidia, the CMA has already initiated a second-stage investigation, indicating that it believes the acquisition could lead to a "reduction in competition." On November 16, the UK Secretary of State for Digital, Culture, Media and Sport, Nadine Dorries, ordered a second-stage investigation of the Nvidia-Arm acquisition case for public interest reasons. In the first stage of the investigation, the CMA found that the deal "increased the likelihood of 'a substantial reduction in competition' in four key markets: data centers, the Internet of Things, the automotive industry, and gaming applications."
"Arm occupies a unique position in the global technology supply chain, and we must ensure we fully consider the impact of this transaction," said Nadine Dorries.
The European Commission has also launched an investigation into the deal, concerned that it could lead to reduced market choice, weakened innovation, and increased prices for semiconductor products.
"Nvidia's acquisition of Arm could limit or reduce the availability of Arm IP for use, and could distort competition in multiple semiconductor application markets," said Margrethe Vestager, the EU's Competition Commissioner.
Xue Kai points out that Arm's headquarters is located in the UK