Federal Nvidia antitrust probe seen as likely

Artificial intelligence has already transformed the economy, and antitrust regulators are looking at the leading chipmaker in Silicon Valley to determine if they need to act to prevent the technology giant from becoming too dominant, according to published reports.

Two reports published in the past week said Nvidia Corp., the leading Silicon Valley company that sells semiconductor chips powering generative AI is under investigation by the U.S. Department of Justice over an acquisition of an Israeli startup as well as allegations that the Santa Clara company is abusing its market dominance.

The Justice Department, which was put in charge of regulating Nvidia last summer in a division of duties with the U.S. Federal Trade Commission - which is in charge of monitoring Microsoft Corp. and OpenAI - has not filed a complaint against the Santa Clara company but is reported by Politico to be investigating its purchase of Run:ai, a graphics processing unit company.

Another inquiry is probing alleged threats by Nvidia to companies that buy chips from its competitors, according to a report in The Information.

The reported scrutiny of Nvidia, which has emerged as the dominant AI chipmaker, would not be surprising. The Biden administration has been aggressive in enforcing antitrust law, adopting a more assertive stance that has prompted some acquisitions to be dropped while others have moved forward after judges ruled against the government.

An Nvidia statement did not deny the reports, asserting the company would address any inquiries by the Justice Department and said it "wins on merit, as reflected in our benchmark results and value to customers."

"We compete based on decades of investment and innovation, scrupulously adhering to all laws, making Nvidia openly available in every cloud and [on-premises] for every enterprise, and ensuring that customers can choose whatever solution is best for them," the company statement added. "We'll continue to support aspiring innovators in every industry and market and are happy to provide any information regulators need."

An antitrust lawsuit against another Silicon Valley giant was filed earlier this year.

The Justice Department, joined by California Attorney General Rob Bonta and 14 other states, sued Apple Inc. in March in the District of New Jersey, accusing the Cupertino technology giant of violating Section 2 of the Sherman Act for illegally maintaining a monopoly over smartphones by selectively imposing contractual restrictions on developers. U.S. et al. v. Apple Inc., 24-CV-04055 (D. N.J., filed March 21, 2024).

Ausra O. Deluard, co-chair of Dentons US LLP's antitrust and competition group, said in a phone interview Friday that even though AI is an innovative technology, the key to any possible case is "how a dominant player throws its weight around."

That's true in lawsuits against health care conglomerates as well as technology companies, she said. Nvidia's overall conduct would affect whether and how the Justice Department pursues a case, noting that other anti-competitive behavior would affect the government's view of how the acquisition of Run:ai is perceived.

"Antitrust is very fact specific," she said. "It might be pro-competitive for an established company to buy a startup, but the government is going to want to look at the track record of the company if they are considering a Section 2 case against it. Are they acting as a bully?" she said.

The best analogy is the government's landmark Sherman Act lawsuit against Microsoft Corp. over whether it was abusing its dominant position in personal computers, said Shubha Ghosh, a professor at Syracuse University College of Law, although even that is imperfect. U.S. v. Microsoft Corp., 253 F.3d 34 (2001).

"We only work by analogy and this is the closest analogy we have," he said in a phone interview Friday.

Andrew I. Gavil, senior of counsel at Crowell & Moring LLP and a former FTC director of policy planning, questioned whether the Justice Department would file a Section 2 Sherman Act case, writing that "because the focus is an acquisition the legal analysis will be guided by the 2023 DOJ/FTC Merger Guidelines and cases evaluating mergers, which fall under Section 7 of the Clayton Act."

In a joint statement last July by Assistant Attorney General Jonathan Kanter and FTC Chair Lina M. Khan, along with regulators from the European Commission and the United Kingdom, U.S. government officials highlighted the rapid evolution of generative AI and its potential as a major technological innovation.

"Accordingly, we must work to ensure the public reaps the full benefits of these moments," the regulators wrote. "This requires being vigilant and safeguarding against tactics that could undermine fair competition," adding that "firms with existing market power in digital markets could entrench or extend that power in adjacent AI markets or across ecosystems, taking advantage of feedback and network effects to increase barriers to entry and harm competition."

During the 9th Circuit Judicial Conference last month in Sacramento, Khan said emerging technology often challenges dominant companies and she wanted to make sure that happened this time to ensure vigorous competition.

"What we all want to avoid is some sort of AI exemption to the antitrust laws," Khan told U.S. District Judge Yvonne Gonzalez Rogers of Oakland, an appointee of President Barack Obama who was questioning her. "With AI, a lot of the raw material is owned by the existing incumbents."