NVIDIA promised to preserve Arm’s open licensing regime for just five years, the UK’s competition watchdog has revealed, saying that “a five-year commitment falls manifestly short of the time period required to remedy the concerns identified… which are lasting in nature, and pertain to long development cycles.”
It today (November 16) ordered a national security probe of the deal, in a blistering new report that reveals the extent to which Arm's open approach to semiconductor IP is at genuine risk from the takeover.
(US chipmaker NVIDIA in September 2020 agreed a $40 billion buyout of UK-based Arm, a semiconductor specialist that licenses IP to customers to build CPUs, GPUs on. Its IP is increasingly widely used across not just its core customer base of smartphones and IOT devices, but also now data centres and cloud providers.)
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NVIDIA had made six key behavioural commitments to assuage competition concerns. These were roundly rejected by the Competition and Markets Authority (CMA) which warned -- among the many other issues it flagged -- that NVIDIA’s commitments would not “prevent the overall strategic direction and focus of R&D research from being directed towards NVIDIA’s needs” nor “prevent technical or other de facto restrictions on interoperability being introduced.”
Digital Secretary Nadine Dorries said: "I have carefully considered the Competition and Market Authority’s ‘Phase One’ report into NVIDIA’s proposed takeover of Arm and have decided to ask them to undertake a further in-depth ‘Phase Two’ investigation. Arm has a unique place in the global technology supply chain and we must make sure the implications of this transaction are fully considered. The CMA will now report to me on competition and national security grounds and provide advice on the next steps."
The CMA now has up to 32 weeks to undertake a Phase 2 investigation.
CMA slams behavioural remedies promised by NVIDIA
Critically, the watchdog said it “does believe there to be a modified form of behavioural remedy sufficient to address the competition concerns” and more worryingly for NVIDIA, added that it is not even confident that a “remedy involving the partial divestment of Arm’s IP business(es) would be sufficiently clear-cut and comprehensive for phase 1, as a result of risks relating to severability, and the potential loss of scale and synergies.”
NVIDIA promised Arm just five years of independence, the CMA suggests, making six commitments:
- "Preserving Arm’s open licensing program, engineering, maintenance and technical support, and offering any interested parties licences consistent with Arm’s current practices; and honouring all Arm licences for the duration of their term (for both existing licences and any new licences issued during the 5 year period) (the Open Licensing Undertaking);
- "Providing equal access to Arm technology for all Arm licensees, including access to all Arm technology that NVIDIA receives, publishing the Arm ISA instruction, consistent with Arm’s current practices, and not reserving Arm IP or creating proprietary version of the Arm ISA for NVIDIA (the Equal Access Undertaking);
- "Providing early access to Arm technology for any interested Arm architectural or implementation licensee, and providing every Arm architectural licensee the opportunity to participate in the Arm Technical Advisory Board consistent with Arm’s current practices (the Early Access Undertaking)
- "Delivering Arm IP to Arm implementation licensees without any restriction on interoperability, consistent with Arm’s current practices, and ensuring that any future Arm implementation licences shall not preclude or restrict any product incorporating Arm implementation IP from interoperating with any other third-party component, software, or system (the Interoperability Undertaking);
- "Honouring all existing Arm non-disclosure agreements (NDAs) and offering all Arm licensees the opportunity to enter into new or updated NDAs to protect any confidential Arm customer information and restrict its use to only specified staff and for the purposes specified in the NDA (the Confidentiality Undertaking); and
- "Appointing a monitoring trustee to oversee the above. The monitoring trustee would also be provided with access to a contracts database, which NVIDIA would maintain and keep up-to-date, as well as keeping its contents confidential.
The CMA was unconvinced by any of these behavioural remedies, noting alongside concerns around the effectiveness of them and the ability for NVIDIA to circumvent them, that enforcement would be challenging.
It said: "The risks identified above point to a significant monitoring and enforcement risk. In particular, even with a monitoring trustee appointed, there is an inherent reliance on third parties bringing suspected breaches to the attention of the monitoring trustee. This imposes a cost on competitors, including financial and staff resources, as well as time and opportunity costs which could be significant in the relevant sectors in this case. The CMA also has considerable concerns relating to the complexity of the information and understanding required to evaluate compliance, including by the monitoring trustee. In the light of asymmetries of information, the CMA has serious doubts as to how third parties, in conjunction with the monitoring trustee, would be able to (i) identify a breach of the Proposed Undertakings in a timely way, and/or (ii) obtain the evidence required to pursue it effectively."
A NVIDIA spokesperson told The Stack: "We plan on addressing the CMA’s initial views on the impact of the transaction on competition, and we will continue to work with the UK government to resolve its concerns. The Phase 2 process will enable us to demonstrate that the transaction will help to accelerate Arm and boost competition and innovation, including in the UK.”