The U.S. Federal Trade Commission (FTC) has filed a lawsuit in administrative court that seeks to block Nvidias proposed acquisition of British company Arm. The bid, which put a price tag of $40 billion on Arm, was unveiled in September 2020 and has since faced intense scrutiny from antitrust agencies, who fear a combination of the two companies will harm competition and innovation. The scene is now set for what promises to be a tense legal battle between a prominent U.S. chip giant led by a hard-charging billionaire in the form of Nvidias CEO Jensen Huang and an agency led by Lina Khan, an appointee of President Joe Biden, who has pledged to take a tough line on mergers that threaten competition. The FTC is suing to block the largest semiconductor chip merger in history to prevent a chip conglomerate from stifling the innovation pipeline for next-generation technologies, said Holly Vedova, the head of the agencys bureau of competition in a press release announcing its move. Vedova added that the FTC believes the deal will distort Arms incentives in chip markets and allow the combined firm to unfairly undermine Nvidias rivals. International scrutiny The FTCs move comes shortly after regulators in the U.K. announced they would subject the deal to closer scrutiny both on competition grounds and because of its potential impact on national security. The latter concern is likely linked to fears the deal could lead to intellectual property and jobs being shipped from Arms U.K. operations to the U.S. In October, the European Commission also opened a formal investigation into the proposed acquisition. Arm, which was acquired for $32 billion by Japans Softbank in 2016, doesnt manufacture chips. Instead, it provides the designs and associated software tools that many other chipmakers use to create their own processors. Chips based on Arm designs power the vast majority of the worlds smartphones and are widely used in everything from data centers to autonomous vehicles and supercomputers. Nvidia, which has become a global chip powerhouse with an $803 billion market cap, is best known for manufacturing cutting-edge video-game and AI chips, but also has a significant presence in a number of other markets. The two companies argue that by joining forces they can boost innovation and bring products to market faster. In an interview with Forbes in October, Simon Segars, Arms CEO, said the linkup would create more dynamism in the market. But opponents of the combination, who include chip companies such as Qualcomm and tech giants including Microsoft and Google, fear it will lead to an end to Arms position as a kind of silicon Switzerland that remains neutral rather favoring a particular manufacturer. Three strikes The FTCs lawsuit says its concerned the bid will lead to higher prices and less innovation in three worldwide markets where Nvidia currently competes using technology it licenses from Arm. One is driver-assistance technology and the other two are related to chips used in datacenters. Once combined, Nvidia and Arm could hold back innovations from rivals in these markets. The U.S. company has repeatedly pledged that will not happen. Nvidia is committed to preserving Arms open licensing model and ensuring that its intellectual property is available to all interested licensees, current and future, said an Nvidia spokesperson, who adds that it intends to keep working to convince the FTC that the deal will benefit the industry and promote competition. Arms Segars and Nvidias Huang face a tough challenge to assuage the concerns of the FTC, which also believes the deal should be blocked because it will give Nvidia access to sensitive competitive information about Arm licensees that are rivals of the U.S. chip firm. In its release, the agency claimed this would likely result in a critical loss of trust in Arm and its ecosystem.