Back in September, Xockets, the inventor of advanced data processing units (DPUs), filed a lawsuit in the U.S. District Court for the Western District of Texas, Waco Division, against Nvidia, Microsoft, and RPX. The company’s filing contends that the defendants have violated federal antitrust laws for illegal monopoly practices and willful patent infringement. Specifically, the lawsuit alleges that Nvidia has spearheaded an illegal cartel, facilitated by RPX, “to avoid paying the fair market price for Xockets' patented DPU technology—fundamental intellectual property that Nvidia uses to transform its GPUs into the drivers of the AI revolution and dominate the market for GPU-enabled AI computer systems.”
This case against Nvidia represents a potential multi-billion-dollar liability for a company that is already facing its fair share of issues. For example, its Blackwell family of chips is encountering serious production issues, which will impact the company’s production volume well into the first half of next year. The lawsuit is also becoming an increasing liability, based on concerns that this legal action could potentially result in delaying Nvidia’s Blackwell launch and cost the company significantly. According to Fortune’s Christiaan Hetzner in an article he wrote a few weeks ago, “Stopping the Blackwell launch poses a serious risk for Nvidia, which dominates 90% of the AI accelerator chip market. The company expects Blackwell shipments to bring in billions of dollars in the fiscal fourth quarter ending January.” Of course, the Dockworkers strike would add insult to injury.
Second, Nvidia is currently under investigation by the U.S. Department of Justice. The Department is reviewing the company’s buyout of Israel’s AI startup Run:ai on antitrust grounds. Additionally, at the same time this investigation was launched in August, reports emerged that the Justice Department was also investigating complaints from competitors that Nvidia is “allegedly abusing its market dominance in selling chips that power artificial intelligence.”
From the perspective of an investor with these issues in mind, it is obvious what the best course of action should be for the world’s third-largest company: settle the Xockets case.
In the interests of Nvidia’s long-term future, its investors, and its clients, the prudent choice is indeed to steer clear of extensive litigation against a smaller competitor and focus on fostering fair competition in AI. Here is why.
First, the alleged cartel at the heart of this case was formed through RPX, which “brings companies together from throughout the world to solve patent risks that they face in common.” RPX explains that its team “comprises highly experienced IP professionals with expertise in all facets of the patent market, including identification and analysis, negotiating and structuring acquisitions and handling licensing and litigation.” That is what the company has professed. However, RPX appears to be an entity that was created at the request of Big Tech (e.g., Google, Cisco, and Nokia) to help facilitate its cartel-style control over innovation and resembles a high-powered buyers’ cartel that has enabled the industry to avoid paying fair market price for Xockets’ intellectual property. Xockets’ IP is indeed fundamental to the AI boom. As this matter in question is brought to the forefront, it will become increasingly problematic for Nvidia, a company with a 31-year reputation claiming to be fairly powering today’s AI revolution.
Additionally, the subsequent patent-infringement complaint mentioned earlier further alleges that Nvidia’s currently-marketed supercomputers for AI production infringe on Xockets’ patents.
To summarize, Xockets is seeking a preliminary injunction to stop expanded infringement by Nvidia’s Blackwell supercomputers that are expected to ship to customers this fall, bar any Dockworkers strike, as well as a permanent injunction to halt future infringement, once this matter is resolved by a jury trial in federal court. Xockets is also seeking billions in damages from both Nvidia and Microsoft. Per Fierce Electronics, the company could be owed “for damages that reach to a minimum of $4 billion. Depending on the number of actual servers running Nvidia tech with Xockets IP, the number could reach much higher.”
Robert Cote, a Xockets board member, has put this entire case into perspective. He has stated astutely that this lawsuit is “part of a larger battle between inventors and companies that own patents on one side and Big Tech on the other. Given the ‘admissions from Nvidia on the importance of the DPU, this is the opportunity of a lifetime to take a stand.’”
I agree with Mr. Cote. The balance of power online, on social media, and in AI has shifted widely in favor of Big Tech and away from entrepreneurs, startups, and innovators. This is a disastrous recipe for the future of advanced computing. As such, it is hopeful that Nvidia will shed its monopolistic behavior, cease and desist from any patent infringement, and reach a settlement with Xockets in an expeditious manner. Charting this course brings great benefits not only to Nvidia’s long-term sustainability, but also its many customers, suppliers, and investors.