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A new lawsuit suggests the presence of a buyers’ cartel, made up of not just Nvidia but all the major AI model producers and chipmakers.
The Justice Department is taking a long look at Nvidia, the semiconductor designer that has dominated the market for high-end AI computer chips used to train large language models (LLMs), with a reported 80 percent market share. Last week, the DOJ Antitrust Division issued subpoenas to companies creating these models, over allegations that Nvidia encourages exclusive use of its chips, while punishing those who purchase from others.
Nvidia’s acquisition of AI management software company Run:ai is also under scrutiny, with concerns that the company is trying to make using its technology inescapable. Antitrust enforcers’ goal is to prevent the second wave of Big Tech’s evolution from proceeding the way the initial platform phase did.
Nvidia has said that sales of its chips have soared only because of superior quality. But a new and intriguing private antitrust lawsuit from a startup called Xockets suggests the presence of a buyers’ cartel, made up of not just Nvidia but all the major AI model producers and chipmakers. This cabal, according to the lawsuit, is walling off the market for AI, and appropriating whatever innovations happen outside the wall.
“If they’re bigger and stronger and have a worldwide network, it’s hard to commercialize an idea,” said Robert Cote, an intellectual-property expert who is one of the lead investors in Xockets, in an interview with the Prospect. “All the Big Tech companies get together to make only their IP valuable and nobody else’s.”
Xockets was funded by not only Cote, but the current chief technology officer of Intel, Greg Lavender, and Jerry Yang, co-founder of Yahoo. The company created a patented technology known as the data processing unit, or DPU. Cote described this as a new computing architecture that accelerates the speed of distributed computing in the cloud, by getting the computers sharing various functions to talk to one another.
This reduces the time on tasks from years to months or even weeks, and is critical to harness enough computing power to carry out the data-intensive work needed to train an LLM. The technology merges the switches and routers associated with the physical world and the cloud computing used in AI. You could call it a form of AI infrastructure.
Xockets brought the initial set of DPUs, known as StreamSwitch, to an industry tech conference called Strata in 2015. Subsequent meetings with Microsoft and other companies didn’t lead to any purchases, but did lead an Israeli company called Mellanox to create a copycat DPU that Xockets claims violates its patents. “One of the things is when you trade information, you can’t keep it a secret,” Cote said.
Intellectual property is not a barrier for Big Tech firms with a sufficient amount of legal muscle.
In 2020, Nvidia bought Mellanox for $7 billion, thereby acquiring that technology. Nvidia then came out with its own set of DPUs, including BlueField, ConnectX, and NVLink Switch. Jensen Huang, the CEO of Nvidia, hailed these innovations as an important advance for AI. “The holy trinity of computing … is the CPU [computer], the GPU [graphics processing unit], and the DPU,” Huang said in 2020. “CPUs, GPUs and DPUs are able to combine into a single computing unit that’s fully programmable, AI-enabled and can deliver levels of security and compute power not previously possible.”
The lawsuit lists several quotes from Huang, describing his DPUs as a “breakthrough innovation,” in ways that Xockets says mirror the language and function described in its patents. It also shows how Nvidia’s market capitalization really only took off after it introduced its DPUs, moving from a nice company that made graphics cards for video games into a blockbuster world leader. To Xockets, this is classic patent infringement.
Microsoft plays a role as a key customer of Nvidia’s chips, the lawsuit says, integrating market-leading OpenAI generative models with Nvidia equipment and Microsoft’s Azure cloud services, which uses Nvidia’s DPUs. The goal of these “collaborations,” Xockets alleges, is to “leverage Nvidia’s monopoly over AI equipment to create a monopoly in AI platforms based on the equipment.”
Former Google CEO Eric Schmidt rather presciently made comments last month at Stanford that resonate with this situation, according to Cote. He said that if the ban on foreign ownership of TikTok went through, companies should train their models to “make me a copy of TikTok, steal all the users, steal all the music,” and release versions of it until it goes viral. “What you would do if you’re a Silicon Valley entrepreneur, which hopefully all of you will be, is if it took off, then you’d hire a whole bunch of lawyers to go clean the mess up,” Schmidt said.
In other words, intellectual property is not a barrier for Big Tech firms with a sufficient amount of legal muscle. Cote calls this “efficient” or “predatory” infringement. But Xockets takes the complaint a step further beyond alleged patent infringement, into much more interesting territory.
After learning about Mellanox’s infringement when it was purchased by Nvidia and Nvidia started promoting its DPU technology, Xockets founder Parin Dalal (who is now at Google) informed Nvidia’s vice president for DPUs directly about its patents in early 2022. According to the lawsuit, after the VP showed interest in buying the patent portfolio, Nvidia shut off any further contact.
After this, Cote told the Prospect, Xockets spent a year building a case to the market that its DPUs needed to be licensed, showing evidence of infringement and the value of the Xockets technology. “Let’s take a shot at giving them so much awareness that they can’t hide,” he explained. An investment bank was hired, and all cloud services (Google, Amazon, and Microsoft) and chipmakers (Nvidia, Intel, and AMD) were contacted, in an attempt to get a bidding war going for access to the rights. “Competitors would normally compete for a critical ingredient in the market,” Cote said.
But the lawsuit focuses on an obscure network called RPX, to which Nvidia and Microsoft belong. Founded in 2008, RPX “brings companies together from throughout the world to solve patent risks that they face in common,” according to its website. The lawsuit cites different language, since taken down, that says “RPX can buy ‘wholesale’ on behalf of our client network, while our clients otherwise would pay ‘retail’ if transacting on their own.”
Essentially, RPX tries to license patented technology for all members of its network, at what it claims to be “far less cost.” The company has said in SEC filings that antitrust authorities may see its business practices as violating antitrust law.
In early 2024, after Xockets contacted all the players in the market about licensing its DPUs, Nvidia, Microsoft, and the others referred all negotiations to RPX, according to the lawsuit. An RPX representative set up a meeting with Xockets in May 2024, and made clear he was operating at the request of other companies. “Since the time that RPX has become involved, Xockets has been prevented from obtaining a fair market price for its patents,” the lawsuit claims.
This is described repeatedly as a buyers’ cartel, which locks out the potential for Xockets to negotiate competitively with multiple potential customers, and consequently lowers the “fair market price” for its technology. In fact, any offers are below the cost of production, making it more like a boycott, in the view of Xockets. “They’ll talk you to death and do nothing,” said Cote. This cartel-like behavior creates the basis for the antitrust claim.
Xockets wants damages for this conduct, but it also wants to obtain an injunction against the alleged violation of its patents and the alleged violation of antitrust laws through the buyers’ cartel. A preliminary hearing on the injunction will take place on September 19. This is obviously a huge challenge against companies with multitrillion-dollar market caps and armies of lawyers. Why does Cote think Xockets can pull it off?
“We have a great story around key innovations that enable the AI revolution,” he said. “The law gives you patent exclusivity. In trade for telling everyone what I’m doing, I have the strong hand of stopping anyone who wants to steal from me.”
Nvidia and Microsoft declined to comment.
There are a couple of notable elements to this case. First of all, for all the AI software hype, Silicon Valley still relies on hardware to make things run. Xockets’ technology and that of other “Little Tech” entrepreneurs remains a necessary backbone, and if the biggest firms with control of data and a first-mover advantage have created schemes to obviate their need to pay a fair price for that hardware, something is wrong with what is assigned value in the tech economy.
Second, the revelation of RPX as what Xockets claims is a cartel deserves much more scrutiny. It undermines the very architecture of competition in the AI ecosystem. And finally, this is exactly what antitrust enforcers have raised alarms about with respect to learning from Big Tech’s machinations in the past and applying them to the AI future. They don’t want competition killed by incumbents, and prominence in AI coming mainly from who has access to data. This case offers a potential window into how that operates.
“The innovation economy built the largest economy in the world, the most prosperous nation on Earth,” said Cote. “That starts in the Constitution by giving patent protection to people. We don’t want the shade to kill the young seedlings.”
