Well, there's that, and the fact that China is notorious for reverse engineering, and basically just stealing the technology and making their own knock-offs. I don't blame Nvidia for not giving them the source code.
Closed source drivers make it more difficult for patent owners to check, and launching a lawsuit without evidence of infringement is very expensive.
But they don't need to provide that source, just hardware specs. Gallium3d already has shader compilers and schedulers.
If one has enough info about nvidia hardware in order to make a driver for nvidia hardware, the same info is not enough to make your own nvidia hardware clones.
"Very low serial numbers, like very low MAC ID addresses, are a hallmark of the “ghost shift”, i.e. the shift that happens very late at night when a rouge worker enters the factory and runs the production machine off the books"
This has been a big issue for companies dealing with China, you sell your product their for awhile, until they can reverse it (or even hack your servers for info) and make their own.
In this case, the legality wasn't brought up, just the motivations for one company not sharing with another.