Just got a hold of the vet and Merlot's oncology report is back form Kansas State. The tissue growth around the chip is noncancerous! What a relief. They did conclude that the tissue growth was caused by foreign body reaction (the microchip). They are sending the report to Avid, I'll let you know what I find out.
My husband said they have a picture of the tissue and the chip that they showed him. I will see if I can get a hold of it.