Microsoft, OpenAI tie-up draws UK antitrust regulator scrutiny
The UK antitrust regulator is scrutinizing the partnership between Microsoft and OpenAI, marking the second time this year that competition issues surrounding the U.S. software giant’s operations are being examined. The Competition and Markets Authority (CMA) has announced that it will be evaluating whether the Microsoft/OpenAI collaboration has resulted in a merger situation, before initiating any official investigation.
The CMA stated that recent developments in the governance of OpenAI, some of which involved Microsoft, have prompted this scrutiny. The regulator will be issuing an Invitation to Comment (ITC) to determine if the partnership has created a relevant merger situation and assess the potential impact on competition. The CMA highlighted the rapid growth of AI technology and the significance of powerful foundation models like the one behind ChatGPT, emphasizing that this is a crucial moment in the development of transformative technology.
This move follows an announcement in November, where Microsoft committed to investing over $10 billion into OpenAI and assumed a non-voting position on the board. This decision followed a tumultuous boardroom battle that resulted in the sudden ouster and return of OpenAI CEO and founder Sam Altman.
Sources familiar with the matter indicate that Microsoft currently owns 49% of the for-profit operating company, while the non-profit parent holds 2%. Microsoft’s Vice-Chair and President, Brad Smith, responded to the scrutiny by highlighting that the company’s non-voting observer position on OpenAI’s board is distinct from an acquisition, taking a jab at rival Google for its purchase of DeepMind in the UK.
Max von Thun, Europe Director at the Open Markets Institute, a nonprofit focused on strengthening antitrust law, suggests that other regulators may follow the CMA’s lead due to the increasing concentration in AI. Von Thun emphasizes the need for antitrust authorities to act promptly in investigating these partnerships and potentially unwinding them to preserve competition and prevent monopolization of this critical emerging technology.
The U.S. Federal Trade Commission and the EU Commission have yet to respond to requests for comment regarding this matter.
The CMA clarified that various transactions and arrangements, including the acquisition of a minority shareholding and commercial agreements such as outsourcing arrangements, could constitute a relevant merger situation.
For the CMA to pursue a formal investigation, it will need to identify evidence that the recent governance changes at OpenAI, stemming from the Altman affair, have resulted in significant alterations to the company’s governance and Microsoft’s influence over its affairs. Competition lawyer and partner at Fladgate, Alex Haffner, suggests that even if the CMA does not proceed further, the preliminary investigation will allow a better understanding of the governance arrangements underpinning OpenAI and inform the regulator’s oversight of the rapidly developing AI sector.
The CMA has initiated the review process by inviting interested parties, including Google and other competitors, to provide their comments by January 3, 2024.
The CMA, known for its determined approach since the UK’s departure from the European Union, had previously blocked Microsoft’s $69 billion acquisition of Activision Blizzard, the maker of the popular Call of Duty video game. However, the decision was reversed after Microsoft revised its acquisition plan.
Pioneering forward in the field of AI, Microsoft and OpenAI’s partnership faces regulatory scrutiny from the UK antitrust regulator. As the CMA delves into the potential impact on competition, industry experts emphasize the need for swift action in investigating and unwinding these partnerships to preserve a competitive landscape in the advancement of AI. The involvement of other global regulators may also be imminent given the concentration observed in the AI sector. Interested parties have been invited to provide their comments, ensuring a comprehensive evaluation of the Microsoft/OpenAI partnership.
