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The UK Competition and Markets Authority (CMA) has initiated a comprehensive probe into Microsoft’s recent hiring of key former employees from machine intelligence company Inflection AI.
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During the course of the probe, the CMA will assess whether Microsoft’s deal with Inflection led to a merger-like situation which could reduce competition within the relevant market in the UK.
The move comes even as Microsoft is already facing scrutiny from antitrust regulators in US and UK over its partnership with OpenAI- a scrutiny which also reportedly prompted the tech giant to relinquish its seat on OpenAI’s board last week.
“The Competition and Markets Authority (CMA) is considering whether it is or may be the case that Microsoft Corporation’s hiring of certain former employees of Inflection and its entry into associated arrangements with Inflection has resulted in the creation of a relevant merger situation under the merger provisions of the Enterprise Act 2002 and, if so, whether the creation of that situation has resulted, or may be expected to result, in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services,” the CMA said.
The CMA had, in April this year invited views on the partnerships between Microsoft and Mistral AI, and Amazon and Anthropic, and Microsoft’s hiring of former employees and related arrangements with Inflection AI as a first step of its information gathering process. It’s move was based on a report it published outlining risks to open and fair competition in AI Foundation Models (FM) markets, specifically, concerns that partnerships involving key players could be exacerbating existing positions of market power through the FMs value chain.
The regulator has to submit its phase 1 decision by September 11.
What was the Microsoft- Inflection AI arrangement?
In March, Microsoft entered into an arrangement with Inflection AI, paying the startup $650 million to license its software after hiring two of the company’s co-founders, Mustafa Suleyman and Karen Simonyan, along with the majority of its 70-person staff. Out of the total consideration, $30 million was paid to relinquish any legal rights related to mass hiring.
This arrangement has been described as an “acquihire” without the acquisition part. Inflection AI aimed to use the deal and the licensing fee to provide investors, including Greylock and Dragoneer Investment Group, with a 1.5x return.
Experts had anticipated that this deal would attract antitrust scrutiny. A Microsoft spokesperson stated in April, “We remain confident that common business practices such as the hiring of talent or making a fractional investment in an AI startup promote competition and are not the same as a merger.”
Big tech-AI ‘quasi-mergers’ and antitrust watch
Governments and regulatory bodies are increasingly becoming vigilant about the potential anti-competitive effects of large tech companies’ collaborations and partnerships, especially in critical and emerging technologies like AI.
According to Tech Crunch, deals like Microsoft-Inflection are “quasi-mergers” that are the latest tactic of Big Tech to dodge regulatory oversight.
The U.S. Federal Trade Commission had in January ordered OpenAI, Microsoft, Alphabet, Amazon, and Anthropic to provide information on recent investments and partnerships involving generative AI companies and cloud service providers.
Microsoft’s investment in French AI startup Mistral AI was also facing scrutiny in the UK, but the CMA in May concluded that “does not qualify for investigation under the merger provisions of the Enterprise Act 2002.”
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