The U.K. Competition and Markets Authority (CMA) has initiated an inquiry into the partnership between OpenAI and Microsoft, examining whether the two entities are in a “relevant merger situation.” This inquiry comes after OpenAI co-founder Sam Altman’s abrupt dismissal and reinstatement last month, leading to a closer relationship between OpenAI and Microsoft. The CMA invites comments from companies and third parties to gather information for consideration. A “relevant merger situation” addresses scenarios where companies aren’t undergoing formal mergers or acquisitions, but their collaboration influences market competition. The inquiry will proceed through various stages, potentially leading to regulatory action.
Sorcha O’Carroll, Senior Director for Mergers at the CMA, illuminates the essence of the process, stating, “The invitation to comment is the first part of the CMA’s information gathering process and comes in advance of launching any phase 1 investigation, which would only happen once the CMA has received the information it needs from the partnership parties.’ An investigation, meanwhile, goes through several stages that could result in the CMA taking steps to de-couple the pair.”
Microsoft’s Substantial Investment in OpenAI
Microsoft’s substantial investment, amounting to billions, grants it a stake shy of 50% in OpenAI. This partnership extends beyond the financial realm, with a close collaboration in developing AI services, notably leveraging Microsoft’s Azure cloud platform.
Prominent Role in AI Development
Both entities hold prominent positions in the rapidly evolving AI landscape. OpenAI leads in constructing Large Language Models (LLMs) and services derived from these models. Microsoft’s financial and operational support has bolstered these advancements significantly. Recent events, including Microsoft’s pivotal role during a period of upheaval, seem to have piqued the CMA’s interest, potentially triggering antitrust scrutiny.
Microsoft’s Quick Offer to Ousted OpenAI Executives
Following the departure of Sam Altman and co-founder Greg Brockman from OpenAI, Microsoft swiftly extended job offers to them and other employees seeking an exit. Ultimately, Altman and Brockman were reinstated, signifying a significant victory for Microsoft, securing a non-voting board seat in OpenAI.
CMA’s Concerns on AI Market Dynamics
The CMA expresses apprehension about the rapid expansion of AI across various sectors. The regulator is particularly worried about a select few companies creating barriers to competition in developing and operating foundational AI models. The Microsoft and OpenAI partnership, involving substantial investment and technology collaboration, is under scrutiny due to their influential roles in this space.
Possible Criteria in the Merger Investigation
The CMA’s potential investigation into the Microsoft/OpenAI partnership would consider various aspects, including the distinctiveness of their AI businesses, revenue generation from their relationship (with a £70 million revenue threshold), and their collective market share exceeding 25% in the relevant AI product market. Both parties may present arguments for or against these criteria.
Alex Haffner, Competition Partner at U.K. law firm Fladgate, reflects on the CMA’s potential investigation into the Microsoft/Open AI partnership, remarking, “This announcement by the CMA that it is considering whether to investigate the Microsoft/Open AI partnership under its merger control powers is particularly interesting given wider concerns about the regulation of AI.’ Haffner emphasizes the need for evidence regarding the impact of the Sam Altman affair on Open AI’s governance and Microsoft’s influence. He notes, ‘In order to move forward with any investigation, the CMA will need to find evidence that the recent fall-out from the Sam Altman affair has led to material changes in the governance of Open AI and, more specifically, Microsoft’s influence over its affairs.’ Furthermore, Haffner underscores the broader implications, stating, ‘Nonetheless, even if it does not pursue matters further, by opening a preliminary investigation, the CMA will be able to better understand the scope of the governance arrangements which underpin the Open AI project and therefore better inform its broader oversight of the fast developing AI sector.”
Even if a full-scale investigation doesn’t proceed, the CMA’s initial probe might spotlight the Microsoft/OpenAI dynamics and their activities in the AI domain. This could provide the regulator with insights for future considerations in the rapidly evolving AI sector.
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