Microsoft, OpenAI tie-up comes under antitrust scrutiny

By Muvija M and Chavi Mehta

LONDON (Reuters) – Microsoft (NASDAQ:)’s partnership with ChatGPT maker OpenAI is under scrutiny from antitrust regulators in the UK and the United States, according to a statement from the British regulator and a media report.

Microsoft said last month it would take a non-voting position on the board of OpenAI, following a dramatic boardroom battle that saw the sudden ouster and return of CEO and founder Sam Altman. Microsoft, which owns 49% of the for-profit subsidiary of the startup, has committed to investing more than $10 billion in OpenAI.

The U.K. Competition and Markets Authority (CMA) said on Friday it will review whether to launch a merger probe of Microsoft’s investment in OpenAI to see if it could hurt UK competition.

The U.S. Federal Trade Commission (FTC) is also examining the nature of Microsoft’s investment in OpenAI, and whether it may violate antitrust laws, Bloomberg News reported on Friday, citing a person familiar with the matter.

Microsoft has recently tangled with both the FTC and the CMA on its acquisition of videogame publisher Activision Blizzard (NASDAQ:) over antitrust concerns.

The FTC’s inquiries are preliminary and the agency hasn’t opened a formal investigation, according to the report.

The two companies and the FTC, which had declined to comment on the CMA’s move, did not immediately respond to requests for comment on the report.

“There have recently been a number of developments in the governance of OpenAI, some of which involved Microsoft,” the CMA said on Friday.

Microsoft owns 49% of the for-profit operating company, according to sources familiar with the matter. OpenAI has a non-profit parent which owns 2%, those sources said.

The speed at which the use of AI technology is growing is unrivalled in economic history, while advances in powerful foundation models, such as the one underpinning ChatGPT mean that this is a pivotal moment in the development of this transformative technology, the CMA said.

“The only thing that has changed is that Microsoft will now have a non-voting observer on OpenAI’s board, which is very different from an acquisition such as Google (NASDAQ:)’s purchase of DeepMind in the UK,” said Microsoft vice-chair and president Brad Smith in a statement, taking a swipe at its main rival.

He said the company will work closely with the CMA. OpenAI did not immediately respond to a request for comment on the CMA’s move.

The observer position means Microsoft’s representative can attend OpenAI’s board meetings and access confidential information, but it does not have voting rights on matters including electing or choosing directors.

MOVE QUICKLY

Max von Thun, Europe director at Open Markets Institute, a non-profit organisation focused on strengthening antitrust law, said other regulators could follow the CMA given the growing concentration in AI.

“It is essential that antitrust authorities move quickly to investigate these deals, including unwinding them if necessary, to preserve competition and prevent this critical emerging technology from being monopolised.

European Union antitrust regulators said they have been following “very closely the situation of control” at OpenAI, including recent management changes as well as Microsoft’s investment in the company and its role on the AI firm’s board.

Britain’s CMA on Friday kickstarted its review with an invitation to interested parties like Google to comment by Jan. 3 2024.

A range of transactions and arrangements may constitute a relevant merger situation, including, for example, the acquisition of a minority shareholding or, in some circumstances, commercial arrangements such as outsourcing arrangements, the CMA said.

The CMA will review whether the partnership has resulted in an acquisition of control. That refers to one party having material influence, de facto control or more than 50% of the voting rights over another entity or change in the nature of control by one entity over another.

The CMA will need to find evidence that the recent fall-out from the Altman affair has led to material changes in the governance of Open AI and Microsoft’s influence over its affairs, said Alex Haffner, competition lawyer and partner at Fladgate.

Even if it doesn’t pursue a full probe, the preliminary investigation will better inform the CMA’s broader oversight of the fast-developing AI sector, he said.

The CMA, which has made global headlines with a combative approach since Britain’s departure from the European Union, blocked Microsoft’s $69 billion acquisition of Activision Blizzard, the “Call of Duty” video game maker, earlier in the year to the fury of the two U.S. companies.

It later changed its mind after Microsoft amended its acquisition plan.