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Microsoft, OpenAI tie-up draws antitrust regulator scrutiny

The Federal Trade Commission is considering whether Microsoft's investment in OpenAI violates antitrust laws. Bloomberg News reported Friday, citing people familiar with the matter.

The move comes after Britain's antitrust regulator also announced on Friday that it would consider whether to launch a merger investigation into Microsoft's multibillion-dollar partnership with ChatGPT. This is the second time this year that the partnership is under way.

The decision by regulators on both sides of the pond follows last month's announcement that Microsoft, which has pledged to invest more than $10 billion in OpenAI, will have no voting rights on the company's board of directors.

A bitter board battle ensued and OpenAI CEO and founder Sam Altman was abruptly fired and reinstated.

“There have been a number of recent developments in the governance of OpenAI, some of which involve Microsoft,” the Competition and Markets Authority said on Friday.

The CMA said it will therefore consider whether the partnership with OpenAI caused a merger situation and whether it could harm competition in the UK.

Sam Altman has returned as CEO of OpenAI after a bitter board battle. Getty Images

Microsoft owns 49% of the commercial company, according to sources familiar with the matter. OpenAI has a nonprofit parent company that owns a 2% stake, sources said.

The speed at which the use of AI technology is progressing is unparalleled in economic history, but advances in powerful underlying models such as those underpinning ChatGPT mean that now is a pivotal moment in the development of this revolutionary technology. Yes, the CMA said.

“The only thing that has changed is that Microsoft will have a non-voting observer on OpenAI's board, which is very different from an acquisition like Google's acquisition of DeepMind in the UK,” said Microsoft vice chairman and president. Brad Smith said. He issued a statement scathingly criticizing his main rival.

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

UK regulators will consider whether the partnership with OpenAI created a merger situation and could harm competition in the UK. Reuters

The companies and the FTC did not respond to requests for comment on Bloomberg's report.

Observer status means that Microsoft representatives will be able to attend OpenAI board meetings and have access to confidential information, but will not have voting rights on matters such as director selection.

move quickly

Max von Thun, European director of the Open Market Institute, a non-profit organization focused on strengthening antitrust laws, said other regulators will follow the CMA given the increased focus on AI. He said it was possible.

“To maintain competition and prevent monopolization of this important emerging technology, it is imperative that antitrust authorities swiftly investigate these deals and, if necessary, terminate them.

Microsoft owns 49% of OpenAI, according to sources familiar with the matter. AFP (via Getty Images)

The European Union's antitrust regulator is “watching the governance situation very closely” at OpenAI, including recent management changes, as well as Microsoft's investment in the company and OpenAI's role on the AI ​​company's board of directors. said.

The U.S. Federal Trade Commission declined to comment. reported by bloomberg The FTC is also investigating.

The CMA said that a variety of transactions and arrangements could constitute relevant merger situations, for example the acquisition of minority interests and, in some circumstances, commercial arrangements such as outsourcing agreements.

The CMA will examine whether the partnership led to the acquisition of management rights. This means that one party has significant influence, de facto control, or more than 50% of her voting rights over another entity, or a change in the nature of one entity's control over another entity. point.

Alex Hafner, partner and competition lawyer at Floodgate, said the CMA needs to find evidence that the recent fallout from the Altman case has led to significant changes in the governance of open AI and Microsoft's influence on the issue. He said there is.

He said that even if it did not proceed with a full investigation, the preliminary investigation would assist in the CMA's broader oversight of the rapidly evolving field of AI.

The CMA launched its review on Friday, inviting interested parties, including Google, to comment by January 3, 2024.

The regulator, which has made global headlines for its combative approach since Brexit, earlier this year announced that Microsoft's $69 billion deal with “Call of Duty” video game maker Activision Blizzard The acquisition was blocked, sparking outrage from both the United States and China. companies.

Later, Microsoft revised its acquisition plan and changed its mind.

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