Competition authority approves Microsoft’s agreements with Inflection AI

The Competition and Markets Authority (CMA) investigation focused on the hiring of Inflection AI employees at Microsoft and whether this and other agreements between the companies could be classified as a merger and whether they could negatively affect competition in the technology sector.

Earlier this year, Microsoft announced the creation of a new team called Microsoft AI, which will be led by British AI pioneer Mustafa Suleyman, the former head of Inflection who previously founded DeepMind, the AI ​​company now owned by Google.

A number of other Inflection employees have followed Mr. Suleyman to Microsoft.

In its investigation, the CMA found that although Microsoft’s hiring of Inflection employees and other agreements between the companies had created a relevant merger situation, the transaction did not significantly restrict competition and could therefore be approved.

Earlier this year, the CMA published a report raising concerns about potential risks to open, fair and effective competition in the AI ​​market.

In particular, the report identified an “interconnected web” of more than 90 partnerships and strategic investments between a handful of the largest technology and AI companies. The report warned that this structure could be used to consolidate power and resources within the sector.

Since then, the Commission has launched further investigations into several of these partnerships. Among other things, it is looking into the links between Google’s parent company Alphabet and Anthropic, as well as Amazon’s links with the same company.

In addition, interested parties were asked for their views on a number of other partnerships involving technology giants and AI companies.

In the AI ​​sector, a number of high-profile alliances have been announced over the past two years – for example, Microsoft is the largest investor in ChatGPT maker OpenAI.

OpenAI has also partnered with Apple to embed ChatGPT into future iPhone generations as part of Apple’s plans to integrate more generative AI tools into its products.

Some of these partnerships have involved billions of dollars being invested in AI startups. At the same time, concerns have been raised that these large investments and partnerships could allow large companies to exert some control over the direction of the AI ​​companies without the same regulatory scrutiny that would be the case with a full acquisition.

Joel Bamford, executive director of mergers at the competition authority, wrote in a blog post about the CMA’s decision regarding Microsoft and Inflection: “Given the complexity and opacity of some of these transactions, we said in April that we would be monitoring them closely and taking a closer look at those that may fall within UK merger law – and if so, whether they have potentially harmful anti-competitive effects on UK consumers and businesses.”

“One of the deals we examined is Microsoft’s agreements with Inflection AI, which included the hiring of the vast majority of its employees.

“We announced today that our Phase 1 investigation found that the transfer of employees, coupled with other tactical arrangements, means that the two businesses are no longer separate. Therefore, the transaction qualifies as a merger under UK law and the CMA has the power to review it.

“We also considered whether the merger was likely to result in a significant lessening of competition. In this case, the evidence did not reveal any competition concerns that would require a more detailed assessment at Phase 2.

“Inflection AI is not a strong competitor to the consumer chatbots that Microsoft has developed directly (Copilot) and in partnership with OpenAI (ChatGPT).

“On this basis, we have approved the transaction.”