UK Antitrust Regulator Reviewing Microsoft, OpenAI Partnership

Britain's antitrust regulator said on Friday it will review whether to launch a merger probe of Microsoft's multi-billion dollar partnership with ChatGPT maker OpenAI, weighing in on the US software giant's operations for a second time this year.

The review will consider whether the tie-up has resulted in an "acquisition of control", the Competition and Markets Authority (CMA) said on Friday.

It is the second time this year the regulator has looked at competition issues surrounding the US software giant's operations. The CMA said it will be considering if the OpenAI partnership had resulted in the creation of a merger situation, before deciding on any official investigation.

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

"In light of these developments, the CMA is now issuing an ITC (Invitation to Comment) to determine whether the Microsoft/OpenAI partnership, including recent developments, has resulted in a relevant merger situation and, if so, the potential impact on competition."

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 move comes after a November announcement that Microsoft, which has committed to invest over $10 billion into OpenAI, will take a non-voting position on the board. That followed a tumultuous boardroom battle which saw the sudden ouster and return of OpenAI CEO and founder Sam Altman.

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 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'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.

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 nonprofit focused on strengthening antitrust law, said other regulators could follow the CMA's move 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.

The US Federal Trade Commission and the EU Commission did not immediately respond to requests for comment.

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 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.

"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 that underpin the Open AI project and therefore better inform its broader oversight of the fast developing AI sector," said Haffner.

On Friday, the CMA kickstarted the review with an invitation to interested parties like Google and other rivals to comment by Jan. 3 2024.

The regulator, 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 US companies.

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

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