Microsoft resigns as observer on OpenAI board to avoid antitrust scrutiny

By Foo Yun Chee

BRUSSELS (Reuters) – Microsoft has resigned from its observer seat on OpenAI’s board, a move aimed at allaying concerns from U.S. and British competition regulators about the scope of Microsoft’s control over the artificial intelligence startup amid the growing popularity of generative AI.

But the change is unlikely to address the concerns of the U.S. Federal Trade Commission, a source at the agency said Wednesday. The FTC is conducting an antitrust review of deals between big tech companies and leading AI firms.

An FTC source said the move shows that Microsoft recognizes the potential security risks posed by antitrust laws and is trying to get ahead of them.

A Microsoft spokesman did not immediately respond to a request for comment sent Wednesday.

Meanwhile, Apple, which last month said it was bringing OpenAI’s chatbot ChatGPT to its devices, will not take an observer role on OpenAI’s board, despite being widely expected, according to a person with direct knowledge of the matter. The person added that OpenAI has no plans to offer any observer roles on the board in the future. Apple did not respond to a request for comment.

An OpenAI spokesperson said the company will be taking a new approach to stakeholder engagement, holding regular meetings with strategic partners like Microsoft and Apple, and investors like Thrive Capital and Khosla Ventures.

In November, after OpenAI CEO Sam Altman took over the reins of the company again, Microsoft took a non-voting observer position on the OpenAI board.

This position meant Microsoft could attend OpenAI board meetings and have access to confidential information, but had no say in matters such as selecting or recommending directors.

Microsoft’s observer status and investment in OpenAI of over $10 billion have raised concerns among competition authorities in the European Union, the UK and the US about the extent of control the company exerts over OpenAI.

As Microsoft said in a July 9 letter to OpenAI, this position allowed for insight into the board’s work without compromising its independence.

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The company cited new partnerships, innovation and a growing customer base since Altman returned to the startup as reasons for stepping down as an observer.

“Over the past eight months, we have witnessed significant progress from our newly formed management team and we are confident in the direction the company is headed. Given all of this, we no longer believe our limited observer role is necessary,” the letter said.

EU antitrust regulators said last month that the partnership would not be subject to EU merger rules because Microsoft does not control OpenAI. Instead, they will seek advice from third parties on exclusivity clauses in the deal.

Meanwhile, British and American competition authorities continue to have concerns and questions about Microsoft’s influence on OpenAI and the latter’s independence.

Bill Baer, ​​a former U.S. antitrust official and visiting scholar at the Brookings Institution, said Wednesday that the risks of simultaneous antitrust investigations appear to outweigh the benefits of being an observer on OpenAI’s board.

“It looks like the right decision,” he said, but added that regulators’ concerns extend beyond board membership.

Microsoft is making a smart move to remove the only tangible evidence of potential control/influence over OpenAI. That will make it very difficult for competition authorities to prove otherwise, said an antitrust lawyer who spoke on condition of anonymity due to industry sensitivity.

The UK Competition and Markets Authority declined to comment.

Microsoft and OpenAI are increasingly competing to sell AI technology to enterprise customers, both aiming to generate revenue and demonstrate their independence to regulators amid antitrust concerns.

Additionally, Microsoft is expanding its AI offerings on Azure and has hired the CEO of tech company Inflection to lead its consumer AI business, a move widely seen as an attempt to diversify beyond OpenAI.

(Reporting by Foo Yun Chee in Brussels; Additional reporting by Krystal Hu and Jeffrey Dastin in San Francisco, Nilutpal Timsina in Bengaluru, Jody Godoy in New York and Matt Scuffham in London; Editing by Jamie Freed, Miral Fahmy, Mark Potter and Matthew Lewis)