Microsoft resigns as observer on OpenAI board to avoid antitrust scrutiny

Microsoft has resigned from its observer seat on OpenAI’s board, a move that aims to address concerns from U.S. and U.K. competition regulators about the scope of the company’s scrutiny of the AI ​​startup amid the growing popularity of generative AI.

But the change is unlikely to address concerns from the U.S. Federal Trade Commission, a source at the agency said Wednesday. The FTC is conducting antitrust reviews 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 be taking 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 establish a new approach to stakeholder engagement by holding regular meetings with strategic partners like Microsoft and Apple, and investors like Thrive Capital and Khosla Ventures. Microsoft took a nonvoting observer position on OpenAI’s board in November after OpenAI CEO Sam Altman took the reins of the company.

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 United Kingdom and the United States about the extent of control the company exerts over OpenAI.

Microsoft said in a July 9 letter to OpenAI that the position allows for insight into the board’s work without compromising its independence.

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.

Last month, EU antitrust regulators said the partnership would not be subject to the bloc’s merger rules because Microsoft does not control OpenAI, but would instead seek third-party opinions on the deal’s exclusivity clauses. Meanwhile, British and U.S. antitrust watchdogs still have concerns, as well as questions, about Microsoft’s influence over OpenAI and its 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 wise decision to remove the only tangible evidence of possible control or influence over OpenAI. This will make it very difficult for competition authorities to prove otherwise, said an antitrust lawyer who asked not to be identified 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.