UK antitrust police launch investigation into Microsoft-Inflection AI merger • The Register

Updated British antitrust authorities today announced the launch of an investigation into Microsoft’s merger with startup Inflection AI, which involved the poaching of employees.

The Competition and Markets Authority (CMA) concerns stem from the employment of Inflection AI co-founders Mustafa Suleyman and Karén Simonyan, as well as “several members” of the Inflection team, who left for Microsoft in March.

Suleyman, who has been accused of abusing subordinates in previous roles, is now CEO of Microsoft’s AI division, while Simonyan is the group’s chief scientist. The appointments, and the $650m (£502m) deal that gave Microsoft access to Inflection’s models, have the CMA wondering whether competition on the islands could be reduced as a result.

British officials have been investigating the matter since April, when the CMA said it wanted third-party views on whether the Microsoft/Inflection AI deal and Amazon’s $4 billion investment in Anthropic fell within British merger guidelines despite not being formal takeovers.

It is unclear whether the Amazon case, which opened on the same day as the Microsoft case and has the same deadlines for public comment, will move forward. The CMA did not respond to questions about it by time of publication.

But British competition watchdogs are ready to pounce on Microsoft.

The CMA said it “has sufficient information concerning Microsoft Corporation’s employment of certain former employees of Inflection AI, Inc. and its entering into related arrangements with Inflection to enable it to initiate an investigation,” the CMA’s notice reads (PDF).

UK mergers fall under the “material merger situation” which requires investigation in cases where “two or more businesses have ceased to be separate entities” and the transaction exceeds the £70 million threshold or is likely to affect at least 25 per cent of the domestic supply of a particular good or service.

Given that Inflection AI continues to operate as an independent company, and the CMA acknowledges (PDF) that Microsoft’s half-billion-dollar contract with the company involved non-exclusive access to its models, the outcome of the investigation cannot be guaranteed.

The Phase One merger investigation, which began today, will run until 11 September, by which time the CMA is expected to decide whether to refer the case for a more detailed “Phase Two” investigation.

CMA officials declined to comment on the matter, saying it was too early to add anything beyond what had been published online.

The EU and the US also want to have their share in this action

Even if Microsoft manages to avoid the CMA’s wrath in this case, it will not escape regulatory scrutiny in other areas.

The U.S. Federal Trade Commission opened an investigation into Microsoft/Inflection AI in early June, saying it was curious whether the talent acquisition and cash investment were essentially a merger in all but name. The FTC is also investigating Microsoft’s close relationship with OpenAI amid concerns the pair has an unfair advantage over competitors.

And things aren’t much better in the EU, where antitrust chief Margrethe Vestager said in April that officials were aware of Microsoft’s deal with Inflection AI. Vestager mentioned Microsoft and Inflection AI in a speech late last month, saying the Commission was investigating whether the deal was designed to avoid antitrust scrutiny.

“We will make sure that these practices are not caught by our merger control rules if, in principle, they lead to a concentration,” Vestager said at the time.

The European Commission has told us it is still reviewing the Microsoft/Inflection AI deal under antitrust rules, and if it finds the deal to be a merger, Microsoft could already be in trouble.

“From a merger perspective… this transaction has not been formally notified to the Commission,” an EC spokesperson told us. “If a transaction constitutes a concentration and has an EU dimension, companies always have to notify it to the Commission.”

The EU is also investigating Microsoft’s deal with French AI startup Mistral, after Microsoft invested 15 million euros ($16.3 million) in the company days after it launched competitor ChatGPT.

Neither Microsoft nor Inflection AI responded to questions asked for this article. ®

Updated on July 16, 2024 at 16:33 UTC to add:

After this article was published, Microsoft sent a statement to Register:

“We believe that hiring talent promotes competition and should not be treated as a merger. We will provide the UK Competition and Markets Authority with the information it needs to complete its investigations expeditiously.”