Microsoft and Apple withdraw from OpenAI board over antitrust concerns

As big tech companies expand through acquisitions and advancements, regulators are raising concerns about potential anti-competitive practices. FAMGA (Facebook, Apple, Microsoft, Google, Amazon) has invested $59 billion in AI research. The rapid growth of these companies has prompted new antitrust laws to focus on fair competition and prevent monopolistic behavior.

Microsoft and Apple have made the significant decision to withdraw from OpenAI’s board amid heightened regulatory scrutiny from US, UK and EU authorities, reflecting growing scrutiny.

In this blog, we will discuss the implications of increased regulatory scrutiny of OpenAI, new digital governance, and the impact on the industry as a whole.

Microsoft leaves OpenAI board

On July 10, 2024, Microsoft officially announced its exit from OpenAI’s board of directors. In the letter, Microsoft Deputy General Counsel Keith Dolliver stated, “We are confident in the direction of the company and have witnessed significant progress on the newly formed board over the past eight months, and we no longer believe our limited observer role is necessary.”

Microsoft became interested in OpenAI’s board following a power struggle that briefly ousted CEO Sam Altman, and the company played a key role in rehiring Sam Altman as OpenAI’s CEO.

After being reinstated, Sam Altman announced Microsoft’s new role on the OpenAI board as a non-voting observer in his inaugural statement. This allowed Microsoft representatives to attend board meetings and gain access to confidential information.

However, they would not have voting rights. This development, along with a $13 billion investment, made Microsoft OpenAI the largest and most important investor.

The close ties between the two companies and Microsoft’s possible access to confidential information have led regulators to focus on fair competition and market practices.

Regulators investigate potential anti-competitive practices

Following the controversial temporary dismissal of OpenAI’s CEO in December 2023, the UK’s Competition and Markets Authority (CMA) has opened an investigation into the Microsoft and OpenAI partnership.

Similarly, the European Commission (EU) has also asked for more information regarding “certain exclusivity clauses” in Microsoft’s deal with OpenAI that could be harmful to competition. The head of the competition office, Margrethe Vestager, stressed that the EU will be closely monitoring the rapidly developing AI market.

The EU will place particular emphasis on one area, called “Acquisition and Employment”, where a company buys another company primarily to acquire its key talent.

“It is hard not to conclude that Microsoft’s decision was largely dictated by ongoing competition and antitrust scrutiny,“said British lawyer Alex Haffner.

All of this could slow down the development of innovative artificial intelligence (AI) solutions needed to gain a competitive advantage, and could also threaten companies’ reputations.

OpenAI’s response and governance changes

Following Microsoft’s withdrawal, OpenAI has pledged to increase transparency in its relationships with strategic partners and plans to ease regulatory concerns and strengthen governance.

“We are grateful to Microsoft for their continued support and look forward to continuing our fruitful collaboration,“said Steve Sharpe, a spokesman for OpenAI.

However, OpenAI will no longer offer stakeholders the role of non-voting board observers. The company will adopt a new strategy of holding more frequent stakeholder meetings to share progress and improve collaboration, especially around security.

“Under the new leadership of CFO Sarah Friar, we plan to hold regular meetings with partners such as Apple and Microsoft, and key investors Khosla Ventures and Thrive Capital,“- said Steve Sharpe.

Impact of Microsoft’s Withdrawal from OpenAI Board

As antitrust pressure mounts in the US, UK and EU, Microsoft’s exit from OpenAI’s board helps ease regulatory concerns. By distancing itself from direct board involvement, the company can navigate potential antitrust complications and maintain positive relations with regulators.

However, Microsoft’s exit will not harm its partnership with OpenAI. It is still OpenAI’s largest investor, controlling about 49% of the ownership stake. In the future, the company plans to integrate OpenAI models into Office 365 and Azure products to provide a better customer experience.

Apple avoids the role of observer

With Microsoft’s departure, Apple also withdrew its plans to join OpenAI’s board as a non-voting observer. This development comes despite Apple’s joint venture with OpenAI, in which the company planned to include ChatGPT in Apple’s product offerings.

While Apple’s AI improvements have significantly improved Siri and machine learning capabilities, the tech giant has preferred to avoid potential regulatory issues.

Broader Industry Trends

Regulators are becoming increasingly vigilant about scrutinizing AI mergers and acquisitions (M&As), with top U.S. antitrust regulators currently investigating investments by Microsoft, Google, and Amazon in startups like OpenAI and Anthropic.

“Our investigation aims to determine whether investments and alliances by these dominant companies have the potential to distort innovation and hinder fair competition,” said Lina Khan, head of the Federal Trade Commission (FTC).

The UK competition regulator CMA is also investigating Microsoft’s rehiring of Inflection AI’s CEO to determine whether it resulted in a “significant lessening of competition” in the AI ​​industry.

Similarly, the U.S. Department of Justice (DOJ) has opened two separate investigations into Nvidia due to growing antitrust concerns about its AI-focused business activities. Nvidia has a 70% to 95% market share of chips needed to train AI models.

This dominance has not escaped the attention of other international regulators. Last month, Reuters reported that Nivida could face antitrust charges in France.

There’s been a broader trend in the tech industry where regulators are scrutinizing the acquisition of startups and AI technologies to discourage monopolistic behavior. Microsoft’s decision to leave OpenAI’s board was seen as a proactive effort to prevent the perception of exerting undue influence over smaller companies.

However, technology companies will continue to work with AI startups in various ways, such as providing funding, technical support, and strategic advice.

Key Results

With more regulatory scrutiny, tech giants need to be more cautious when investing in AI startups. Additionally, OpenAI’s board shakeup and scrutiny present an opportunity for tech companies to improve governance protocols, strengthen partnerships, and proactively address compliance obligations.

All this will contribute to the development and implementation of responsible and understandable artificial intelligence.

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