Microsoft will face increased competition scrutiny in Germany, including over its use of artificial intelligence

Microsoft has joined an exclusive club of technology giants that are subject to a special fraud control system in Germany. The country’s Federal Cartel Office (FCO) confirmed on Monday that the software giant could face restrictions if the competition authority decides intervention is necessary.

The appointment, which is valid for five years, is significant because it allows the German body to take a closer look at how Microsoft is making an impact through its activities around generative artificial intelligence.

However, the regulator said it had not yet made any decisions on “possible proceedings”.

In recent years, Microsoft’s influence over OpenAI has put the two on the radar of antitrust regulators. In this low-key relationship, Microsoft briefly hired OpenAI frontman Sam Altman and other key employees last fall during a board dispute.

Although Altman ultimately remained at OpenAI, the episode highlighted the closeness between the two companies, with Microsoft even being given an observer seat on OpenAI’s board (he resigned from it in the summer). However, it seems that for now, careful planning of their layout has allowed this effect to be maintained.

The FCO has already looked at the companies’ partnership and in November last year found that their relationship did not meet the criteria for a traditional merger assessment. But now that the regulator has more proactive and broader powers to regulate Big Tech, Microsoft’s relationship with OpenAI may come under closer scrutiny in Germany in the future.

The FCO press release highlights how Microsoft’s Copilot AI assistant is used “across many parts” of the ecosystem. It also combines the company’s strength in cloud computing with helping it form partnerships with “highly innovative vendors” as it can “offer their AI models as a service on Azure and integrate them into its own products.”

Commenting in a statement, Andreas Mundt, chairman of the FCO, also highlighted Microsoft’s long history of software dominance, adding: “Today, the Microsoft ecosystem is stronger and more closely interconnected than ever before, because at the heart of everything it does is the growing use of cloud and AI, i.e. key technologies in which Microsoft has established its strong position by developing its own products and establishing cooperationS.“

The FCO began investigating whether the tech giant’s market power had met the bar under its special abuse control regime in March 2023. This confirmation that the company is “of the highest importance for competition in markets” opens up a range of powers included in the 2021 update of the German rulebook antitrust. The reform aims to counter concerns that Big Tech’s market power makes it harder for rivals to innovate and compete.

The German law already applies to Amazon, Apple, Google and Meta and predates the EU’s Digital Markets Act (DMA), a similar ex ante competition reform that is also being used to clip the wings of Big Tech.

However, the DMA only applies operational controls to named platforms, while the FCO has designated Microsoft as a whole. This means that the German authority has greater freedom to impose controls on Microsoft’s activities, including around AI, if it finds that the company’s activities restrict competition.

The EU’s DMA project was developed before the development of generative artificial intelligence tools made ChatGPT widely known. Microsoft has been designated as a watchdog, but only two of its platforms are directly regulated: its Windows operating system and its social network LinkedIn. This limits the European Commission’s ability to intervene in Microsoft’s AI activities unless they specifically fall within the scope of these two “core platform services”.

“Our decision concerns Microsoft as a whole, not just individual services or products,” Mundt emphasized. “Based on our decision, we may end anti-competitive practices that are not covered by the DMA.”

Microsoft spokeswoman Sophie Thomas said in an emailed statement: “We recognize our responsibility to support a healthy competitive environment and will strive to be proactive, collaborative and responsible in cooperation with the Bundeskartellamt (FCO). Microsoft works with the most innovative companies in Germany and we are committed to investing in the development of their digital economy.”