Microsoft and Nvidia will face US antitrust investigations over AI moves

(Bloomberg) — The United States is launching antitrust investigations into two of the world’s most valuable companies, Microsoft Corp. and Nvidia Corp. over their dominance in the fast-growing field of artificial intelligence, according to people familiar with the matter.

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Microsoft has committed more than $13 billion to partner with OpenAI, leveraging the startup’s generative artificial intelligence technology across its Bing search service, Edge web browser and Windows. Nvidia, the world’s most valuable chipmaker, has admitted to allocating its chips to customers it thinks will be most likely to use them quickly, raising concerns that it has too much power over the market for cutting-edge AI semiconductors.

The country’s two antitrust agencies have also agreed to share responsibility for artificial intelligence. The Federal Trade Commission will investigate Microsoft’s ties to OpenAI while the Justice Department will examine Nvidia’s dominance in AI chips, said the people, who asked not to be identified because of negotiations between the agencies. The Justice Department will retain oversight of Alphabet Inc.’s Google. – people say.

The agencies reached the agreement over the past few days after more than six months of negotiations, the people said. The agreement gives each agency the power to initiate antitrust investigations into the conduct of relevant companies and their recent transactions.

According to the opinion, the FTC also opened an investigation into whether Microsoft failed to properly notify antitrust authorities about its deal with Inflection AI. In March, the Redmond, Washington-based software giant agreed to pay the startup $650 million to license its AI software and hired most of Inflection’s employees. The agency can impose penalties if it finds Microsoft has violated transaction reporting laws.

A Microsoft spokeswoman said the FTC had not contacted the company about OpenAI.

“Our agreements with Inflection have given us the opportunity to recruit people at Inflection AI and build a team capable of accelerating Microsoft Copilot, while enabling Inflection to continue to pursue its independent operations and ambitions as an AI studio,” the company said in a statement. “We take our legal obligations to report transactions seriously and are confident that we have complied with those obligations.”

The Justice Department, FTC, OpenAI, Google and Nvidia declined to comment. The New York Times previously reported on the FTC-DOJ agreement.

The Justice Department and the FTC jointly enforce U.S. antitrust laws and work together to coordinate which agency will investigate mergers and anticompetitive behavior through a process known internally as clearing. High-profile cases such as those involving Google have already sparked fierce disputes between agencies.

The deal was negotiated directly between Deputy Attorney General Jonathan Kanter and FTC Chair Lina Khan, the people said. They met in person this week on the sidelines of a conference in Washington.

The Justice Department initially proposed dividing the cases by company, taking all Microsoft-related antitrust issues for itself and turning over everything related to Nvidia to the FTC, the people said. The FTC has a prior history with Nvidia, overseeing recent mergers and filing lawsuits seeking to stop the company from purchasing Arm Ltd. in December 2021. Nvidia subsequently walked away from that deal.

The Department of Justice’s proposal is consistent with current practice. With the exception of Microsoft’s recent acquisition of Activision Blizzard, Justice has overseen the company since 1993 and has deep knowledge of the search and browser markets thanks to recent cases against Google.

The FTC disagreed with this division of powers, arguing that it has more relevant experience to take over Microsoft and its consumer protection mandate means it is in a better position to challenge potentially problematic conduct by artificial intelligence startups .

Last year, the commission was in the early stages of examining the cloud computing market, soliciting comments from the public. As part of that investigation, online competitors and others filed complaints against both Amazon.com Inc. and Microsoft, the No. 1 and No. 2 cloud companies, respectively, which control more than 55% of the market.

Last year, the agency also requested information from OpenAI as part of an investigation into whether the company engaged in unfair or deceptive practices that caused “image damage” to consumers.

In January, the FTC opened an investigation into Microsoft’s investment in OpenAI, as well as Google and Amazon’s agreements to invest in rival artificial intelligence startup Anthropic. The five-member agency failed to inform the Justice Department before announcing the study, increasing tensions between the two agencies, according to the people.

Last week, the Department of Justice held a public workshop on artificial intelligence competition at Stanford University, attended by dozens of companies from across the industry. While Nvidia was rarely mentioned by name, the companies said the shortage of high-power chips needed to train core artificial intelligence models was significantly impacting the industry.

Nvidia’s leaders have openly admitted that they allocate shipments of chips and other products to customers. They decide who gets what based on whether the potential recipient can immediately run these products in a ready-to-use data center. Nvidia says this is a mechanism to ensure that data center operators do not hoard the chips.

The chip industry has long endured periods where there is not enough supply to meet demand, then ramps up production and ends up with more chips than buyers. Recently, Tesla Inc. founder Elon Musk said he was redirecting some of the Nvidia chips he ordered from Tesla to other companies he controls because the electric car maker doesn’t have the space to launch them immediately.

Overall, Nvidia said it was struggling to obtain enough supply from its manufacturing partners to meet the rapid increase in demand. While this supply is improving, it will likely still be insufficient.

The European Union also looked into Microsoft’s investment in OpenAI, but ultimately decided not to launch a formal investigation. The UK competition authority has also said it would investigate the partnership, but last month it separately decided that Microsoft’s deal with French artificial intelligence company Mistral AI did not qualify for an investigation.

— With help from Jackie Davalos and Davey Alba.

(Updates with additional details beginning in sixth paragraph.)