Competition watchdog clears Microsoft arrangements with Inflection AI

The UK’s competition regulator has cleared Microsoft’s arrangements with an artificial intelligence start-up after examining potential competition concerns around the partnership.

The Competition and Markets Authority (CMA) inquiry had centred around the hiring of Inflection AI staff to Microsoft and where this and other arrangements between the firms qualified as a merger, and whether it could negatively affect competition in the tech sector.

Earlier this year, Microsoft announced the creation of a new team, Microsoft AI, to be led by British AI pioneer Mustafa Suleyman, who was the head of Inflection, having previously founded DeepMind, the AI firm now owned by Google.

A number of other Inflection staff have followed Mr Suleyman to Microsoft.

In its investigation, the CMA found that, while a relevant merger situation had been created by Microsoft’s hiring of Inflection staff and other arrangements made between the firms, the transaction did not substantially reduce competition and therefore could be cleared.

Earlier this year, the CMA published a report raising concerns about the potential risks to open, fair and effective competition in the AI market.

The report specifically identified what it called an “interconnected web” of more than 90 partnerships and strategic investments between a small handful of the biggest tech and AI firms, a set-up it warned could be used to consolidate power and resources within the sector.

It has since launched other investigations into a number of those partnerships, including Google parent firm Alphabet’s links to Anthropic, and Amazon’s links to the same company.

It has also asked for views from interested parties on a number of other partnerships involving tech giants and AI firms.

The AI sector has seen a number of high-profile links announced over the last two years – for example, Microsoft is the largest investor in ChatGPT maker OpenAI.

OpenAI has also formed a partnership with Apple to embed ChatGPT into future generations of the iPhone as part of Apple’s plans to bring more generative AI tools to its products.

Some of these partnerships have involved billions of dollars being invested into the AI start-ups, with concerns being raised that these big investments and partnership deals could see large companies exert some control over the direction of AI firms without attracting the regulatory scrutiny that a full acquisition might.

Writing in a blog post on the CMA’s decision around Microsoft and Inflection, Joel Bamford, executive director of mergers at the competition regulator, said: “Given the complex and opaque nature of some of some of these deals, we said in April that we’d monitor them closely and take a more detailed look at ones which could potentially fall under UK merger law – and if so, whether they might have a harmful anti-competitive effect on UK consumers and businesses.

“One of the deals we have investigated is Microsoft’s arrangements with Inflection AI, which included the hiring of the vast majority of its employees.

“Today we announced that our Phase 1 investigation has found that the transfer of employees, coupled with other tactical arrangements, mean that two enterprises are no longer distinct. As such, the transaction does qualify as a merger under UK law, and the CMA has the jurisdiction to review it.

“We also looked at whether or not the merger is likely to cause a significant lessening of competition. In this case, the evidence did not show competition concerns requiring a more in-depth Phase 2 review.

“Inflection AI is not a strong competitor to the consumer chatbots that Microsoft has developed directly (Copilot) and in partnership with OpenAI (ChatGPT).

“On this basis, we cleared the transaction.”