Microsoft's relationship with OpenAI now in competition regulator's sights

Has recent CEO, board shenanigans given rise to a merger situation? CMA is asking for a friend

The UK's competition regulator wants to know if recent changes at OpenAI and its evolving relationship with Microsoft are cause for concern.

Specifically, the Competition and Markets Authority (CMA) is asking interested parties to comment on whether the "partnership" between the two tech vendors, "including recent events" equates to a "relevant merger situation" – the sort the CMA inspects – and if so, how that has influenced competition.

The speed that AI is "scaling across use cases and markets" is unrivaled, the regulator claimed today. It recently reported on foundation models and noted risks for competition and consumer protection.

Paramount is the requirement for "sustained" and open "competition" between AI developers to "deliver innovation, growth and responsible practices across the sector," it noted.

In its line of work, the CMA is monitoring "partnerships and strategic agreements" that could lessen development of foundation models, and it is worried about the agreement between Microsoft and OpenAI.

"The partnership between Microsoft and OpenAI (including a multi-year, multi-billion dollar investment, collaboration in technology development and exclusive provision of cloud services by Microsoft to OpenAI) represents a close, multi-faceted relationship between two firms with significant activities in FMs and related markets," the CMA says on its website.

Microsoft invested upwards of $10 billion in OpenAI and has now integrated the ChatGPT LLMs across much of its sprawling software portfolio.

The CMA is also mindful about last month's dramatic events that saw OpenAI CEO Sam Altman defenestrated and then reinstalled just days later, in a series of events that have yet to be fully explained by the company. Microsoft gave his return its blessing and secured a non-voting board seat at OpenAI.

In particular, the CMA said it will review whether the partnership between the pair resulted in "acquisition control" - when one party has material influence over the other; de facto control, or more than 40 percent of voting rights; or a change in the nature of control by one over the other.

"The invitation to comment is the first part of the CMA's information gathering process and comes in advance of launching any phase 1 investigation, which would only happen once the CMA has received the information it needs from the partnership parties," said Socha O'Carroll, CMA senior director for mergers.

Interested parties have until January 3, 2024 to comment.

In a statement sent to The Register, Brad Smith, Microsoft Vice Chair and President, said:

“Since 2019, we’ve forged a partnership with OpenAI that has fostered more AI innovation and competition, while preserving independence for both companies. The only thing that has changed is that Microsoft will now have a non-voting observer on OpenAI’s Board, which is very different from an acquisition such as Google’s purchase of DeepMind in the UK. We will work closely with the CMA to provide all the information it needs."

Alex Haffner, competition partner at UK law biz Floodgate, said that in order to move forward with any investigation, “the CMA will need to find evidence that the recent fallout from the Sam Altman affair has led to material changes in the governance of Open AI and, more specifically, Microsoft’s influence over its affairs.”

“Nonetheless, even if it does not pursue matters further, by opening a preliminary investigation the CMA will be able to better understand the scope of the governance arrangements which underpin the OpenAI project and therefore better inform its broader oversight of the fast developing AI sector.” ®

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