The European Union is currently examining whether Microsoft’s investment in OpenAI, a leading generative AI company, falls under the bloc’s merger regulations. This investigation follows a tumultuous period at OpenAI in late November, during which the board made the surprising decision to remove founder and CEO Sam Altman. Microsoft, a major investor in OpenAI, responded by offering Altman a position and extending similar offers to other OpenAI employees amid the leadership upheaval. The situation ultimately resulted in Altman’s reinstatement and the appointment of a new board, which saw the departure of several members who had supported his removal. Notably, Microsoft also gained representation on the board as a non-voting observer for the first time.
Key Takeaway
The European Union is investigating whether Microsoft’s investment in OpenAI violates merger regulations, following a period of leadership upheaval at the AI company.
Regulatory Scrutiny
The UK’s competition authority initiated an inquiry to determine whether Microsoft and OpenAI are in a “relevant merger situation.” The deadline for comments on this matter closed on January 3, but the scrutiny process is ongoing. Germany’s Federal Cartel Office also previously examined the relationship between the two companies and warned that any increase in Microsoft’s influence over OpenAI would require re-evaluation under competition law.
EU’s Call for Contributions
The European Commission has invited stakeholders to provide their perspectives on the level of competition in the context of virtual worlds and generative AI. It is seeking insights on how competition law can ensure that these emerging markets remain competitive. The Commission is also investigating agreements between major digital market players and generative AI developers to assess their impact on market dynamics.
EU Merger Regulation Review
The European Commission is specifically examining whether Microsoft’s investment in OpenAI is reviewable under the EU Merger Regulation. The Commission is seeking to understand the impact of the transaction on competition and may organize a workshop to gather different perspectives on the matter.
Potential Regulatory Actions
If a transaction involving a change of control on a lasting basis is identified, the Commission would have the authority to assess its impact on competition and impose remedies if necessary. The Commission has been closely monitoring the situation between Microsoft and OpenAI, including Microsoft’s role on the OpenAI board and the investment agreements between the two companies.
Implications for Competition
The scrutiny of Microsoft’s investment in OpenAI reflects the EU’s efforts to ensure competitive markets in the rapidly developing fields of virtual worlds and generative AI. While the Digital Markets Act (DMA) aims to address competition issues in the digital sector, traditional merger regulations could also serve as a regulatory check on tech giant overreach in the AI market.
Advocacy for Regulatory Action
Digital rights and pro-competition groups have called for competition regulators to investigate Microsoft’s investment in OpenAI, expressing concerns about the concentration of power in the hands of a few dominant technology firms. These groups are urging regulators to prevent further oligopolistic control in the AI sector through early and aggressive action against anti-competitive behavior.
