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Microsoft And OpenAI Face Scrutiny By UK Regulator CMA

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The recent management shake-up at OpenAI, which saw co-founder Sam Altman reinstated, has led to a closer relationship with Microsoft. However, this new alliance is now being investigated by the Competition and Markets Authority (CMA) in the UK. The CMA is examining whether the partnership between Microsoft and OpenAI qualifies as a “relevant merger situation.”

Key Takeaway

The Competition and Markets Authority (CMA) in the UK has launched an investigation into the partnership between Microsoft and OpenAI, questioning whether it constitutes a “relevant merger situation.” This inquiry highlights the regulatory concern surrounding prominent companies in the AI sector and their potential impact on competition.

An Inquiry Begins

The first step in the process is the CMA’s announcement of its interest and an invitation for comment from both companies and interested third parties. This invitation allows for feedback to be provided, which the CMA will consider as it evaluates its next course of action.

Sorcha O’Carroll, Senior Director for Mergers at the CMA, stated, “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. An investigation would only occur once the CMA has received the necessary information from the partnership parties.”

The term “relevant merger situation” is a regulatory term that encompasses various types of relationships. It applies to situations where a company’s relationship with another impacts competition in the market, even if there isn’t an outright acquisition or merger.

The CMA acknowledges that a range of transactions and arrangements can constitute a relevant merger situation, including minority shareholding and commercial agreements. In the case of Microsoft and OpenAI, both of these factors come into play. Microsoft invested billions in OpenAI, acquiring nearly 50% of the business, and the two companies collaborate closely on AI services, including ones utilizing Microsoft’s Azure cloud platform.

The Significance of the Microsoft-OpenAI Relationship

Microsoft and OpenAI have been at the forefront of AI development, particularly in the field of language learning models (LLMs). OpenAI has set the pace for building LLMs and services based on them, with financial and operational support from Microsoft. Microsoft’s involvement played a key role in the recent turmoil at OpenAI, catching the attention of the CMA.

The CMA stated, “There have recently been a number of developments in the governance of OpenAI, some of which involved Microsoft.”

The CMA recognizes the rapid advancement and widespread adoption of AI and the transformative nature of the technology. However, it is concerned that a few companies, such as Microsoft and OpenAI, may be hindering competition in the development and operation of foundation models (FMs).

The partnership between Microsoft and OpenAI, with its substantial investment, technology collaboration, and exclusive provision of cloud services by Microsoft, represents a deep and multifaceted relationship between two major players in the FM and related markets, according to the CMA.

The Road Ahead

Should the CMA decide to proceed with a full investigation, additional criteria will be considered under the Enterprise Act. These criteria include determining if the two companies are distinct enough in the AI sector, assessing the revenue generated through their relationship (with a £70 million threshold), and evaluating whether they control more than 25% of the market for the relevant product.

Regardless of the outcome, this scrutiny offers the CMA an opportunity to shed light on the Microsoft-OpenAI partnership and the activities of both companies. Given their prominence in the AI field, this investigation may provide the CMA with valuable insights for its oversight of the rapidly evolving AI sector.

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