The UK Competition and Markets Authority (CMA) has officially initiated an inquiry into Microsoft’s hiring of staff from the AI start-up Inflection AI.
TakeAway Points:
- The UK CMA has opened an investigation into Microsoft’s $650 million acquisition of Inflection AI personnel, focusing on the potential effects on competition.
- Microsoft promises to fully cooperate with the CMA’s probe and maintains that the hiring encourages competition rather than a merger.
- The European Commission and the US Federal Trade Commission are among the international regulators who are conducting a thorough investigation of Big Tech’s investments in AI start-ups.
UK CMA launches investigation
This move is part of a broader regulatory scrutiny of investments by major technology companies in the rapidly evolving AI sector. The CMA stated on Tuesday that it had “sufficient information” regarding Microsoft’s hiring of “certain former employees of Inflection AI and its entry into associated arrangements with Inflection” to commence an investigation.
The regulator had previously invited comments on the Microsoft-Inflection tie-up in April, reflecting concerns about dealmaking in the AI industry. The deadline for the CMA to escalate its probe to the next level is set for September 11.
Microsoft, which participated in a $1.3 billion funding round for Inflection last year, paid $650 million in March to hire the start-up’s chief executive Mustafa Suleyman, co-founder of Google’s DeepMind, along with several other team members, and to license its technology. Inflection, founded in 2022 as a consumer AI company with a chatbot product called Pi, pivoted to selling enterprise AI software to businesses after most of its staff joined Microsoft. The move has drawn scrutiny from regulators and legal experts, who argue that it resembles an acquisition by Microsoft but was not subject to formal acquisition rules.
Microsoft’s position in the matter
Microsoft has expressed confidence that its hiring practices promote competition.
“We are confident that the hiring of talent promotes competition and should not be treated as a merger,” the company stated.
Microsoft also assured that it would provide the CMA with “the information it needs to complete its inquiries expeditiously.” The tech giant emphasized that the agreement with Inflection was not an acquisition and that Inflection remains an independent company.
This stance was reiterated by both Microsoft and Inflection when the CMA initially sought views on whether the partnerships struck by Microsoft and Amazon with AI start-ups, including Microsoft’s deal with Inflection, fall within UK merger rules.
Broader Regulatory context
The CMA’s inquiry into Microsoft’s hiring practices is part of a larger pattern of regulatory scrutiny on Big Tech’s investments in AI start-ups. The European Commission announced in June that it was exploring the possibility of an antitrust investigation into the Microsoft-OpenAI tie-up, although it decided not to proceed with a probe under merger control rules. In the US, the Federal Trade Commission has also begun scrutinizing investments made by major tech companies, including Microsoft, Amazon, and Google, into generative AI start-ups.
Microsoft recently gave up its seat as an observer on the board of OpenAI, while Apple decided not to take up a similar position. These moves come amid growing attention from global regulators to investments in AI start-ups.
Meanwhile, the CMA has been proactive in addressing concerns that large tech firms are using investments in start-ups to control and shape emerging markets. It initially looked at Microsoft’s investment in Mistral AI but found that the tech firm hadn’t acquired the ability to materially influence Mistral’s commercial policy.
