Microsoft and OpenAI Under Investigation: UK Antitrust Probe Commences

The U.K. Competition and Markets Authority (CMA) has launched an investigation into Microsoft’s collaboration with OpenAI, the company behind ChatGPT. This inquiry seeks to determine whether their partnership constitutes a “relevant merger situation,” which refers to circumstances where companies engage in significant transactions or arrangements that could affect their operational independence, without a formal merger taking place.

The CMA is particularly focused on the multi-billion dollar alliance that includes Microsoft’s exclusive provision of cloud services to OpenAI. Since initiating its investment in 2019, Microsoft has committed approximately $13 billion to OpenAI, receiving 49% of its profits. Given the scale and nature of this partnership, the CMA aims to assess its implications for market competition.

Sorcha O’Carroll, the CMA's senior director for mergers, commented, “The invitation to comment marks the beginning of our information-gathering process. Only after we have analyzed this information will we consider launching a phase 1 investigation into the partnership.” The CMA is closely monitoring developments in the AI landscape and recently issued guidelines on accountability, expressing concerns that leading foundation model developers might dominate the market and impose steep usage fees.

This investigation takes into account recent turmoil within OpenAI’s leadership. In November, CEO Sam Altman was unexpectedly fired in what appeared to be a strategic coup. His brief departure resulted in him joining Microsoft only to be reinstated by OpenAI just four days later. Consequently, OpenAI has established a new board structure, which now includes a Microsoft representative in a non-voting observer capacity. At the AI Summit in New York, Adam Goldberg from OpenAI mentioned plans for board expansion, although specific new members were not disclosed.

Acknowledging the boardroom incident, the CMA indicated that these recent developments will play a crucial role in evaluating whether a relevant merger situation exists. Before proceeding with any investigation, the CMA will gather comprehensive information from both Microsoft and OpenAI, including their U.K. operations, data, and internal documentation. This information-gathering phase could extend over several months.

Brad Smith, Microsoft’s vice chair and president, shared a statement emphasizing that the partnership with OpenAI has spurred innovation and competition while allowing both entities to maintain their independence. He noted, “The only change is the addition of a non-voting observer from Microsoft on OpenAI’s Board, a situation fundamentally different from a full acquisition, such as Google’s acquisition of DeepMind in the U.K. We are committed to cooperating with the CMA to furnish all necessary information.”

Commenting on the investigation's significance, Alex Haffner, a competition partner at the U.K. law firm Fladgate, underscored the importance of this probe amid increasing regulatory scrutiny of AI. He stated that for the CMA to proceed with its investigation, it must identify evidence that the fallout from the Altman scenario has led to substantial shifts in OpenAI’s governance structure and Microsoft’s influence. Regardless of whether the inquiry escalates, Haffner noted that the CMA’s preliminary investigation will enhance its understanding of the governance frameworks surrounding OpenAI, thereby informing its broader oversight of the rapidly evolving AI sector.