Microsoft Faces Increased Competition Scrutiny in Germany Over AI Usage and Market Practices

Microsoft Joins Exclusive Club of Antitrust Scrutiny in Germany

Microsoft has officially entered an exclusive group of tech giants now governed by a specific abuse control regime in Germany. The Federal Cartel Office (FCO) announced on Monday that the software leader may face restrictions should the competition authority find it necessary to intervene.

This designation, effective for five years, is crucial as it allows the German regulator to closely monitor Microsoft’s influence, especially regarding its activities in generative AI.

However, the FCO noted that it has not yet made any decisions concerning “possible proceedings” against the company. In recent years, Microsoft’s growing influence over OpenAI has caught the attention of antitrust regulators. Notably, their close partnership led Microsoft to briefly appoint OpenAI’s CEO, Sam Altman, and several of its key staff last fall during a board dispute. Ultimately, Altman remained with OpenAI, illustrating the strong bond between the two firms. Microsoft even held a board observer seat at OpenAI, which it relinquished earlier this summer. Nevertheless, a careful structuring of their relationship appears to keep it intact for the time being.

The FCO has previously examined the partnership between Microsoft and OpenAI, concluding last November that their connection did not require a traditional merger review. With the regulator now equipped with broader powers to regulate Big Tech, Microsoft’s interactions with OpenAI may face increased scrutiny in the future.

The FCO's press release emphasizes the integral role of Microsoft's Copilot AI assistant across its various platforms. Additionally, it highlights the company's dominance in cloud computing, which positions Microsoft to form partnerships with “highly innovative suppliers” by offering their AI models as services on Azure and integrating them into its products.

Andreas Mundt, president of the FCO, commented on Microsoft’s enduring software leadership, stating: “Today, Microsoft’s ecosystem is more robust and interconnected than ever, driven by the extensive use of cloud and AI—key technologies in which Microsoft has solidified its stronghold through both product development and strategic collaborations.”

The inquiry into Microsoft’s market influence for potential abuse control began in March 2023. This confirmation of the company’s “paramount significance for competition across markets” activates various powers under Germany’s 2021 antitrust reforms. These reforms intend to address concerns regarding Big Tech’s market power stifling innovation and competition among rivals.

Similar regulations already apply to other major players like Amazon, Apple, Google, and Meta, predating the European Union’s Digital Markets Act (DMA), which also seeks to regulate Big Tech’s operations.

However, while the DMA applies specific operational controls to named platforms, the FCO has designated Microsoft in its entirety. This grants the German authority greater flexibility to impose restrictions on Microsoft’s activities, particularly regarding AI, if it determines that the company’s practices hinder competition.

The EU's DMA was conceived before the surge in generative AI tools that catapulted ChatGPT to popularity. Microsoft is classified as a gatekeeper, but only two of its platforms—Windows and LinkedIn—are directly regulated. This limitation constrains the European Commission's ability to address Microsoft’s AI activities unless they specifically relate to these two core services.

“Our decision encompasses Microsoft as a whole, not just individual services or products,” emphasized Mundt. “This allows us to prevent anti-competitive practices that fall outside the scope of the DMA.”

In response to the FCO’s designation, Microsoft spokesperson Robin Koch stated: “We acknowledge our responsibility to foster a healthy competitive atmosphere, and we are committed to being proactive and collaborative as we engage with the Bundeskartellamt [FCO]. Microsoft is dedicated to partnering with Germany's most innovative companies, and we are invested in advancing the growth of its digital economy.”