Microsoft’s Partnership with OpenAI Faces Antitrust Scrutiny

In the wake of the recent boardroom turmoil at OpenAI, the collaboration between Microsoft and the maker of ChatGPT is now under scrutiny by antitrust regulators in both the United States and the United Kingdom. Following the abrupt removal and subsequent reinstatement of CEO Sam Altman, Microsoft secured a non-voting observer position on OpenAI’s board.

This unique position allows Microsoft’s representative to attend board meetings, gaining access to confidential information. However, crucially, they are barred from participating in decisions, including the election or selection of directors.

The specifics of Microsoft’s representative for the non-voting role and the composition of the final OpenAI board remain undisclosed.

While OpenAI’s parent company operates as a non-profit entity, which typically avoids antitrust scrutiny, a for-profit subsidiary was established in 2019. Reportedly, Microsoft holds a 49% stake in this subsidiary, though a Microsoft spokesperson disputed this, emphasizing the confidential nature of the agreement and denying ownership claims.

Microsoft’s substantial investment in OpenAI, surpassing $10 billion, positions it as a major player in the competitive AI market, challenging industry leaders like Google’s Alphabet.

The UK Competition and Markets Authority (CMA) announced on Friday that it is assessing whether Microsoft’s investment could potentially harm competition in the UK. Simultaneously, the US Federal Trade Commission (FTC) is conducting preliminary inquiries to determine if antitrust laws were violated, with Bloomberg News reporting that no formal investigation has been initiated yet.

Microsoft President Brad Smith clarified that the recent development only involves Microsoft securing a non-voting observer position on OpenAI’s board. Smith drew a distinction between this and Google’s acquisition of DeepMind in 2014, emphasizing the non-intrusive nature of Microsoft’s involvement.

Anticipating potential regulatory actions, Max von Thun, Europe director at Open Markets Institute, emphasized the need for swift investigations to prevent monopolization in the rapidly evolving AI sector.

European Union antitrust regulators are closely monitoring the situation, and the UK’s CMA has invited relevant parties, including Google, to provide feedback on the review by January 3, 2024.

While the fallout from the Altman affair could influence the CMA’s decision, even if a full probe is not initiated, the preliminary investigation will contribute valuable insights into Microsoft’s influence over OpenAI’s governance.

Microsoft, no stranger to antitrust challenges, faced regulatory hurdles in its $69 billion acquisition of Activision Blizzard earlier this year, with the CMA initially blocking the deal before later approving it after Microsoft revised its acquisition plan.

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