Microsoft’s recent hiring of employees from Inflection AI has prompted the UK’s Competition and Markets Authority (CMA) to initiate a merger investigation.
This hiring includes key figures such as Mustafa Suleyman, Inflection’s co-founder, and other prominent members of the startup. The CMA is examining whether these hires constitute a merger under UK regulations, which could potentially impact competition within the AI sector.
CMA Launches Phase 1 Merger Inquiry
The CMA has launched a “Phase 1” merger inquiry, which will last 40 working days, to gather evidence and determine if a full probe is warranted. By September 11, the CMA will decide whether to escalate the case to a more in-depth “Phase 2” investigation, which could take around six months if needed.
A Microsoft spokesperson expressed confidence that hiring talent promotes competition and should not be treated as a merger, stating that Microsoft would provide the CMA with all necessary information to complete its inquiries.
In March, Microsoft announced the hiring of Suleyman, who now serves as the executive vice president and CEO of Microsoft AI, a newly established division focusing on artificial intelligence products, including the AI assistant Copilot, which is integrated into Windows and Microsoft 365.
Along with Suleyman, Karén Simonyan was appointed chief scientist, reporting to Suleyman. Both Suleyman and Simonyan previously worked at DeepMind, a Google-owned AI lab. Another notable hire was Jordan Hoffmann, now leading Microsoft’s U.K. AI hub in London.
What is the CMA Investigating?
The CMA’s investigation will determine whether Microsoft’s hiring practices, combined with any associated arrangements with Inflection AI, might constitute a merger that could reduce competition in the AI market.
According to reports from Reuters and The Wall Street Journal, Microsoft paid $650 million in licensing fees to Inflection to resell its AI models via the Azure cloud platform. However, these details were not disclosed in Microsoft’s announcement, which only mentioned the hiring of several members of Inflection’s 70-person team.
The CMA has not outlined how the deal could potentially undermine competition but previously indicated it was assessing Microsoft’s “entry into associated arrangements with Inflection” alongside the hiring of employees. The regulator aims to determine if this could lead to a “substantial lessening of competition” in the AI space.
Previous CMA Investigations and Related Deals
Earlier this year, the CMA dropped a separate investigation into Microsoft’s equity investment and partnership with the French AI startup Mistral, as Microsoft’s stake was less than 1%, which didn’t qualify for further investigation.
Additionally, the regulator had invited interested parties to comment on whether a separate deal Amazon made with Anthropic, a prominent AI startup, constitutes a merger. The CMA has not yet decided whether it will formally review this arrangement.
Microsoft has invested more than $13 billion into OpenAI. Alongside committing funding to the company, Microsoft utilizes OpenAI’s GPT large language models to advance its own AI products, including the Copilot AI platform and Bing search engine. Until last week, Microsoft also held a nonvoting observer seat on OpenAI’s board. This position was reportedly a concern for regulators who are investigating the deal over competition concerns.
Amazon has invested $4 billion into Anthropic and offers the company’s Claude foundation models on Amazon Bedrock, the company’s managed AI service.
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