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Featured Article : Anti-Trust : OpenAI And Microsoft

Following the recent boardroom power struggle that led to the sacking and reinstatement of OpenAI boss Sam Altman, Microsoft’s relationship with OpenAI is now under US and UK antitrust scrutiny.

What Happened? 

A recent boardroom battle at OpenAI (ChatGPT’s creator and working partner of Microsoft), led to the rapid ousting of OpenAI’s boss Sam Altman and resignation of OpenAI’s co-founder Greg Brockman. Both men were reported to have been immediately hired by Microsoft to launch a new advanced AI research team with Altman as CEO. Then, just days later and following the board being replaced (apart from Adam D’Angelo) by a new initial version, Sam Altman returned and was reinstated as OpenAI’s CEO.

What’s The Issue? 

The factors that appear to have attracted US and UK regulators over antitrust concerns are:

– Microsoft has long been a significant supporter and backer of OpenAI, investing in the company and also integrating OpenAI’s technologies within Microsoft’s own products and cloud services. This collaboration has helped in scaling OpenAI’s research and the implementation of AI technologies, particularly in areas like large language models, cloud computing, and AI ethics and safety. It could also, however, be a kind of background evidence of a close relationship between the two companies.

– As mentioned earlier, when Sam Altman was ousted, Microsoft reportedly immediately hired him as CEO of a new research team there (further evidence of a very close relationship).

– Microsoft has been granted a non-voting, observer position at OpenAI by a new three-member initial board. This means that Microsoft’s representative can attend OpenAI’s board meetings and access confidential information (but can’t vote on matters including electing or choosing directors). However, it’s not yet been reported who from Microsoft will take the non-voting position and what a final (rather than the initial) OpenAI board would look like.

– More specifically, the main concern of regulators appears to be whether the partnership between OpenAI and Microsoft has resulted in an “acquisition of control”. This is whether one party has material influence, de facto control, or more than 50 per cent of the voting rights over another entity. Such control, for example, could negatively impact market competition. The UK’s Competition and Markets Authority (CMA) is particularly looking into whether there have been changes in the governance of OpenAI and the nature of Microsoft’s influence over its affairs.

– The CMA recently stated that it’s considering whether it is (or may be) the case that Microsoft’s partnership with OpenAI (or any changes thereto) has resulted in the creation of a relevant merger situation under the merger provisions of the Enterprise Act 2002. Also, if so, the CMA has stated that it’s interested in whether the creation of that situation may be expected to result in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services. The CMA has opened an investigation of the partnership between Microsoft and OpenAI which is currently at the comments and information gathering stage which closes on 3 January 2024.

– Although OpenAI’s parent is a non-profit company (a type of entity thai is rarely subject to antitrust scrutiny) in 2019, it set up a for-profit subsidiary, in which Microsoft is reported to own a 49 per cent stake. It’s also been reported that Microsoft is prepared to invest more than $10 billion into the startup.

In The US? 

Although the above points relate to the UK, the US Federal Trade Commission (FTC) is also reported to be examining the nature of Microsoft’s investment in ChatGPT maker OpenAI in relation to whether it may violate antitrust laws but hasn’t yet opened a formal investigation.

What Does Microsoft Say? 

Microsoft has stated publicly that it doesn’t own any part of OpenAI. Company spokesman, Frank Shaw, said: “While details of our agreement remain confidential, it is important to note that Microsoft does not own any portion of OpenAI and is simply entitled to share of profit distributions”. 

Meaning? 

Microsoft’s statement that it doesn’t own any part of OpenAI and is merely entitled to a share of profit distributions addresses only one facet of potential antitrust concerns, i.e. mainly the question of ownership. However, antitrust issues often encompass more than just ownership stakes. They can involve questions of influence, control, or exclusive agreements that might affect market competition.

Regulators may still be interested in the broader implications of the Microsoft-OpenAI relationship. This could include the extent of influence that Microsoft might have over OpenAI’s decisions, the potential for their partnership to impact market dynamics in the AI sector, or any exclusive benefits Microsoft might gain. The focus of antitrust authorities, therefore, often extends to how such partnerships influence market fairness, innovation, and consumer choice.

What Does This Mean For Your Business?

In the aftermath of the boardroom changes at OpenAI, including the dramatic sacking and reinstatement of CEO Sam Altman, the antitrust spotlight has turned to the intricate relationship between Microsoft and OpenAI. This scrutiny, in both the US and UK, may go beyond just speculation of a merger and is likely to look at broader concerns of influence and control within the fast-evolving AI sector. The investigations are, therefore, part of a regulatory interest in ensuring competitive fairness in the fast-growing and evolving AI industry.

For businesses, this could translate into an era of increased oversight on AI collaborations and investments and regulators’ concerns over the concentration of power in the AI industry signals a need for businesses to be cautious. The focus is not just on maintaining competitive markets but also on preventing any monopolistic control over emerging and critical technologies like AI. This evolving regulatory landscape indicates that businesses need to consider the broader implications of their strategic partnerships beyond mere ownership stakes.

Microsoft’s assertion that it doesn’t own any part of OpenAI and is only entitled to profit distributions addresses direct ownership concerns but doesn’t fully alleviate antitrust concerns. The nature of their collaboration, potential influence on business decisions, and any exclusive benefits or access could still be under scrutiny.

The parallel inquiries by the FTC in the US and the CMA also appear to suggest a harmonised approach towards regulating major AI partnerships and means that companies operating transnationally in the AI space must be aware of regulatory developments in multiple jurisdictions. The CMA’s investigation into whether the Microsoft-OpenAI partnership has created a “relevant merger situation” under the Enterprise Act 2002, and its potential impact on market competition, could also set precedents affecting future tech collaborations.