Microsoft OpenAI Partnership Cleared by UK Regulator

Microsoft-OpenAI Partnership Cleared by UK Regulator

The Competition and Markets Authority (CMA), the United Kingdom’s competition regulator, announced on Wednesday that the collaboration between Microsoft and OpenAI does not necessitate investigation under the merger regulations outlined in the Enterprise Act 2002, the nation’s law addressing anticompetitive practices.

CMA’s Assessment of Control

According to the CMA’s official decision, Microsoft does not presently exert complete control over OpenAI’s commercial strategies. Instead, the regulator determined that Microsoft wields significant, yet not absolute, influence over these policies. This finding indicates that no transfer of control has occurred that would trigger a relevant merger situation.

Investigation Timeline and Background

The CMA initiated its investigation into the Microsoft-OpenAI partnership in December 2023. Microsoft has made substantial investments in OpenAI, totaling approximately $14 billion since 2019.

Furthermore, Microsoft integrates OpenAI’s technologies into its Azure OpenAI Service, a managed offering. The two companies also collaborate on the development of products such as the Copilot chatbot and the GitHub Copilot AI coding assistant.

Initial Concerns Regarding Control

Initially, the CMA expressed concerns that Microsoft had gained control over OpenAI’s commercial direction in 2019. These concerns were amplified by Microsoft’s involvement in reinstating Sam Altman as OpenAI’s CEO in November 2023.

The CMA posited that such control could potentially lead to a “substantial lessening” of competition within the AI industry in the UK.

Potential Competition Concerns

The agency articulated that increased Microsoft control could raise competition issues if Microsoft were to restrict competitors’ access to OpenAI’s advanced models. This was particularly relevant in markets where access to AI is crucial and where Microsoft already holds a dominant market position.

The CMA also considered the potential impact on competition within the emerging market for accelerated compute, given OpenAI’s potential as a significant customer.

Shifting Dynamics and Reduced Influence

However, the CMA’s recent decision acknowledges that recent developments may have actually diminished, rather than strengthened, Microsoft’s influence over OpenAI.

Revised Cloud Computing Agreement

In January, Microsoft announced revisions to its cloud computing agreement with OpenAI. The new arrangement grants Microsoft the “first right of refusal” for specific OpenAI workloads.

Additionally, Microsoft has permitted OpenAI to pursue additional computing capacity, including a $500 billion data center agreement with SoftBank. Previously, OpenAI relied exclusively on Microsoft as its cloud provider.

Board Seat Waiver

Last year, Microsoft also abandoned plans to secure a seat on OpenAI’s board of directors, a move that could have attracted further regulatory attention.

Evolving Partnership and Material Influence

“Material aspects of the partnership have been changing throughout the course of the investigation,” the CMA stated in its decision. “Moreover, a clear distinction between factors constituting material influence and those indicating de facto control does not exist.”

CMA’s Broader Scrutiny of AI Investments

The CMA has been actively investigating investments in AI and AI startups to prevent the concentration of power within this developing sector. While the agency has described big tech partnerships with AI startups as an “interconnected web,” it has not yet uncovered evidence of unlawful activity.

In November, the CMA also approved the dealings between Alphabet, Google’s parent company, and Anthropic, a competitor to OpenAI.