As global regulators examine Microsoft Corp.’s $13 billion investment in OpenAI, the software giant has a simple argument it hopes will resonate with antitrust officials: It doesn’t have a traditional stake in the buzzy startup, so it can’t be said to control it.
When Microsoft negotiated an additional $10 billion investment in OpenAI in January, it chose an unusual arrangement, people familiar with the matter said at the time.
Instead of buying part of the cutting-edge AI lab, it struck a deal to take roughly half of OpenAI’s financial returns until the investment is paid back up to a predetermined cap, one of the people said. The unconventional structure was created because OpenAI is a for-profit company based within a non-profit organization.
However, it is not clear that regulators see a difference. The UK Competition and Markets Authority said on Friday it was collecting information from stakeholders to determine whether the collaboration between the two companies threatens competition in the UK, home to Google’s Deepmind artificial intelligence research lab. The US Federal Trade Commission is also examining the nature of Microsoft’s investment in OpenAI and whether it may violate antitrust laws, according to a person familiar with the matter.
The investigations are preliminary, and the agency has not opened an official investigation, according to the person who requested anonymity because he was talking about a confidential matter.
Microsoft did not inform the agency of the deal because the investment in OpenAI does not amount to control of the company under US law, the person said. OpenAI is a non-profit, and acquisitions of non-corporate entities are not reported under US merger law, regardless of their value. Agency officials are analyzing the situation and evaluating the options available to him.
“While the details of our agreement remain confidential, it is important to note that Microsoft does not own any part of OpenAI and is simply entitled to a share of the dividends,” a Microsoft spokesperson said in a statement. Earlier Friday, Microsoft President Brad Smith said, “The only thing that has changed is that Microsoft will now have a non-voting observer on the OpenAI board.” He described its relationship with OpenAI as “completely different” from Google’s direct acquisition of DeepMind in the UK.
“Our partnership with Microsoft enables us to continue our research and development of safe and beneficial AI tools for everyone, while remaining independent and operating competitively. A non-voting board monitor does not provide them with governing authority or control over OpenAI’s operations,” an OpenAI spokesperson said in a statement.
From the beginning, Microsoft and OpenAI did their best to assert the independence of the two companies. Microsoft hopes to reassure investors and customers that it is not overly dependent on one partner. OpenAI didn’t want employees, customers and other investors to think it was just an outpost of Microsoft, which is headquartered in Redmond, Washington. This delicate situation was turned upside down last month with the firing of OpenAI CEO Sam Altman and the startup’s near collapse.
Altman’s complexity demonstrated Microsoft’s lack of control and influence. Microsoft received notice only minutes after that OpenAI’s board intended to announce Altman’s ouster, and its executives were not consulted in the decision. However, Microsoft CEO Satya Nadella played a key role, along with other investors, in forcing the board to reverse its decision. At some point, Microsoft said it would hire Altman and his OpenAI colleagues to form a new AI unit at Microsoft.
Once Altman regained the CEO role, Microsoft executives debated the wisdom of taking a seat on OpenAI’s board, people familiar with the matter said at the time. On the one hand, executives feared that a board seat or controller position might attract the attention of regulators. On the other hand, Microsoft wanted to keep a close eye on its partner and protect its investments, an imperative that succeeded in achieving success, despite the risks.
Ultimately, Microsoft may face a world of regulatory problems. Regulators in Europe are also interested, according to a European Commission spokesman. For a transaction to be notified to the Commission under the EU Merger Regulation, it must involve a change of control on a permanent basis. The spokesman said that although this deal had not been officially notified, the Commission was monitoring the situation even before the administrative turmoil.
Last month, the German competition authority said it would not subject Microsoft’s OpenAI investment to merger review. But the regulator said it would only postpone because OpenAI does not have significant business in Germany. After reviewing the deal and speaking with the companies, the regulator found that the investment would give Microsoft a “material competitive impact” over the AI company that could require scrutiny in the future if OpenAI increases its activities in Germany.
Jennifer Ray, an antitrust analyst at Bloomberg Intelligence, said the partnership raises competition issues if Microsoft reduces its AI research and development or if the investment prevents OpenAI from partnering with the tech giant’s competitors. Antitrust enforcers may also have concerns about Microsoft’s board monitor because it would give Microsoft additional information about OpenAI’s plans even if it has no rights to influence decisions.
(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)
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