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Microsoft's Not-Acquisition of Inflection Draws Antitrust Concerns

According to a recent Wall Street Journal report, Microsoft's "soft acquisition" of Inflection AI this past spring has drawn unwanted attention from U.S. antitrust watchdogs.

In March, Microsoft announced it was hiring multiple high-level personnel from Inflection, a developer of AI chatbot technologies, to start its new AI division headquartered in London.

Among them were Inflection co-founder Mustafa Suleyman, whom Microsoft named the first CEO of Microsoft AI; Inflection chief scientist Karén Simonyan, now the chief scientist of Microsoft AI; and an estimated 70 other Inflection employees, including researchers and engineers.

In addition to poaching most of Inflection's employees, Microsoft was also reported to have paid the startup $650 million to license its AI models.

The moves essentially amounted to an acquisition in all but name, potentially allowing Microsoft to bypass U.S. Federal Trade Commission (FTC) reporting requirements. Under the Clayton Act, as of January 2024, any proposed merger or acquisition valued at $119.5 million or higher must be reported to the FTC to ensure it doesn't violate antitrust laws.

"The FTC is now drilling down on Microsoft's deal with Inflection, seeking information about how and why they negotiated their partnership," the WSJ reported Thursday, citing an unnamed source familiar with the matter, as well as documents it has obtained.

"The agency is trying to determine whether Microsoft crafted a deal that would give it control of Inflection but also dodge FTC review of the transaction."

Per the WSJ, the FTC has subpoenaed Microsoft and Inflection for documents dating back two years.

In a statement to the publication, current Inflection CEO Ted Shelton denied that his company is owned by Microsoft. "Microsoft has no investment in our company," he was quoted as saying.

AI's Big 3 Under Ongoing Scrutiny
Microsoft isn't the only tech giant in regulators' crosshairs for dealings related to generative AI. Nvidia and OpenAI are also facing scrutiny over potential anti-competitive practices.

A separate report this week by the The New York Times indicates that the Department of Justice (DoJ) and the FTC have agreed to split the work of investigating the three companies, with the DoJ focusing on Nvidia and the FTC on OpenAI and Microsoft.

According to the NYT , which cited two unnamed people with knowledge of the matter, the DoJ and FTC came to an agreement about the division of labor last week that is set to be finalized "in the coming days."

"The discussions between the F.T.C. and Justice Department over the A.I. companies entered their final stages within the last week and involved the senior levels of both agencies," NYT reported.

By now, however, antitrust investigations are old hat for Nvidia, OpenAI and Microsoft, arguably the three biggest players in the generative AI space. OpenAI, for starters, owns the most-used generative AI chatbot in ChatGPT and is estimated to be valued at over $80 billion. Microsoft, OpenAI's biggest backer, has a market cap of over $3.1 trillion and is currently the most valuable company in the world.

Nvidia, meanwhile, is the second-most valuable, having crossed the $3 trillion mark just this week. Nvidia is also the world's leading AI chipmaker -- and, with at least a 70 percent market share, its rivals are nowhere close.

The three companies' size and complex interdependencies have regularly drawn competition regulators' attention. In late 2023, for instance, French authorities raided Nvidia offices as part of an anti-competition investigation. Earlier this year, the FTC named Microsoft and OpenAI among the subjects of a similar inquiry stateside.

About the Author

Gladys Rama (@GladysRama3) is the editorial director of Converge360.

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