EU Intensifies Scrutiny on Microsoft's $13 Billion Investment in OpenAI

The EU's antitrust regulators are increasing their scrutiny of Microsoft's $13 billion investment in OpenAI, focusing on the AI firm's exclusive use of Microsoft's cloud technology and its potential impact on competition.

EU Antitrust Regulators to Intensify Scrutiny of Microsoft's $13B Investment in OpenAI Over Cloud Exclusivity Concerns

Fortune has recently reported that the European Union's antitrust watchdogs are set to intensify their scrutiny of Microsoft Corp.'s $13 billion investment in OpenAI Inc. They are prepared to question rivals regarding the AI firm's exclusive use of Microsoft's cloud technology.

The EU has decided not to investigate the deal under the EU's merger regulations, as announced by Margrethe Vestager, the bloc's antitrust chief, on June 28. Instead, she disclosed that regulators are inquiring with Microsoft's competitors regarding its exclusivity clauses with OpenAI and whether they could impede competition.

In addition to emphasizing Microsoft, the EU will also inquire about the market regarding Google's collaboration with Samsung Electronics Co. to pre-install its diminutive "Gemini nano" model on specific devices.

In a speech, Vestager also stated that regulators are investigating Big Tech's efforts to acquire firms through mass hiring. The EU's preliminary action follows the US Federal Trade Commission's investigation into Microsoft's recruitment of Inflection personnel.

“We will make sure these practices don’t slip through our merger control rules if they basically lead to a concentration,” Vestager said.

Under the provisions of Microsoft's agreement with OpenAI, Azure is the exclusive cloud provider for OpenAI, a matter that EU regulators wish to investigate further.

Formal investigations by the EU's antitrust regulators may occasionally result from such preliminary inquiries from the EU. In the long term, these investigations may lead to orders to modify behavior and potential fines if watchdogs uncover evidence of abusive practices that impede fair competition.

“We appreciate the European Commission’s thorough review and its conclusion that Microsoft’s investment and partnership with OpenAI does not give Microsoft control over the company,” Microsoft said. “We stand ready to respond to any additional questions the EC may have.”

EU to Review Microsoft's Involvement with OpenAI Amid Controversy Over Sam Altman's Reinstatement

After a mutiny at the ChatGPT creator exposed deep connections between the two firms, the EU's antitrust arm announced in January that it was reviewing whether Microsoft's involvement with OpenAI should be vetted.

Since the AI firm was embroiled in a controversy over the firing and subsequent rehiring of Sam Altman as chief of OpenAI late last year, the partnership initially piqued the interest of regulators, including the EU, the UK's Competition and Markets Authority, and the US Federal Trade Commission.

Satya Nadella, Microsoft's Chief Executive Officer, personally assisted in negotiating and advocating for Altman's return to the company. At one point, he even offered to hire Altman and other employees at OpenAI who were considering leaving.

OpenAI's board reinstated Altman and established a three-member interim board. Microsoft was also appointed as a non-voting observer.

Regulators assessed the agreement after that incident. The UK watchdog has stated that it will investigate whether the balance of power between the two firms has fundamentally changed to grant one side more control or influence over the other. Additionally, the US Federal Trade Commission has initiated inquiries regarding the agreement.

EU Investigates Microsoft's Cloud Partnership with OpenAI Amid Rising Demand for Generative AI Tools

The partnership between Microsoft and OpenAI is fundamentally driven by the substantial computing power necessary to sustain the global surge in generative AI. The demand for cloud services and processing capacity has increased due to the operation of the systems that underpin tools like ChatGPT and Google's Bard. For instance, Microsoft's cloud business has acquired OpenAI as a significant client.

Under the EU's merger regulations, officials must review transactions within specific time frames and frequently advocate for remedies to alleviate particular competition concerns. Although transactions are occasionally vetoed, companies are penalized only if they mislead regulators or impede the process.

In general, the classic competition law of the EU is employed to identify potentially anti-competitive agreements between firms and instances in which powerful actors abuse their dominance. If misconduct is discovered, fines may exceed 10% of a company's revenue.

In Redmond, Washington, Microsoft has a history of facing EU antitrust scrutiny and has engaged in a protracted dispute with regulators regarding transgressions associated with Windows' market dominance in previous decades.

The European Union accused the company of abusing its market influence by bundling the Teams video-conferencing app with its other business software this week.

Photo: Microsoft Bing