Microsoft’s Inflection AI Deal: No Antitrust Concerns, but a Precedent Set

The UK’s Competition and Markets Authority (CMA) has concluded that Microsoft's acquisition of the team behind AI startup Inflection AI does not pose competition concerns. However, the decision has set a precedent for future scrutiny of similar deals involving Big Tech and smaller AI startups, regardless of whether a full acquisition has taken place.

• The CMA investigated Microsoft’s hiring of "almost all" of Inflection’s team, including its two founders, along with the company's licensing of Inflection's intellectual property (IP).
• The CMA recognized that Microsoft's actions constituted a "quasi-merger," even though there was no formal acquisition. This means that future similar deals involving talent acquisition and IP licensing could be subject to antitrust scrutiny.
• The CMA's decision highlights the growing concern about Big Tech companies using various methods to circumvent regulatory scrutiny around AI.

A “Quasi-Merger”

Microsoft launched a new consumer AI division in March 2024, led by Mustafa Suleyman and Karén Simonyan, co-founders of Inflection AI. In July 2024, the CMA launched a "phase 1" merger inquiry into the deal to determine whether it could be considered a "merger," given that Microsoft hadn’t acquired Inflection AI.

• The CMA found that Microsoft's hiring of the Inflection team, along with the licensing agreement for their IP, amounted to a "quasi-merger" as defined under UK law.
• The CMA concluded that Microsoft had acquired the "collective know-how" of the Inflection team, even without acquiring the company itself.
• The CMA emphasized the importance of expertise in the AI space, given the rapid development and potential for obsolescence of technology.

No Competition Concerns

Despite finding the Microsoft-Inflection deal to be a "quasi-merger," the CMA concluded that it did not pose significant competition concerns.

• The CMA found that Inflection AI was not a major competitor to Microsoft's existing AI tools, such as Copilot and ChatGPT.
• Therefore, the CMA cleared the transaction.

Regulatory Scrutiny of Big Tech and AI

The CMA's investigation of Microsoft's deal with Inflection AI is part of a broader effort to regulate Big Tech's influence in the AI space.

• The CMA has also investigated Microsoft's investments in other AI startups, such as Mistral AI, and is currently probing Amazon's ties with Anthropic.
• The CMA is also looking at Google's investments in Anthropic, after the company invested a reported $300 million in 2023, followed by a further $2 billion in 2023.
• The CMA's investigations indicate a growing awareness of the potential antitrust implications of Big Tech companies' acquisitions and investments in AI startups.

Microsoft's Future AI Deals under Scrutiny

While Microsoft has escaped regulatory intervention in the Inflection AI deal, the CMA's decision sets a precedent for future scrutiny of similar deals.

• The CMA will likely examine future deals involving Big Tech and smaller AI startups, regardless of whether a full acquisition has taken place.
• This could include deals involving talent acquisition, IP licensing, or strategic investments.
• The CMA's stance highlights the growing regulatory landscape around AI and the need for tech companies to be mindful of antitrust concerns.