The UK’s Competition and Markets Authority is seeking comments about who controls Microsoft and OpenAI and possible risk of a merger.

The UK’s Competition and Markets Authority is looking into whether the connections between Microsoft and OpenAI open up the possibility of a merger, which could impact competition.

On Dec. 8, the CMA announced it is seeking comments from Microsoft, OpenAI and interested third parties. This is not a formal investigation, the CMA noted, but is rather a standard, preliminary information-gathering step.

The CMA’s eventual decision might set a standard for other AI companies. OpenAI’s situation is very specific due to its ownership structure and its particular relationship with Microsoft. From here, the CMA will decide whether or not to open a formal phase 1 investigation into alleged anti-competitive business practices.

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The CMA’s look into Microsoft and OpenAI

Of particular note to the CMA is the shakeup at OpenAI in November 2023, when the board removed and later reinstated CEO Sam Altman. Microsoft CEO Satya Nadella announced Altman would join Microsoft, but Altman later returned to OpenAI as CEO and to the board n Nov. 29.

“Since 2019, we’ve forged a partnership with OpenAI that has fostered more AI innovation and competition, while preserving independence for both companies,” Microsoft President and Vice Chair Brad Smith said on X (formerly Twitter). “The only thing that has changed is that Microsoft will now have a non-voting observer on OpenAI’s board, which is very different from an acquisition such as Google’s purchase of DeepMind in the UK. We will work closely with the CMA to provide all the information it needs.”

Microsoft has not publicly released the name of the individual who will be the non-voting observer on OpenAI’s board.

SEE: Google just released its large language model Gemini, which competes with OpenAI’s GPT-4. (TechRepublic)

Specifically, “The CMA will review whether the partnership has resulted in an acquisition of control – that is, where it results in one party having material influence, de facto control or more than 50% of the voting rights over another entity – or change in the nature of control by one entity over another.”

The CMA will finish the information gathering step on Jan. 3, 2024. After this period, the CMA will decide whether to open a formal phase 1 investigation. If both companies are found to have violated UK antitrust laws, both companies could be impacted negatively in terms of their operations in the UK.

On Nov. 30, Microsoft announced it would put $3.2 billion toward AI capabilities in the UK over the next three years.

Does Microsoft own OpenAI?

Microsoft does not own or control all of OpenAI; instead, Microsoft has a stake in OpenAI and, as of Nov. 29, a non-voting observer on Microsoft’s board.

“While details of our agreement remain confidential, it is important to note that Microsoft does not own any portion of OpenAI and is simply entitled to share of profit distributions,” said Frank Shaw, Microsoft chief communications officer, in an email to TechRepublic.

Adding wrinkles to the relationship is that the board of directors technically controls OpenAI, Inc., a nonprofit devoted to safe artificial intelligence. That nonprofit owns a holding company that is majority owner in a capped profit company, OpenAI Global LLC. Microsoft is a minority owner of OpenAI Global LLC.

The CMA’s ongoing study of the AI foundation model industry

In September 2023, the CMA published a report around AI foundation models, the technology that allows for generative AI. The CMA created proposed principles for the AI industry based on opportunities and risks for competition and consumer protection.

“Critical among these is the need for sustained competition between AI developers which will help to deliver innovation, growth and responsible practices across the sector, as well as the need for open and effective competition in the deployment of FMs across a range of downstream activities,” the CMA wrote in a press release.

(Note: TechRepublic has reached out to OpenAI for comment.)


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