While the German competition authority has decided it has no concerns for now, the UK’s CMA is investigating the partnership – other regulators could follow suit
CMA launches information gathering process
On 8 December 2023, the UK’s Competition and Markets Authority (CMA) launched an invitation to comment (ITC) on the partnership between Microsoft and OpenAI. This will provide an early opportunity for the parties and interested stakeholders to comment on whether the partnership, including recent developments, results in a relevant merger situation and, if so, the impact that could have on competition in the UK. The ITC is the first part of the CMA’s information gathering process and comes ahead of a formal phase 1 investigation. The long-term partnership between Microsoft and OpenAI involves a multi-billion dollar investment, collaboration in technology R&D and the exclusive provision of cloud services by Microsoft to OpenAI. According to the CMA, this represents a “close, multi-faceted relationship” between the two firms, with significant activities in foundation models and related markets.
Twists and turns in the governance of OpenAI
The CMA has been closely monitoring the impact of partnerships and strategic agreements in AI, which it considers could result in a weakening of competition in the development or use of powerful foundation models. There have been a number of recent developments in the management of OpenAI, with the sacking of its CEO Sam Altman, who was then reinstated only days later following an employee backlash. Some of these developments have involved Microsoft (OpenAI’s biggest investor), with the temporarily-ousted executive – and his staff – offered employment at the tech giant. The CMA will therefore review whether the partnership has made for 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 makes the link between AI and its other ongoing priorities; namely the cloud market
Alongside this review, the CMA will continue its work looking at the implications of foundation models for competition and consumer protection, and will be publishing a progress update in March 2024. This will discuss how developers are accessing key inputs (e.g. expertise, data and computing power) through investments, mergers, acquisitions and partnerships. The CMA is also undertaking a cloud market investigation to consider potential competition concerns and interventions to improve the supply of these important digital services for UK customers. The CMA’s October issues statement identified four possible theories of harm:
Technical barriers to switching and multi-cloud;
Egress (or ‘porting’) fees as a barrier to switching and multi-cloud;
Committed spend discounts raise barriers to entry and expansion for smaller providers; and
Software licensing practices restrict customer choice.
The publication of responses to the issues statement has made for interesting reading, with Amazon and Google both critical of Microsoft’s licensing practices for its Azure platform and their alleged harmful impact of customer choice and switching.
The relationship with Microsoft is being closely watched by regulators
The CMA is not the only competition authority to have monitored – and perhaps been concerned by – the OpenAI saga, as well as the firm’s relationship with Microsoft. Before chaos ensued, Germany’s Bundeskartellamt examined whether the companies should have to notify their agreement under merger rules contained in the Competition Act. The authority stated that it is vital to observe the extent to which major tech firms “get involved in young, up-and-coming companies” in the AI sector, but ultimately determined that the partnership does not currently constitute a merger. Nevertheless, the Bundeskartellamt reserved the right to intervene in the future should Microsoft increase its influence on OpenAI. Elsewhere, the Federal Trade Commission (FTC) in the US is reportedly considering an investigation into Microsoft/OpenAI on similar grounds, while the EC is also closely tracking developments, especially investment agreements between the parties and Microsoft's role on the OpenAI board.
