EU Commission to examine Microsoft-OpenAI partnership

The European Commission announced on Tuesday (9 January) that it is examining the nature of the relationship between tech multinational Microsoft and ChatGPT-maker OpenAI, as the recent ousting and reinstatement of the latter’s CEO highlighted the companies’ close connection.

Microsoft has invested a total of $13 billion in OpenAI, the artificial intelligence research organisation behind the world-famous chatbot, ChatGPT. However, with the terms of the partnership not publicly known, global competition regulators have questioned whether Microsoft’s involvement in the company constitutes an acquisition.

The European Commission announced on Tuesday that it is looking into Microsoft’s investment and whether it should be reviewed under the EU Merger Regulation. If the EU decides that a review of the merger is necessary, a formal investigation could be launched.

A Microsoft spokesperson told Euractiv that they have forged a partnership with OpenAI since 2019, “that has fostered more AI innovation and competition, while preserving independence for both companies. The only thing that has changed recently is that Microsoft will now have a non-voting observer on OpenAI’s Board”.

The Merger Regulation enables the Commission to assess mergers and acquisitions in case of companies with a turnover above a certain threshold to block mergers that would prevent fair competition in the European Economic Area.

As Euractiv reported, at the beginning of December, the UK Competition and Markets Authority (CMA) also invited interested third parties to comment on Microsoft’s ongoing partnership with OpenAI.

Earlier in 2023, the CMA already looked into the matter, but according to the authority, developments have been made since then, on which they are also inviting the parties’ views.

UK competition authority mulls investigating Microsoft-OpenAI partnership

The UK Competition and Markets Authority (CMA) invited interested third parties to comment on Microsoft’s ongoing partnership with OpenAI on Friday (8 December).

At the end of November, OpenAI’s board dismissed its CEO, Sam Altman, and other members left the firm in protest. Questions were raised on the relationship between the two companies when it was reported that Microsoft had hired its co-founders Altman and Greg Brockman to head up a “new advanced AI research team”.

However, later the same week, it was announced on X by OpenAI that they “have reached an agreement in principle for Sam Altman to return to OpenAI as CEO with a new initial board”. Microsoft is said to have played a critical role in Altman’s reinstatement.

Commission makes call for input

The EU Commission on Tuesday sent out two calls for contributions and requests for information. This means that interested stakeholders can provide feedback on the competition in the virtual worlds and generative AI sector and how EU competition law can help keep these markets competitive.

“It is fundamental that these new markets stay competitive, and that nothing stands in the way of businesses growing and providing the best and most innovative products to consumers,” said Margrethe Vestager, Executive Vice-President in charge of competition policy on Tuesday.

“We are inviting businesses and experts to tell us about any competition issues that they may perceive in these industries, whilst also closely monitoring AI partnerships to ensure they do not unduly distort market dynamics,” she added.

Are EU regulators ready for concentration in the AI market?

Artificial Intelligence is set to be the next frontier of market concentration in the internet economy. Still, experts Euractiv has spoken with feel that even the EU’s shiny new regulatory tools might be ill-suited to prevent abuses of market dominance in this area.

Questions include the main drivers of competition in the generative AI market, the role of data, the business model behind these systems, what competition issues are likely to emerge, if the vertical integration of generative AI systems can provide a competitive advantage and whether the emergence of this technology required the adaptation of legal antitrust concepts.

On Monday, a coalition of civil society organisations, namely the Irish Council for Civil Liberties (ICCL), The Open Markets Institute (OMI), Foxglove, Balanced Economy Project, Rebalance Now, ARTICLE 19, and Mozilla Foundation, submitted their response to the CMA’s “invitation to comment”, writing that Microsoft’s influence over OpenAI “goes far beyond” a financial investment.

“As OpenAI’s exclusive cloud provider, Microsoft can prevent its cloud rivals from doing business with OpenAI while enjoying a significant and consistent revenue stream,” the document reads, adding, “Microsoft also appears to benefit from privileged access to OpenAI’s technology and the ability to license this technology on its behalf”.

In November, Euractiv pointed out how the AI market is increasingly moving towards greater concentration, underlining the critical relationship between the AI systems and underlying cloud infrastructure and how these exclusive agreements between Big Tech companies and AI startups had so far flown under the regulators’ radar.

The parties can submit their responses to the Commission until 11 March 2024.

[Edited by Luca Bertuzzi/Nathalie Weatherald]

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