Could Microsoft’s Investment in OpenAI Be Reviewable Under EU Merger Rules?

Paresh Jadhav

12 months ago

European Competition Commission investigators are reviewing whether Microsoft?s multibillion-dollar acquisition of ChatGPT developer OpenAI could trigger European merger rules. Last month, Britain?s antitrust watchdog also opened an inquiry.

OpenAI made headlines this year for its groundbreaking generative AI platform that creates new text, images and video based on input prompts. The system forms part of OpenAI?s $1 billion investment this year.

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European Commission

As part of its investigation of generative AI and virtual worlds, the European Commission is conducting an examination into Microsoft’s investment in OpenAI to see whether it falls under EU merger rules for review. Furthermore, their examination includes contracts between large digital market players and generative AI developers which critics contend could limit choice or hamper innovation.

The European Commission is conducting an in-depth analysis of agreements requiring cloud providers or offering discounts in return for access to advanced hardware. They aim to ensure these arrangements don’t unfairly disadvantage customers or limit competition in key markets.

Microsoft has already integrated some of OpenAI’s technology into their products, such as Bing search and Skype chatbots, while hiring former CEO Sam Altman and co-founder of livestreaming firm Twitch Emmett Shear to lead its new advanced AI team.

Microsoft

As tech titans rapidly enter new markets, EU regulators are scrambling to establish appropriate policy safeguards. Microsoft-OpenAI relationship is one early test case of how far EU antitrust officials will go to protect consumer and business fair play.

The European Commission announced Tuesday that they are investigating whether Microsoft?s multibillion-dollar investment in OpenAI constitutes “an applicable merger situation”. They are also studying agreements between large digital market players and developers or providers of generative AI services.

This probe highlights mounting EU unease about some big tech firms using their power to ride AI ahead of its peak. This comes on the heels of turmoil at OpenAI last year which saw CEO Sam Altman replace by former Twitch CEO Emmett Shear, and its board updated by adding Microsoft board observer Dee Templeton; these events led to fears that Microsoft might exert undue influence over this startup company.

ChatGPT

Tech giant Microsoft is investing a sizable stake in ChatGPT-maker OpenAI, with global competition regulators considering whether the tie-up meets EU merger rules. Microsoft, which just last week announced plans to lay off 10,000 workers, declined to disclose how much or how many shares it owns of OpenAI; but as one of its major investors they hold nonvoting observer seats on the board as well as being their exclusive cloud provider for this company.

Since ChatGPT first made available to the public last November, people have used it to write articles (with numerous factual errors) for news sites; write lyrics similar to artists (one even said later “this song sucked”), and draft research paper abstracts which fooled some scientists. But some school districts have banned its use altogether.

AI

Microsoft’s increasingly close ties with OpenAI may irritate regulators despite recent governance changes, according to EU antitrust enforcer Margrethe Vestager who is investigating agreements between digital market players and generative AI developers as possible anticompetitive effects.

Generational AI systems like ChatGPT, an open source chatbot for free use by anyone, create new text, images or media based on prompts from users – garnering global attention and catapulting OpenAI to tech leader status.

Last year, Microsoft revised its rules to permit investors to have a non-voting observer seat on its board, leading to speculation that Microsoft could exert considerable control over its direction. This change came shortly after hundreds of employees signed a letter threatening to leave unless founder Sam Altman (fired from his post as CEO in 2023) returned. He did indeed return and now leads one team within its new Advanced AI Research group at Microsoft while taking an active part in European Commission antitrust investigations.