FTC Probes Microsoft Inflection AI Deal Over Antitrust Concerns
The Federal Trade Commission (FTC) has launched an antitrust investigation into Microsoft Inflection AI deal, as reported by The Wall Street Journal. This probe scrutinizes whether Microsoft structured the transaction to evade mandatory regulatory review, raising significant concerns about compliance and competition within the tech industry.
In March, Microsoft made a strategic move by hiring almost all of Inflection AI’s staff, including its founders Karén Simonyan and Mustafa Suleyman, the latter being a cofounder of DeepMind. Additionally, Microsoft licensed Inflection AI’s artificial intelligence technology for a substantial $650 million. The FTC is now evaluating if this deal was intentionally designed to circumvent federal antitrust review protocols.
As per regulatory requirements, any acquisition valued at $119 million or more must be reported to federal antitrust agencies. This allows the FTC or the Justice Department to investigate potential anti-competitive implications and, if necessary, take legal action to block the merger or investment. Typically, when companies aim to acquire another firm’s talent, they pursue an “acquihire,” which involves buying out the other company. In this case, however, Microsoft did not acquire Inflection AI outright, leading to questions about the deal’s true nature.
Inflection AI maintains its independence despite the influx of Microsoft recruits. Ted Shelton, Inflection’s new Chief Operating Officer (COO), emphasized that the company continues to operate autonomously under new leadership. “Inflection AI remains independent and retains control over its operations,” Shelton stated.
Microsoft, on its part, has expressed confidence in its compliance with legal obligations. The company provided Engadget with a statement asserting, “Our agreements with Inflection gave us the opportunity to recruit individuals at Inflection AI and build a team capable of accelerating Microsoft Copilot, while enabling Inflection to continue pursuing its independent business and ambition as an AI studio. We take our legal obligations to report transactions under the HSR Act seriously and are confident that we have complied with those obligations.”
Implications
The FTC has already issued subpoenas to both Microsoft and Inflection AI, demanding documents from the past two years related to the deal. If the FTC concludes that Microsoft and Inflection AI structured their agreement to give Microsoft de facto control while bypassing regulatory scrutiny, Microsoft could face significant fines, and the deal could be suspended pending a more thorough investigation.
This investigation comes amid a broader crackdown by US federal agencies on monopolistic practices by major tech companies. In recent years, the FTC and the Justice Department have intensified their focus on ensuring competitive practices within the technology sector. To streamline these efforts, the agencies have delineated their responsibilities: the Justice Department will lead investigations involving NVIDIA, while the FTC will handle antitrust probes concerning Microsoft and OpenAI.
The $650 million deal allowed Microsoft to license Inflection AI’s advanced artificial intelligence technologies, which are crucial for enhancing its own AI initiatives like Microsoft Copilot. This arrangement also facilitated the transfer of top-tier AI talent from Inflection AI to Microsoft, a strategic move aimed at bolstering Microsoft’s capabilities in the competitive AI landscape.
The outcome of this investigation could set a precedent for how similar deals are structured and reviewed in the future. If the FTC finds Microsoft at fault, it could lead to stricter regulations and more rigorous scrutiny of tech industry transactions, especially those involving significant talent acquisitions and technology transfers.
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