Microsoft swerves anti-trust probe over Inflection AI ‘arrangements’

Microsoft has been cleared of anti-competitive behavior by the UK’s competition regulator, after launching an investigation into its relationship with startup Inflection AI.

The deal, reported to be worth around $650 million, saw senior figures of the startup, as well as a significant proportion of its remaining staff, join Microsoft’s new AI segment, as well as giving the hyperscaler access to Inflection AI’s models.

In a statement confirming the decision, Joel Bamford, executive director of mergers at the CMA, said the initial phase of the investigation found that the transfer of employees, as well as other ‘tactical arrangements’, meant that the two entities were no longer distinct.

As such the arrangement constituted a merger under UK law and thus fell under the CMA’s jurisdiction for review.

“We also looked at whether or not the merger is likely to cause a significant lessening of competition. In this case, the evidence did not show competition concerns requiring a more in-depth Phase 2 review. Inflection AI is not a strong competitor to the consumer chatbots that Microsoft has developed directly (Copilot) and in partnership with OpenAI (ChatGPT). On this basis, we cleared the transaction,” Bamford said.

The probe was announced in July amid growing concerns around potentially anti-competitive behavior by major entities in the AI market.

In March, the hyperscaler hired both co-founders of Inflection AI, Mustafa Suleyman and Karen Simonyan, to head up their newly created Microsoft AI team as CEO and chief scientist respectively.

Suleyman was also the founder of DeepMind, an AI company now owned by Google.

The move to hire Suleyman and Simonyan was followed by a number of other Inflection employees making the switch to Microsoft, attracting the attention of competition regulators.

The deal also allowed the firm to hire most of the startup’s 70-strong workforce, as well as gain access to the AI company’s models.

In a statement reacting to the probe’s announcement in July, Microsoft said it was “confident that the hiring of talent promotes competition and should not be treated as a merger”.

At the time, Microsoft was already under scrutiny over its partnership with other prominent AI startups, including OpenAI and French firm Mistral AI.

Although the CMA did find the deal did constitute a merger, it did not find the terms constituted anti-competitive behavior and thus cleared Microsoft of any wrongdoing.