The CMA has announced it will launch a merger inquiry into the partnership between Microsoft and Inflection AI. The announcement followed the news in March that the big tech giant paid the startup $650m to license its models via its Azure cloud computing platform and hire multiple senior Inflection AI staff, including its founder Mustafa Suleyman. The CMA has until 11 September to decide whether its merger investigation should progress into a more intensive ‘Phase 2 probe’ into the partnership.
Microsoft responded tersely to news of the CMA merger investigation into its deal with Inflection AI. “We are confident that the hiring of talent promotes competition and should not be treated as a merger,” a spokesperson told Reuters. “We will provide the [CMA] with the information it needs to complete its enquiries expeditiously.”
Inflection AI deal scrutinised on both side of the pond
Inflection AI was founded in 2022. Its main pitch to investors was “Pi,” a chatbot that Suleyman described as a “digital companion” capable of suggesting to users ways they could be more productive, conduct internet searches or simply be good company for the lonely or out-of-sorts. Since March, however, Inflection AI has concentrated on providing AI solutions to enterprise customers.
The announcement of a merger inquiry by the CMA comes amid mounting scrutiny worldwide into the close relationships being forged by established big tech brands and promising AI startups. In June, for example, the US Federal Trade Commission and the Department of Justice launched interlinked investigations into Nvidia, OpenAI and Microsoft’s activities in the AI value chain – with the latter’s deal with Inflection AI of particular interest to the FTC. At the time, Microsoft spokesperson defended the deal to Tech Monitor, adding that the firm took its “legal obligations to report transitions under the HSR Act seriously” and that it was “confident” it had complied with that legislation.
Mixed success for CMA in identifying AI competition issues
The CMA has also been active in probing several partnerships between major tech brands and AI startups. This activity was catalysed in April by a speech given by its chief executive, Sarah Cardell, in Washington, where she identified an “interconnected web” of 90 investments and partnerships across the AI value chain dominated by six major tech firms, including Microsoft. Such companies, she said, “already hold positions of market power in many of today’s most important digital markets [and] could profoundly shape these new markets to the detriment of fair, open and effective competition, ultimately harming businesses and consumers.”
Even so, the CMA’s success in identifying violations of competition law in this area has been mixed. In May, the watchdog announced it was discontinuing its investigation into Microsoft’s partnership with Mistral AI. According to the CMA, the deal – which saw Redmond plough $16m into the French AI startup – did “not qualify for investigation under the merger provisions of the Enterprise Act 2002.”
