The UK Competition and Markets Authority (CMA) has cleared Microsoft’s previously announced partnership with Inflection AI, a machine learning and generative artificial intelligence (AI) company. The partnership involves the hiring of some former Inflection AI employees.
In July this year, the regulator launched a Phase 1 probe into the partnership and determined that the arrangement fell under the CMA’s merger control jurisdiction. It also concluded that the partnership would not stifle competition due to horizontal unilateral effects.
Microsoft’s move included onboarding Inflection AI’s co-founders Mustafa Suleyman and Karén Simonyan, in March 2024. It also involved a non-exclusive licensing agreement for Inflection AI’s intellectual property (IP). Reports suggest the deal cost approximately $650m.
Microsoft and Inflection AI
Established in 2022, Inflection AI is engaged in a range of AI-related activities, including the development of foundation models (FMs) and the supply of downstream AI applications, such as chatbots. The firm’s AI-powered chatbot, Pi, has been available in the UK since May 2023. Inflection AI also commenced an AI studio business for enterprise customers.
During the initial investigation, the British competition watchdog assessed if Microsoft’s hiring and partnership with Inflection AI resulted in the creation of a relevant merger situation under the merger provisions of the Enterprise Act 2002.
The CMA found that prior to the transaction, Inflection’s goal was to create “personal AI for everyone.” After the transaction, Microsoft employed most of Inflection’s team, acquiring their essential expertise.
Furthermore, the regulator said the expertise, which is critical for developing AI technologies, can quickly become obsolete. As a result, it added, the team’s acquisition fell within the CMA’s merger control jurisdiction.
The CMA also evaluated the impact of Microsoft’s acquisition of Inflection AI on the consumer chatbot market, particularly in terms of product development and innovation. It found that Inflection AI had a minimal market share in the UK and did not offer significant competition to Microsoft’s chatbots.
According to the CMA, Inflection AI’s focus on emotional intelligence (EQ) was not considered a material constraint on competitors, and its innovations could be easily replicated. The regulator concluded that the acquisition did not substantially harm competition in the consumer chatbot market or in the development of FMs for enterprise customers.
Increasing regulatory interest in big tech-startup AI deals
This latest approval marks Microsoft’s second regulatory win in the UK this year. In May 2024, the CMA also concluded its investigation into Microsoft’s partnership with French startup Mistral AI, after seeking public feedback on the tie-up.
Further, CMA probes into AI partnerships are ongoing. Last month, the regulator formally commenced an investigation into e-commerce giant Amazon’s partnership with AI startup Anthropic.
Additionally, the CMA is considering whether to launch an investigation into Google parent company Alphabet’s previously announced partnership with Anthropic, which was disclosed in July 2024.
Read more: CMA expresses “real concerns” about big tech influence over generative AI
