UK antitrust regulators today announced the beginning of a merger inquiry into Microsoft's cash deal with startup Inflection AI, which included poaching employees. 

The Competition and Markets Authority's (CMA) concern stems from the hiring of Inflection AI cofounders Mustafa Suleyman and Karén Simonyan, along with "several members" of the Inflection team, who left for Microsoft in March. 

Suleyman, who has been accused of mistreating subordinates at previous positions, now serves as CEO of Microsoft's AI division, while Simonyan is the group's chief scientist. Those hires, and a $650 million (£502m) deal that gave Microsoft access to Inflection's models, have the CMA wondering if competition might be lessened on the isles as a result.

UK officials have been inspecting the matter since April, when the CMA said it wanted input from third parties on whether the Microsoft/Inflection AI deal, and Amazon's $4 billion investment in Anthropic, fell within UK merger guidelines despite not being formal company acquisitions. 

It's not clear if the Amazon case, opened the same day as the Microsoft one and with the same deadlines for public comment, will be progressing. The CMA didn't respond to questions to that end by the time of publication. 

On Microsoft, however, UK competition watchdogs are ready to pounce.

The CMA said it "has sufficient information in relation to Microsoft Corporation's hiring of certain former employees of Inflection AI, Inc. and its entry into associated arrangements with Inflection to enable it to begin an investigation," the CMA said in its notice [PDF].

Mergers in the UK rise to the level of a "relevant merger situation" that requires investigation in instances where "two or more enterprises have ceased to be distinct", and either the deal exceeds a £70 million threshold or could affect at least 25 percent of a national supply of a good or service.

Given Inflection AI continues on as an independent company, and that the CMA even admits [PDF] Microsoft's half-billion plus dollar deal with the company was for non-exclusive access to its models, the investigation's outcome may not be guaranteed. 

The Phase One merger inquiry that launched today will last until September 11, by which point the CMA is scheduled to determine whether to forward the case along for a more in-depth "phase 2" investigation. 

CMA officials declined to comment on the case, saying it was too early to add anything beyond what had been published online. 

EU and US want a piece of the action, too

Even if Microsoft manages to escape the wrath of the CMA in this case it won't be free of regulatory scrutiny elsewhere. 

The US Federal Trade Commission opened an investigation into the Microsoft/Inflection AI matter in early June, saying it was curious whether the talent acquisition and cash investment were essentially a merger in everything but name. The FTC is also inspecting Microsoft's close relationship with OpenAI amid concerns the pair have an unfair advantage over the competition. 

And things aren't going much better in the EU, where antitrust chief Margrethe Vestager said in April that officials were aware of Microsoft's deal with Inflection AI. Vestager mentioned Microsoft and Inflection AI in a speech late last month, saying the Commission was examining whether the deal was designed to avoid antitrust scrutiny. 

"We will make sure these practices don't slip through our merger control rules if they basically lead to a concentration," Vestager said at the time.

The European Commission told us that it is still analyzing the Microsoft/Inflection AI deal from an antitrust perspective, and if it decides the deal amounts to a merger Microsoft might already be in trouble. 

"From a merger perspective … this transaction has not been formally notified to the Commission," an EC spokesperson told us. "If a transaction constitutes a concentration and has an EU dimension, it is always up to the companies to notify it to the Commission." 

The EU is also investigating Microsoft's deal with French AI startup Mistral after Microsoft invested €15 million ($16.3 million) in the firm days after it released a ChatGPT competitor.

Neither Microsoft nor Inflection AI responded to questions for this story. ®

https://www.theregister.com//2024/07/16/uk_competition_officials_kick_off/