As regulators around the world investigate Microsoft’s $13 billion investment in OpenAI, the software giant is making a simple argument that should resonate with antitrust authorities: Because you don’t own traditional shares in a startup company, you can’t say you have a controlling interest in it.
Microsoft chose an unusual deal when it negotiated an additional $10 billion investment in OpenAI in January, people familiar with the matter said at the time. Rather than buying a piece of the state-of-the-art artificial intelligence lab, the company has signed a deal to receive roughly half of OpenAI’s profits until the investment is repaid up to a pre-determined cap, one of the people said. It is said that it was tied. This unconventional structure was concocted because OpenAI is a limited for-profit company established within a nonprofit organization.
However, it is unclear whether regulators recognize the distinction.upon Friday The UK Competition and Markets Authority said it was gathering information from interested parties to determine whether the partnership between the two companies threatens competition in the UK, where Google’s AI research lab DeepMind is based. The U.S. Federal Trade Commission also Explore the nature of Microsoft’s investments The use of OpenAI and whether it could violate antitrust laws, according to people familiar with the matter.
The investigation is preliminary and authorities have not launched a formal investigation, said the people, who requested anonymity due to confidential matters.
The person said Microsoft did not report the deal to authorities because its investment in OpenAI did not give it control under U.S. law. OpenAI is not-for-profit, and acquisitions of unincorporated entities, regardless of amount, are not reportable under U.S. merger law. Authorities are analyzing the situation and assessing what options are available.
“The details of the agreement remain confidential, but please note that Microsoft does not own any part of OpenAI and is only entitled to a portion of the profit share,” a Microsoft spokesperson said in a statement. is important.” “The only thing that has changed is that Microsoft will now have a non-voting observer on OpenAI’s board,” Microsoft President Brad Smith said early Friday. He said the relationship with OpenAI is “very different” from Google’s full acquisition of Britain’s DeepMind.
“Our partnership with Microsoft allows us to remain independent and operate competitively while advancing research and developing AI tools that are safe and beneficial for everyone. OpenAI Public Relations A spokesperson said in a statement that non-voting observers do not provide governance or control over OpenAI’s operations.
From the beginning, Microsoft and OpenAI struggled to promote their independence. Microsoft wanted to reassure investors and customers that it was not overly dependent on one partner. OpenAI didn’t want its employees, customers and other investors to think it was just another outpost of Redmond, Wash.-based Microsoft. That cautious positioning was upended last month with the firing of OpenAI CEO Sam Altman and the startup’s near implosion.
Altman Imbroglio proven Both Microsoft’s lack of control and its influence. Microsoft received notice within minutes that the OpenAI board planned to announce Altman’s firing, but executives were not consulted in the decision. Still, Microsoft CEO Satya Nadella, along with other investors, played a key role in getting the board to reverse its decision. At one point, Microsoft announced it would hire Altman and his OpenAI colleagues to form a new Microsoft AI division.
Once Altman returned as CEO, Microsoft executives debated whether it would be wise to join OpenAI’s board, people familiar with the matter said at the time. Meanwhile, executives worried that board seats and observer status would draw attention from regulators. Microsoft, on the other hand, kept close tabs on its partners and wanted to protect its investments. This was an urgent need of the day, despite the risks.
Ultimately, Microsoft could face regulatory challenges. European regulators are also taking note, a European Commission spokesperson said. Notification of a transaction to the European Commission under the EU Merger Regulation must involve a permanent change of control. Although the transaction was not formally notified, the European Commission had been monitoring the situation closely before the management disruption occurred, a spokeswoman said.
Last month, Germany’s competition authority Said Microsoft’s OpenAI investment was not subject to the merger review. But regulators said they would hold off simply because OpenAI has no substantial business in Germany. After reviewing the deal and consulting with both companies, regulators said the investment gives Microsoft “significant competitive leverage” over AI companies, and that OpenAI could increase its presence in Germany in the future. It was determined that monitoring may be necessary.
Jennifer Lee, an antitrust analyst at Bloomberg Intelligence, said the partnership could pose a competitive threat if Microsoft cuts its own AI research and development or if the investment prevents OpenAI from partnering with the tech giant’s rivals. Said to cause problems. Antitrust enforcement authorities may also have concerns about Microsoft’s board observers because they would give Microsoft additional information about OpenAI’s plans, even if they do not have the right to influence decisions.
— With contributions from Thomas Seale and Samuel Stolton