CMA clears Microsoft and Inflection AI transaction

The Competition and Markets Authority (CMA) has given Microsoft the all-clear regarding its hiring of senior Inflection AI executives, as part of its Phase 1 investigation into the deal.

While the investigation found that the transfer of employees, coupled with other tactical arrangements, means Microsoft and Inflection are no longer distinct and qualifies as a merger under UK law, the CMA found no evidence of competition concerns that would require it to proceed with an 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,” Joel Bamford, executive director of mergers at the CMA, wrote in a LinkedIn post.

In the article, Bamford discussed the CMA’s competition concerns, identified in a report it published in April that looked at more than 90 interconnected partnerships between the largest digital firms and some of the most promising model startups.  

“Given the complex and opaque nature of some of some of these deals, we said in April that we’d monitor them closely and take a more detailed look at ones which could potentially fall under UK merger law – and if so, whether they might have a harmful anti-competitive effect on UK consumers and businesses,” he added.

In July, the CMA said it had initiated a Phase 1 investigation of Microsoft’s latest attempt to build out its artificial intelligence (AI) strategy by hiring the people who built the Inflection AI foundational AI model. 

Discussing the Phase 1 investigation, which has cleared Microsoft and Inflection AI, Bamford said: “In my view, this is really what the CMA’s Phase 1 process is for – a route to gather and properly assess all the documentation submitted by the companies regarding the deal, as well as feedback from those with knowledge of the market (like consumer groups, policy organisations, and other businesses), before reaching an evidence-based conclusion.

“It’s also important to be clear where we do have jurisdiction to review these types of arrangements under the merger rules so that we can be sure there is no harm to competition.”

In the summary of its decision, the CMA recognised the importance of the continued development of foundational AI models (FMs).

“Given that any technology in this space can quickly become obsolete without ongoing development, the CMA notes the importance of expertise to the development and supply of FMs and chatbots. Based on the evidence seen by the CMA, the team of staff responsible for development is therefore at the core of any business seeking to develop FMs or chatbots. In this context, the CMA considers that acquiring a team with relevant know-how – even without further assets – may fall within the CMA’s merger control jurisdiction,” the CMA stated in the summary of its decision.
 
“Reviews like this help us to gain more clarity around these types of partnerships and arrangements, whether they could fall under UK merger rules and any subsequent impact on competition,” Bamford said in the article.