The Competition and Markets Authority (CMA) has approved Microsoft’s hiring of senior executives from Inflection AI as part of its Phase 1 investigation into the acquisition.
While the investigation determined that the transfer of staff, along with various strategic arrangements, means that Microsoft and Inflection are no longer treated as separate entities, thus qualifying as a merger under UK law, the CMA found no competition-related issues that would necessitate a deeper Phase 2 review. “Inflection AI is not a significant competitor to the consumer chatbots that Microsoft has developed independently (Copilot) or in partnership with OpenAI (ChatGPT). Based on this assessment, we have approved the transaction,” wrote Joel Bamford, the CMA’s executive director of mergers, in a LinkedIn post.
In his post, Bamford addressed the CMA’s competition concerns highlighted in a report released in April, which examined over 90 interconnected partnerships between major digital companies and promising startups. He noted, “Given the complex and opaque nature of some of these deals, we indicated in April that we would closely monitor them and conduct more detailed evaluations of arrangements that might fall under UK merger law, particularly in terms of their potential anti-competitive effects on consumers and businesses in the UK.”
The CMA began its Phase 1 investigation in July into Microsoft’s strategy to advance its artificial intelligence (AI) capabilities by recruiting personnel responsible for the Inflection AI foundational model. Reflecting on the Phase 1 investigation, which resulted in the approval for Microsoft and Inflection AI, Bamford stated, “This is precisely the purpose of the CMA’s Phase 1 process—to gather and rigorously evaluate all documentation provided by the companies involved, along with insights from market stakeholders, before arriving at a conclusion grounded in evidence.”
He emphasized the importance of understanding the CMA’s jurisdiction in reviewing such arrangements under merger rules to ensure there is no competitive harm.
In its decision summary, the CMA acknowledged the crucial role of ongoing development in foundational AI models (FMs). “As technology in this field can become outdated swiftly without continuous innovation, the CMA highlights the significance of expertise in the development of FMs and chatbots. Evidence reviewed by the CMA indicates that the team responsible for development is essential for any business aiming to create FMs or chatbots. In this regard, acquiring a team with relevant expertise, even without additional assets, may fall under the CMA’s merger control jurisdiction,” the summary stated. “These reviews help us gain a clearer understanding of these types of partnerships and arrangements, determining if they could fall under UK merger regulations and their subsequent impact on competition,” Bamford added in the article.