As the artificial intelligence (AI) industry continues its meteoric rise, Microsoft finds itself under the federal microscope due to a recent deal with AI startup Inflection. The Federal Trade Commission (FTC) has launched an investigation into whether Microsoft’s collaboration with Inflection constitutes an undisclosed acquisition, reflecting the heightened scrutiny of the red-hot AI sector by US antitrust regulators.
In March, Microsoft made headlines by announcing its hiring of Inflection’s co-founders and several staff members to lead its Copilot program. The tech giant also disclosed that Inflection’s AI model would be hosted on Microsoft’s cloud platform, with reports suggesting a substantial payment of $650 million to Inflection. Despite Microsoft framing the move as a talent acquisition rather than a full-scale company buyout, the FTC probe seeks to ascertain whether Microsoft failed to disclose the transaction to the government.
This investigation unfolds against the backdrop of impending agreements between antitrust officials at the FTC and the Department of Justice (DOJ) on overseeing major players in the AI industry, including Microsoft, Google, Nvidia, and OpenAI. While the specifics of the agreement are yet to be finalized, it’s expected to appoint the DOJ as the lead investigator for Nvidia and continue its oversight of Google. Meanwhile, the FTC is slated to take responsibility for investigating Microsoft and OpenAI, focusing on potential anticompetitive behaviors in the AI market.
Microsoft has maintained its stance, asserting that its agreements with Inflection were primarily aimed at bolstering its Copilot program while allowing Inflection to pursue its independent ambitions as an AI studio. The company asserts its confidence in compliance with reporting obligations, although details regarding the nature of these obligations remain undisclosed.
FTC Chair Lina Khan’s warnings about the potential risks of unchecked AI development, including fraud and scams, underscore the urgency of regulatory oversight in the sector. Ongoing investigations into Reddit’s AI content licensing practices and OpenAI’s consumer protection law violations further highlight the FTC’s proactive stance in policing the industry.
The division-of-labor agreement between the FTC and DOJ signals a concerted effort to scrutinize the AI sector more closely, given concerns about job displacement, discrimination, and fraud. While the United States lags behind the European Union (EU) in AI regulation, the FTC and DOJ are gearing up to wield existing laws to address anticompetitive practices in the industry.
Nvidia’s soaring stock prices serve as a bellwether for the AI frenzy, reflecting the company’s pivotal role as a leading supplier of computing chips essential for training advanced AI models. However, concerns linger about the potential for tech giants to abuse their dominant positions in AI, particularly through exclusive partnerships with AI startups. These partnerships, including Microsoft’s collaboration with OpenAI, are subject to ongoing scrutiny by the FTC, indicating a broader effort to safeguard competition in the burgeoning AI market.
As the DOJ bolsters its AI expertise with the hiring of Stanford University professor and AI expert Susan Athey, attention turns to historical anticompetitive tactics employed by tech giants. Understanding past market power dynamics, gatekeeping strategies, and supply chain manipulations will be critical in shaping future regulatory efforts to ensure a level playing field in the AI industry.
