The FTC is investigating whether Microsoft Corp MSFT.O circumvented government antitrust scrutiny with a recent deal with an artificial intelligence startup. Microsoft hired the co-founder and nearly all of Inflection AI's employees in March and agreed to pay the startup about $650 million in licensing fees to resell its technology. Inflection AI's investors were told they would be repaid over time through sales proceeds.
Companies are required by law to report acquisitions worth more than $119 million to federal antitrust enforcers, who have the power to investigate the deals’ impact on competition. The FTC or the Justice Department, which share antitrust authority, can sue to block mergers or other investments if they find the deal will substantially lessen competition or lead to a monopoly.
The FTC, which is already scrutinizing AI investments by leading companies such as Microsoft Corp and Alphabet Inc GOOGL.O, has expressed concern that tech giants could end up acquiring or controlling the most promising AI applications, giving them a firm grip on systems with human-like abilities to converse, create art and write computer code.
The FTC is now delving into Microsoft’s deal with InflectionAI, seeking information about how and why they negotiated the partnership, according to a person familiar with the matter and records reviewed by The Wall Street Journal. The commission’s recent civil subpoenas to Microsoft and InflectionAI seek documents going back about two years. The agency is trying to determine whether Microsoft crafted a deal that gave it control over InflectionAI while avoiding FTC scrutiny of the deal, the person said.
If the agency finds that Microsoft should have reported and sought government review of its deal with InflectionAI, the FTC could take enforcement action against Microsoft. Officials could ask the court to fine Microsoft and suspend the transaction while the FTC conducts a full investigation into the deal’s impact on competition.
Technology companies often acquire startups to attract their talent, a strategy known as "acquisition." Microsoft poached InflectionAI's team of professionals but stopped short of acquiring the company outright.
Inflection AI, based in the San Francisco Bay Area, built one of the world’s largest large-scale language models and used the technology to launch an AI chatbot called Pi. Inflection AI is one of a number of technology companies that build and sell access to large-scale language models, including OpenAI, the creator of ChatGPT, and Google.
Microsoft is an investor in both OpenAI and InflectionAI. The FTC in January launched a broad investigation into Microsoft's investment in OpenAI and Alphabet's relationship with Anthropic, an OpenAI competitor founded in 2021 by former OpenAI engineers.
At Microsoft, InflectionAI co-founder Mustafa Suleyman and his former team formed a new division called Microsoft AI to develop artificial intelligence products for consumers, including its search engine Bing and an AI assistant for Windows.
Shelton added that Inflection is continuing to operate under a new management team, but has shifted away from its consumer product, Pi, and toward serving enterprise clients.
Entrepreneur Reid Hoffman and venture capital firm Greylock Partners are now Inflection's lead investors.
Microsoft had earlier also tried to hire OpenAI CEO Sam Altman after its board pushed him out last November. Altman returned to OpenAI as CEO after a five-day standoff with the board. The board claimed Altman had not been completely honest in his communications with them. OpenAI's nonprofit board oversees a for-profit organization with outside investors. Microsoft invested about $13 billion in OpenAI and received a 49% interest in any profits it generates.
The article is forwarded from: Jinshi Data
