UK inquiries of Amazon and Microsoft's AI Collaborations

Preliminary investigations are being done by the UK’s Competition and Markets Authority (CMA) into potential antitrust implications surrounding the close collaborations between tech giants Microsoft and Amazon and three AI startups: Mistral, Anthropic, and Inflection. These investigations aim to ascertain whether these partnerships fall within the purview of the country’s merger regulations and whether they could potentially distort competition within the UK market.

This move by the CMA comes at a time of heightened scrutiny over Big Tech’s strategies in the realm of mergers and acquisitions, particularly in the rapidly evolving field of artificial intelligence (AI). Critics have raised concerns that these collaborations, often dubbed as “quasi-merger” could be a way for dominant players to sidestep regulatory scrutiny typically associated with outright acquisitions.

Earlier this year, the US Federal Trade Commission (FTC) initiated its own inquiries into the investment activities of Alphabet, Amazon, and Microsoft in emerging AI companies. The FTC aims to determine whether the partnerships pursued by these tech giants pose a risk of distorting innovation and stifling fair competition in the AI market.

Additionally, regulatory attention has been drawn to the concept of “foundation models,” which serve as the backbone for a wide array of AI applications. These foundational models are seen as crucial infrastructure upon which various AI systems are built, with implications spanning across sectors such as healthcare, energy, finance, and transportation.

Joel Bamford, the CMA’s executive director of mergers, emphasized the importance of ensuring fair competition in foundation model markets to fully realize the benefits of AI-driven transformations across different sectors of the UK economy.

In a statement, Bamford said “Foundation models have the potential to fundamentally impact the way we all live and work, including products and services across so many U.K. sectors – healthcare, energy, transport, finance and more, So open, fair, and effective competition in foundation model markets is critical to making sure the full benefits of this transformation are realized by people and businesses in the U.K., as well as our wider economy where technology has a huge role to play in growth and productivity.”

Strategic Partnerships

Concerns have been raised by the UK regarding partnerships involving significant players in the foundational model space, suggesting that such alliances could enable incumbent technology firms (i.e., Big Tech) to safeguard themselves against competition. While a direct acquisition would undoubtedly trigger regulatory scrutiny, proponents argue that partnerships, investments, and “acqui-hires” could offer a means to circumvent such oversight.

Microsoft’s recent investment in and close collaboration with OpenAI, the creator of ChatGPT, drew the attention of the CMA late last year. This prompted the regulator to issue a formal “invitation to comment,” targeting relevant stakeholders in both the AI and business domains. Following suit, the European Commission (EC) initiated a similar investigation in January.

Since then, significant developments have unfolded. Microsoft recruited the core team from Inflection AI, a US-based competitor of OpenAI in which the tech giant had previously invested. Furthermore, Microsoft inaugurated a new AI hub in London, led by Jordan Hoffmann, former scientist from Inflection and DeepMind.

In addition, Microsoft recently invested in Mistral AI, a French startup (double unicorn) specializing in foundational models.

A spokesperson from Microsoft assured that the company would provide all necessary information to the CMA to expedite their inquiries. “We remain confident that common business practices such as the hiring of talent or making a fractional investment in an AI startup promote competition and are not the same as a merger,” said The Spokesperson.

Meanwhile, Amazon finalized a $4 billion investment in Anthropic, another US-based AI company focusing on large language models.

An Amazon spokesperson criticized the CMA’s scrutiny of such collaborations as “unprecedented,” especially since Amazon’s partnership with Anthropic does not grant it a board seat or observer role, unlike Microsoft’s involvement with OpenAI. The spokesperson emphasized that Anthropic retains the freedom to utilize multiple cloud platforms.

Amazon defended its investment in Anthropic, citing the release of their cutting-edge new Claude 3 models and the enhanced competitiveness it brings to the generative AI sector. They expressed confidence in the benefits of the collaboration for customers and hoped for a swift resolution from the CMA.

The CMA’s initial “invitation to comment” period runs from today through May 9, marking the “pre-notification” phase. This may lead to a formal “phase 1” review directly involving the target companies, Microsoft and Amazon. The entire phase 1 review, if initiated, must conclude within 40 days, after which the CMA must determine if the partnerships qualify as a “relevant merger” or not.

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