Microsoft Cleared by U.K. Regulator Over Inflection AI Employee Hires

The U.K. Competition and Markets Authority (CMA) announced on Wednesday that Microsoft’s hiring of staff from Inflection AI, an artificial intelligence startup founded by DeepMind co-founder Mustafa Suleyman, will not face an in-depth competition investigation. The CMA found that Microsoft’s deal to acquire certain assets from Inflection does not present a “realistic prospect of a substantial lessening of competition (SLC).” However, the regulator maintained that the agreement constituted an effective “merger.”

CMA's Initial Investigation into Microsoft and Inflection AI

In July, the CMA launched an initial probe into Microsoft's hiring of employees from Inflection AI, assessing whether this constituted a “merger” under U.K. rules, which could potentially harm competition within the AI sector. The hiring included Mustafa Suleyman, who was appointed Microsoft’s Executive Vice President and CEO of Microsoft AI, and Karen Simonyan, now Microsoft’s Chief Scientist. Both Suleyman and Simonyan were former employees of DeepMind, a Google-owned AI lab.

Microsoft’s AI Focus with Inflection Hires

Suleyman now leads Microsoft’s newly formed AI unit, which focuses on products such as Copilot, the company’s AI assistant, integrated into Windows and Microsoft 365. The hiring of these key employees led to scrutiny from the CMA, as regulators were concerned about the potential impact on competition in the AI market.

CMA’s Decision: No Threat to Competition

On Wednesday, after further evaluation, the CMA concluded that Microsoft’s arrangement with Inflection AI does not pose any substantial risk to competition in the U.K. However, the CMA did confirm that the hiring arrangement constituted an effective merger, even though it did not find a significant risk of horizontal unilateral effects on the AI sector.

The CMA had initially provided limited specifics on how Microsoft’s hiring of Inflection AI employees might impact competition. However, the regulator later clarified that its evaluation extended beyond just the recruitment of staff. It also examined Microsoft’s “associated arrangements” with Inflection AI, including a broader review of any contractual agreements, licensing deals, or collaborations that could potentially influence market dynamics in the AI sector.

Non-Exclusive Licensing Agreement with Inflection AI

Part of the CMA’s assessment involved Microsoft’s “non-exclusive licensing deal to utilize Inflection IP [intellectual property] in a range of ways.” While Microsoft has not disclosed any details regarding the licensing arrangement, reports suggest the company paid Inflection $650 million in fees to resell its AI models via Microsoft’s Azure cloud computing platform.

Other Regulatory Probes into AI Partnerships

Microsoft is also under scrutiny for its multibillion-dollar investment into AI giant OpenAI, with the CMA conducting a separate ongoing investigation. Additionally, the regulator is investigating whether Amazon’s partnership with AI startup Anthropic constitutes a merger that could harm competition. Both Microsoft and Amazon have denied that their partnerships with smaller AI firms amount to mergers, asserting that the firms operate independently.

Meanwhile, in the U.S., the Federal Trade Commission is also reviewing multiple deals between Big Tech companies and AI startups, including Microsoft’s arrangement with Inflection.