Sarah Travers
Amidst the rapid growth of the artificial intelligence (AI) sector, Microsoft is now facing federal scrutiny over its recent collaboration with AI startup Inflection. The Federal Trade Commission (FTC) has initiated an investigation to determine whether Microsoft’s partnership with Inflection amounts to an undisclosed acquisition, shedding light on the intensified focus of US antitrust regulators on the booming AI industry.
In a move that grabbed headlines in March, Microsoft announced its recruitment of Inflection’s co-founders and a number of its employees to lead its Copilot program. Additionally, the tech giant revealed plans to host Inflection’s AI model on its cloud platform, with reports indicating a substantial payment of $650 million to Inflection. While Microsoft has positioned the move as a talent acquisition rather than a complete buyout of the company, the FTC’s probe aims to clarify whether Microsoft complied with disclosure requirements.
This investigation unfolds within the context of imminent agreements between antitrust authorities at the FTC and the Department of Justice (DOJ) regarding oversight of major players in the AI industry, which include Microsoft, Google, Nvidia, and OpenAI. Although the specifics of the agreement are still being finalized, it is anticipated that the DOJ will lead the investigation into Nvidia while continuing its scrutiny of Google. Meanwhile, the FTC is expected to focus on investigating Microsoft and OpenAI, with a particular emphasis on potential anticompetitive conduct in the AI market.
Microsoft has reiterated its position, asserting that its dealings with Inflection were primarily aimed at enhancing its Copilot program while allowing Inflection to pursue its independent goals as an AI studio. The company maintains confidence in its compliance with reporting obligations, although the exact nature of these obligations remains undisclosed.
FTC Chair Lina Khan’s warnings regarding the risks associated with unchecked AI development, such as fraud and scams, underscore the imperative for regulatory oversight within the sector. Ongoing investigations into Reddit’s AI content licensing practices and OpenAI’s violations of consumer protection laws further emphasize the FTC’s proactive approach to regulating the industry.
The division of responsibilities between the FTC and DOJ signals a coordinated effort to closely monitor the AI sector, driven by concerns regarding job displacement, discrimination, and fraud. While the United States lags behind the European Union (EU) in terms of AI regulation, the FTC and DOJ are preparing to leverage existing laws to address anticompetitive behavior within the industry.
The surging stock prices of Nvidia serve as an indicator of the AI fervor, highlighting the company’s pivotal role as a leading provider of computing chips essential for training advanced AI models. However, apprehensions persist regarding the potential for tech giants to exploit 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 endeavor to safeguard competition in the burgeoning AI market.
As the DOJ bolsters its expertise in AI with the addition of Stanford University professor and AI expert Susan Athey, attention is drawn to historical anticompetitive tactics employed by tech giants. A comprehensive understanding of past market dynamics, gatekeeping strategies, and supply chain maneuvers will be crucial in shaping future regulatory initiatives aimed at fostering a fair playing field in the AI industry.
