The Federal Trade Commission is investigating whether a recent Microsoft deal with Inflection AI was structured to avoid antitrust scrutiny.
Microsoft hired the AI startup’s co-founder and nearly all its employees, agreeing to pay around $650 million in licensing fees to resell Inflection’s technology.
Under US regulations, companies must report acquisitions exceeding $119 million to federal antitrust authorities.
These agencies, including the FTC and the Justice Department, can investigate deals that might harm competition or create monopolies.
The FTC is already examining AI investments by major tech players and is concerned about the potential for tech giants to dominate the AI market.
FTC Chair Lina Khan has voiced concerns these companies could control promising AI technologies, leading to significant market power.
Now, the FTC is scrutinizing Microsoft’s arrangement with Inflection AI and requests detailed information on the deal’s negotiations.
Civil subpoenas sent to both companies asking for documents from the past two years.
This is to understand if Microsoft designed the deal to gain control over Inflection without triggering an antitrust review.
Microsoft could face enforcement action
Should the FTC conclude that Microsoft circumvented required reporting, it could initiate enforcement actions.
This might involve fines and a suspension of the deal while a comprehensive investigation assesses its impact on competition.
Tech companies often engage in “acquihires,” where they acquire startups primarily for their talent rather than the business itself.
Microsoft integrated Inflection’s AI research team in this case but did not purchase the company outright.
Inflection AI, headquartered in the San Francisco Bay Area, is known for developing one of the largest language models and launching the AI chatbot Pi.
Alongside companies like OpenAI and Google, Inflection has been at the forefront of large language model development.
Microsoft has invested in both OpenAI and Inflection, raising further antitrust concerns.
At Microsoft, Inflection co-founder Mustafa Suleyman and his team have established a new division, Microsoft AI, focused on consumer AI products, including enhancements to Bing and Windows.
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Despite these changes, Inflection AI continues to operate independently under a new management team, shifting its focus from consumer products like Pi to corporate services.
Ted Shelton, Inflection’s new COO, said the company remains independent and that Microsoft has no investment.
Principal investors now include entrepreneur Reid Hoffman and venture capital firm Greylock Partners.
This situation mirrors Microsoft’s attempt to hire Sam Altman, CEO of OpenAI, after his brief ousting by the OpenAI board.
Altman was reinstated after a five-day standoff, with the board citing communication issues as the reason for his initial removal.
Microsoft has a significant stake in OpenAI, having invested approximately $13 billion for a 49 percent claim on its profits.
