Microsoft’s $13 billion OpenAI pact faces extra EU scrutiny

Microsoft Corp.’s $13 billion investment into OpenAI Inc. is set to come under added scrutiny from European Union’s antitrust watchdogs, who are poised to quiz rivals about the AI firm’s exclusive use of Microsoft’s cloud technology.

Margrethe Vestager, the bloc’s antitrust chief, is expected on Friday to rule out an investigation under the EU’s merger rules, instead announcing that regulators are asking Microsoft’s rivals and customers more about the US company’s exclusivity clauses with OpenAI, and whether they might have a negative effect on competition.

Under the terms of Microsoft’s arrangement with OpenAI, Microsoft’s Azure is the exclusive cloud provider for OpenAI – something that EU regulators want to examine more, according to people familiar with the matter who spoke on condition of anonymity. The commission declined to comment and Microsoft said it had no immediate response.

Such preliminary questions from the EU can sometimes lead to formal investigations from the EU’s antitrust regulators. These investigations – in the long run – can result in orders to change behavior and potential fines if watchdogs unearth evidence of abusive practices hampering fair competition.

The EU’s antitrust arm said in January it was reviewing whether Microsoft’s involvement with OpenAI should be vetted after a mutiny at the ChatGPT creator exposed deep ties between the two firms.

The partnership first piqued the interest of regulators – including, as well as the EU, the UK’s Competition and Markets Authority and the US Federal Trade Commission – since a scandal embroiled the AI firm over the firing and subsequent rehiring of Sam Altman as chief of OpenAI late last year.

Microsoft Chief Executive Officer Satya Nadella personally helped negotiate and advocate for his return to the company – at one point offering to hire Altman himself, along with other employees at OpenAI who wanted to leave.

OpenAI’s board eventually agreed to reinstate Altman and the company then named a three-person interim board and added Microsoft as a non-voting observer.

That episode led regulators to examine the agreement. The UK watchdog said it would examine whether the balance of power between the two firms has fundamentally shifted to give one side more control or influence over the other, and the U.S. Federal Trade Commission has made inquiries into the agreement.

At the core of the partnership between Microsoft and OpenAI is the massive amounts of computer power required to keep the worldwide boom in generative AI going. Running the systems behind tools such as ChatGPT and Google’s Bard has sent demand for cloud services and processing capacity soaring. OpenAI, for example, has become a major customer of Microsoft’s cloud business.

Under the EU’s merger rules, officials vet deals under strict time frames and often push for remedies to allay specific competition concerns. While deals are in rare cases vetoed, firms generally don’t face punishments unless they mislead regulators or stymie the process.

The EU’s classic competition law is generally used to home in on potentially anti-competitive agreements between firms and also cases where powerful players abuse their dominance. If wrongdoing is found, fines can rise to 10% of a company’s revenue.

Redmond, Washington-based Microsoft is no stranger to EU antitrust scrutiny and in previous decades fought a long battle with regulators over abuses linked to the market dominance of Windows.

This week the EU accused the company of abusing its market power by bundling the Teams video-conferencing app to its other business software.