As large tech firms expand through acquisitions and advancements, regulatory bodies express concerns about potential anti-competitive practices. FAMGA (Facebook, Apple, Microsoft, Google, Amazon) has invested $59 billion in AI research. The rapid growth in these companies’ influence has prompted new antitrust regulations to focus on fair competition and prevent monopolistic behavior.
In a significant move reflecting this growing scrutiny, Microsoft and Apple have decided to step down from OpenAI’s board amidst increased regulatory oversight from US, UK, and EU authorities.
In this blog, we will discuss the ramifications of increased regulatory scrutiny on OpenAI, new digital oversight, and the impact on the broader industry.
Microsoft Leaves OpenAI’s Board
On July 10, 2024, Microsoft officially announced its exit from OpenAI’s governance board. In a letter, Microsoft’s Deputy General Counsel Keith Dolliver stated, “We are confident in the company’s direction and have witnessed significant progress by the newly formed board over the past eight months, and we no longer believe our limited role as an observer is necessary.”
Microsoft had been drawn to the OpenAI board after a power struggle that saw CEO Sam Altman briefly dismissed and played a key role in rehiring Sam Altman as OpenAI’s CEO.
After being reinstated, Sam Altman announced Microsoft’s new role on the OpenAI board as a non-voting observer in his inaugural statement. This allowed Microsoft’s representatives to attend board meetings and access confidential information.
However, they would not possess voting rights. This development, alongside a $13 billion investment, made Microsoft OpenAI’s largest and most important investor.
The close ties between the two companies and Microsoft’s ability to access confidential information attracted scrutiny from regulators regarding fair competition and market practices.
Regulators Investigate Potential Anti-Competitive Practices
Following the contentious temporary removal of OpenAI’s CEO in December 2023, the UK’s Competition and Markets Authority (CMA) launched an investigation into Microsoft and OpenAI’s partnership.
Similarly, the European Commission (EU) also asked for more information regarding “certain exclusivity clauses” in Microsoft’s agreement with OpenAI that could be detrimental to competition. The head of the competition bureau, Margrethe Vestager, emphasized that the EU will keep a careful eye on the quickly developing AI market.
The EU will put special emphasis on one area, called “Acquire-Hires,” in which a company purchases another primarily to acquire its key talent.
“It is hard not to conclude that Microsoft’s decision has been heavily influenced by the ongoing competition/antitrust scrutiny,” said UK-based lawyer Alex Haffner.
All of this can lead to a slowdown in the development of innovative AI solutions necessary for a competitive edge and threaten business reputations.
OpenAI’s Response and Governance Changes
After Microsoft’s withdrawal, OpenAI has committed to increasing transparency with strategic partners and plans to alleviate regulatory concerns and strengthen its governance.
“We’re grateful to Microsoft for continued support, and we look forward to continuing our successful partnership,” said Steve Sharpe, a spokesperson for OpenAI.
However, OpenAI will no longer offer stakeholders the role of non-voting board observers. The company will adopt a new strategy of hosting stakeholder meetings more frequently to share progress and enhance collaboration, particularly in safety and security.
“Under the new leadership of the CFO Sarah Friar, we plan to host regular meetings with partners such as Apple and Microsoft and key investors Khosla Ventures and Thrive Capital,” announced Steve Sharpe.
Impact of Microsoft’s Withdrawal From OpenAI’s Board
With increasing pressure from antitrust authorities in the US, UK, and EU, Microsoft’s exit from the OpenAI board helps it ease regulatory concerns. By distancing itself from direct board involvement, the company can navigate potential antitrust complications and maintain a positive relationship with regulators.
However, Microsoft’s exit will not deteriorate its partnership with OpenAI. It is still OpenAI’s biggest investor, approximately controlling 49% of the ownership stake. Going forward, the company plans to integrate OpenAI models into Office 365 and Azure products to provide better customer service.
Apple Avoids Observer Role
With Microsoft’s departure, Apple also dropped plans to join OpenAI’s board as a non-voting observer. This development came despite Apple’s joint endeavor with OpenAI, where the company planned to incorporate ChatGPT into Apple’s product lineup.
Although Apple’s AI enhancements have significantly improved Siri and machine learning capabilities, the tech giant prefers to avoid possible regulatory issues.
Broader Industry Trends
Regulatory authorities are becoming increasingly vigilant about scrutinizing mergers and acquisitions (M&A) in the AI domain. Top US antitrust regulators are currently examining investments by Microsoft, Google, and Amazon in startups like OpenAI and Anthropic.
“Our investigation aims to determine whether the investments and alliances formed by these dominant companies could potentially distort innovation and hinder fair competition,” said Lina Khan, head of the Federal Trade Commission (FTC).
UK competition regulator CMA is also investigating Microsoft’s rehiring of Inflection AI CEO to determine whether it caused a “substantial lessening of competition” in the AI space.
Likewise, The US Department of Justice (DOJ) initiated two distinct inquiries into Nvidia due to rising antitrust concerns surrounding their AI-centric business operations. Nvidia commands a 70% to 95% market share in the chips essential for training AI models.
This dominance has not escaped the attention of other international regulatory bodies. Last month, Reuters reported that Nivida might face antitrust accusations in France.
A broader trend has emerged in the tech industry, where regulatory authorities scrutinize the acquisition of AI startups and technologies to discourage monopolistic behavior. Microsoft’s decision to exit the OpenAI board has been viewed as a proactive effort to prevent the perception of exerting undue influence over smaller firms.
However, tech companies will continue collaborating with AI startups in different ways, such as providing funding, technical support, and strategic advice.
Key Outcomes
With greater regulatory scrutiny, tech giants must exercise greater caution when investing in AI startups. Moreover, the OpenAI board’s shuffle and scrutiny presents an opportunity for tech companies to enhance their governance protocols, strengthen partnerships, and proactively meet compliance obligations.
All this will contribute to the development and adoption of responsible and explainable AI.
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