OpenAI/Microsoft partnership attracts attention under UK merger control rules

The Competition and Markets Authority (CMA) has invited comments on whether the partnership between Microsoft and OpenAI constitutes a relevant merger situation subject to UK merger control rules. The invitation to comment, issued 8 December 2023 (here), is the first step in a CMA process that can lead to the opening of a formal merger review. Microsoft, OpenAI and third parties have until 3 January 2023 to submit comments.

A key issue will be whether Microsoft exercises control over OpenAI. That can be a low threshold in the context of UK merger control. One party having material influence over the other, or a change in the nature of control can be sufficient. The CMA press release describes the collaboration between Microsoft and OpenAI as “a close, multi-faceted relationship between two firms with significant activities in [AI foundation models (FMs)] and related markets” and draws attention to recent “developments in the governance of OpenAI”. Either way, this looks like being another interesting jurisdictional question that the CMA has raised in the context of a UK merger control system that can be somewhat opaque to third parties.

On 17 November, the CEO of OpenAI Sam Altman was ousted by its board, only to return 4 days later with the backing of Microsoft, leading to the departure of all but one of the former board members. Following those changes, Microsoft will take a non-voting observer seat on OpenAI’s board. Board membership has often been a relevant factor in the CMA’s assessment of control.

Prior to that, on 15 November, the Germany’s national competition authority had concluded that Microsoft acquired material competitive influence over OpenAI as early as 2019. However, it found that the partnership was not subject to German merger control rules, since OpenAI did not have sufficient activity in Germany until 2023, and subsequent changes (to 15 November) were not sufficient to trigger jurisdiction. 

The CMA’s interest in the deal is very much in line with its ongoing focus on innovation, including in artificial intelligence (AI). The CMA’s press release emphasises the speed at which AI is developing, which it describes as “unrivalled in economic history”, and states that advances in AI foundation models (FMs) make this a “pivotal moment” in the development of AI.

As part of that ongoing focus, the CMA produced an Initial Report on AI Foundation Models on 18 September 2023 (here). From a substantive perspective, it is interesting to note that the Report records that, while OpenAI was the first to release a public FM in 2018, since then it is estimated that around 160 FMs have been developed and released. Not all FMs will have the same focus, quality or level of financial backing, but it is nonetheless clear that the market is a lively one with Google and Meta actively involved.