CMA seeks views on Microsoft’s partnership with OpenAI

December 12, 2023

The Competition and Markets Authority has launched an Invitation to Comment (ITC) about the partnership between Microsoft and OpenAI. The ITC is the first part of the CMA’s information gathering process and comes in advance of any formal phase 1 investigation.

The CMA says that the speed at which AI is scaling across use cases and markets is unrivalled in economic history, while advances in powerful foundation models (FMs) mean that this is a pivotal moment in the development of this transformative technology. The CMA’s recent report into the rapidly evolving market for FMs noted both opportunities and risks for competition and consumer protection, which were captured in a set of proposed principles to guide the development of the market toward positive outcomes for people and businesses. Critical among these is the need for sustained competition between AI developers which will help to deliver innovation, growth and responsible practices across the sector, as well as the need for open and effective competition in the deployment of FMs across a range of downstream activities.

As part of its ongoing work in this area, the CMA has been closely monitoring the impact of partnerships and strategic agreements which could result in a weakening of competition in the development or use of FMs. The partnership between Microsoft and OpenAI (including a multi-year, multi-billion dollar investment, collaboration in technology development and exclusive provision of cloud services by Microsoft to OpenAI) represents a close, multi-faceted relationship between two firms with significant activities in FMs and related markets.

There have recently been several developments in the governance of OpenAI, some of which involved Microsoft. In light of these, the ITC seeks to determine if the partnership has resulted in a relevant merger situation under the merger control provisions of the Enterprise Act 2002 and, if so, the potential impact on competition.

The CMA will review whether the partnership has resulted in an acquisition of control – that is, where it results in one party having material influence, de facto control or more than 50% of the voting rights over another entity – or change in control by one entity over another.

Alongside this review, the CMA is continuing with its wider work looking at the implications of FMs for competition and consumer protection and will be publishing an update on that work in March 2024, including on how FM developers are accessing key inputs (such as expertise, data and computing power) through investments, mergers, acquisitions and partnerships. At the same time, the CMA continues to progress its cloud infrastructure market investigation to consider whether there are competition concerns and, if so, what interventions can improve the supply of these important services for UK customers.

The period for comment ends on 3 January 2023.