Microsoft-OpenAI partnership under scrutiny from UK and US regulators

The UK's Capital Markets Authority will review whether there has been an acquisition of control

Sam Altman, chief executive of OpenAI, and Satya Nadella, chairman and chief executive of Microsoft, at OpenAI's first developer conference in November. AP

The partnership between ChatGPT maker OpenAI and its biggest backer Microsoft is under scrutiny from UK and US regulators, following the dramatic removal and subsequent return of OpenAI chief executive Sam Altman.

After the series of tumultuous events last month, Microsoft was granted a non-voting observer position at OpenAI by its new board comprising chairman Bret Taylor, Larry Summers and Adam D'Angelo.

But while Redmond, Washington-based Microsoft can access OpenAI's confidential information and attend its board meetings, the company has no voting power.

“There have recently been a number of developments in the governance of OpenAI, some of which involved Microsoft,” the UK's Capital Markets Authority said.

“In light of these developments, the CMA is now issuing an ITC [invitation to comment] to determine whether the Microsoft/OpenAI partnership, including recent developments, has resulted in a relevant merger situation and, if so, the potential impact on competition.”

An ITC is the first part of the authority’s information gathering process and comes in advance of any launch of a formal phase one investigation, which is also the initial review to determine if a partnership raises prima facie concerns.

“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 per cent of the voting rights over another entity – or change in the nature of control by one entity over another,” the CMA said.

Microsoft said that it does not own any stake in OpenAI.

“While details of our agreement remain confidential, it is important to note that Microsoft does not own any portion of OpenAI and is simply entitled to a share of profit distributions,” a Microsoft representative said.

Earlier on Friday, Microsoft president Brad Smith said the “independence” of both companies was maintained.

“Since 2019, we’ve forged a partnership with OpenAI that has fostered more AI innovation and competition, while preserving independence for both companies,” he said in a post on X, the platform formerly known as Twitter.

“The only thing that has changed is that Microsoft will now have a non-voting observer on OpenAI’s board … we will work closely with the CMA to provide all the information it needs,” he said.

The US Federal Trade Commission, meanwhile, is also examining the nature of Microsoft’s investment in OpenAI and if it is breaking antitrust laws, Bloomberg reported, citing a source.

Lina Khan, FTC's chairwoman, has been vocal about potential risks from AI, having already opened a consumer protection investigation into OpenAI to find out if ChatGPT puts consumer reputations and data at risk.

She is also leading an appeal to challenge Microsoft's $69 billion acquisition of video game company Activision Blizzard.

Microsoft, which has supported California-based OpenAI since 2019, had this year pledged a reported $10 billion to further boost the company and maintained its commitment to their partnership.

“We have a long-term agreement with OpenAI with full access to everything we need to deliver on our innovation agenda and an exciting product road map,” Microsoft chairman and chief executive Satya Nadella had said shortly after Mr Altman was dismissed.

The National could not reach Microsoft for comment as its UAE offices are closed on Saturday.

The scrutiny on OpenAI comes just weeks after drama swept OpenAI, beginning when Mr Altman was fired by the company on November 17, after its board found he was not consistently candid in his communications.

That triggered a series of events. Immediately after Mr Altman's removal, OpenAI chief technology officer Mira Murati was appointed as interim chief executive.

Then, on November 20, OpenAI appointed ex-Twitch boss Emmett Shear as its interim chief executive. Mr Altman, meanwhile, was appointed by Microsoft to lead an advanced AI research team.

OpenAI's staff reportedly threatened to quit and join Mr Altman at Microsoft's new AI unit unless the board resigned, mounting pressure on the company.

Mr Altman was eventually reinstated on November 22, bringing days of intense discussions to a close.

The UK and US scrutiny also comes amid the EU's Friday approval the Artificial Intelligence Act, designed to cut the risks from the growing and increasingly powerful technology.