Microsoft faces CMA probe over recruitment of Inflection AI staff
Tech giant Microsoft is being investigated in the UK by The Competition and Markets Authority (CMA), over whether its recruitment of staff from startup Inflection AI constitutes a merger.
Key employees at Inflection AI left the startup in March 2024 in order to join the tech giant, with co-founder Mustafa Suleyman becoming the head of its new AI division. This followed Microsoft’s participation in Inflection AI’s $1.3 billion funding round.
The CMA has launched its formal investigation into Microsoft's recruitment of staff from startup Inflection AI to determine if this constitutes a merger, which could potentially stifle competition in the AI sector.
The CMA has said: “The Competition and Markets Authority (CMA) is considering whether it is or may be the case that Microsoft Corporation’s hiring of certain former employees of Inflection and its entry into associated arrangements with Inflection has resulted in the creation of a relevant merger situation under the merger provisions of the Enterprise Act 2002 and, if so, whether the creation of that situation has resulted, or may be expected to result, in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services.”
The CMA has said that Microsoft has entered into a "non-exclusive licensing deal" to use Inflection’s AI models.
The initial investigation, often termed a phase one inquiry, followed the CMA's request for opinions regarding Microsoft's recruitment of Inflection staff back in April.
"We are confident that the hiring of talent promotes competition and should not be treated as a merger," a Microsoft spokesperson told the BBC.
Inflection, which started in 2022 as a consumer AI company, has experienced a significant transformation following its deal with Microsoft. With many of its employees now part of Microsoft, Inflection has pivoted to offering enterprise AI software to businesses. This transition has caught the attention of regulators and legal experts, who noted that it resembled an acquisition by Microsoft without adhering to formal acquisition rules.
Should the CMA find sufficient evidence to indicate a "merger" between Microsoft and Inflection that could potentially reduce competition, it will advance to a more detailed investigation. The CMA has announced that it will decide by 11th September whether to clear the transaction or to investigate further.
