The U.K.’s antitrust watchdog has launched a review of a partnership that Microsoft Corp. inked with Inflection AI Inc,. a heavily funded OpenAI rival, earlier this year.

The Competition and Markets Authority, or CMA, announced the move today. The development comes about three months after CMA officials began looking into Microsoft’s deal with Inflection AI. On April 24, the regulator invited members of the public to provide input on the partnership’s potential market impact.

Inflection AI, founded in 2022, closed a $1.3 billion funding round the following year that included contributions from Microsoft. It developed a large language model, Inflection-2.5, that can generate text, craft code and perform related tasks. The startup said at the time of the algorithm’s debut that it can nearly match the capabilities of GPT-4, the predecessor to OpenAI’s latest GPT-4o LLM.

In March, Microsoft appointed Inflection AI co-founder and Chief Executive Officer Mustafa Suleyman to the helm of its Microsoft AI machine learning group. It also hired most of the LLM’s other staffers and entered a nonexclusive agreement to license Inflection-2.5. Inflection AI, for its part, announced plans to refocus on developing custom LLMs for enterprises.

The CMA detailed today that its probe into the deal has two main focus areas. Officials plan to evaluate the manner in which Microsoft hired most of Inflection AI’s workforce, as well as examine the “related arrangements” it inked with the LLM developer as part of the partnership. The CMA didn’t specify what arrangements it will scrutinize.

In March, sources told The Information that the partnership cost Microsoft $650 million. The company reportedly paid the bulk of that sum, $620 million, for a nonexclusive license to Inflection AI’s technology. The remaining $30 million was provided as part of an agreement in which Inflection AI committed not to sue Microsoft for hiring its former employees.

The CMA’s initial priority is to determine whether the partnership amounts to a so-called relevant merger situation. This term covers not only acquisitions, but also other deals such as partnerships in which the companies involved “cease to be distinct.” If the CMA finds that Microsoft’s Inflection AI agreement meets the relevant criteria, it will seek to determine whether the deal may substantially reduce market competition in the U.K.

Depending on the review’s findings, the matter could be referred to a more in-depth Phase 2 investigation. Such probes can lead the CMA to issue fines or order the companies being scrutinized to change some of their business practices. 

Microsoft said in a statement that “we are confident that the hiring of talent promotes competition and should not be treated as a merger. We will provide the UK CMA with the information it needs to complete its inquiries expeditiously.”

Microsoft’s partnership with OpenAI is also facing regulatory scrutiny. In late June, the European Union’s top antitrust official revealed that the bloc may launch a review of the deal. The CMA, for its part, requested third-party feedback on the Microsoft-OpenAI partnership’s market impact last December but has not yet launched an investigation. 

Photo: Microsoft