REG - Competition and Mkts - Merger Update: Microsoft / OpenAI

MicrosoftAnnouncement

08/12/2023 11:15

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RNS Number : 1856W  Competition and Markets Authority  08 December 2023

 

CMA seeks views on Microsoft's partnership with OpenAI

Invitation to Comment launched by the CMA on the partnership between Microsoft
and OpenAI.

 

The Competition and Markets Authority (CMA) is today providing an early
opportunity for the parties and interested third parties to comment on whether
the partnership between Microsoft and OpenAI, including recent developments,
has resulted in a relevant merger situation and, if so, the impact that the
merger could have on competition in the UK.

 

The Invitation to Comment (ITC) is the first part of the CMA's information
gathering process and comes in advance of any launch of a formal phase 1
investigation.

 

The speed at which artificial intelligence (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
(https://www.gov.uk/government/publications/ai-foundation-models-initial-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 a number of developments in the governance of OpenAI,
some of which involved Microsoft. In light of these developments, the CMA is
now issuing an ITC 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.

 

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 the nature of control by one entity over another.

 

Sorcha O'Carroll, Senior Director for Mergers at the CMA said:

 

"The invitation to comment is the first part of the CMA's information
gathering process and comes in advance of launching any phase 1 investigation,
which would only happen once the CMA has received the information it needs
from the partnership parties."

 

The CMA is now inviting views on whether the partnership between Microsoft and
OpenAI, including recent developments, results in the creation of a relevant
merger situation and, if so, the impact of the partnership on competition in
the UK.

 

More information on the CMA's investigation can be found on the Microsoft /
OpenAI partnership merger inquiry case page.

Alongside this review, the CMA is continuing with its wider work
(https://www.gov.uk/cma-cases/ai-foundation-models-initial-review) 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
(https://www.gov.uk/cma-cases/cloud-services-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.

-ENDS-

NOTES TO EDITORS

 

1.   More information on the CMA's Microsoft / OpenAI partnership merger
inquiry and the ITC can be found on its case page.

2.   A relevant merger situation refers to a transaction that meets certain
criteria under the Enterprise Act 2002 (the Act). A range of different kinds
of transactions and arrangements may constitute a relevant merger situation,
including, for example, the acquisition of a minority shareholding or, in some
circumstances, commercial arrangements such as outsourcing arrangements.

3.   In order for arrangements to amount to a relevant merger situation
under the Act, three criteria must be met: (i) first, either two or more
enterprises must cease to be distinct, or there must be arrangements in
progress or contemplation which, if carried into effect, will lead to
enterprises ceasing to be distinct - this means that there must be an
acquisition of control or change in the level of control held by at least one
enterprise over another; (ii) second, at least one of the 'turnover test' (the
UK turnover of the target exceeds £70 million) or the 'share of supply test'
(the enterprises ceasing to be distinct both supply or acquire goods or
services of any description and have a combined share of 25% or more of such
acquisition or supply in the UK) set out in section 23 of the Act must be met;
and (iii) third, either the merger must not yet have taken place or the date
of the merger must be no more than four months before the day the reference is
made, unless the merger took place without having been made public and without
the CMA being informed of it (in which case the four-month period starts from
the earlier of the time the merger was made public or the time the CMA was
told about it). This four-month deadline may be extended in certain
circumstances. Further detail is set out in the CMA's jurisdictional and
procedural guidance (CMA2
(https://assets.publishing.service.gov.uk/media/61d71895e90e070375c22f1a/CMA2_guidance_publication.pdf)
), chapter 4.

4.   This ITC is being issued ahead of any decision to launch a phase 1
merger investigation. The CMA needs to gather certain information from
Microsoft and OpenAI before it can start a phase 1 investigation, including
information about their UK activities, data and internal documents. This
period of information gathering is known as pre-notification and can take a
number of months.

5.   Microsoft is a global technology company offering a wide range of
products and services, with a global turnover of nearly £184 billion in the
financial year 2022.

6.   OpenAI is an FM developer. FMs are AI systems with broad capabilities
that can be adapted to a range of different, more specific purposes.

7.   In September 2023, the CMA published a report
(https://www.gov.uk/government/publications/ai-foundation-models-initial-report)
following its initial review of FMs and proposed principles which aim to
ensure consumer protection and healthy competition are at the heart of
responsible development and use of FMs.

8.   For media enquiries, contact the CMA press office on 0203 738 6460
or press@cma.gov.uk (mailto:press@cma.gov.uk) .

 

 

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