Microsoft will not face an antitrust investigation in the UK over its recent investment in French AI startup Mistral AI, with the country’s Competition and Markets Authority (CMA) concluding on Friday that the partnership “does not qualify for investigation under the merger provisions of the Act.” the Companies Act 2002.”
The decision comes three weeks after the CMA revealed three preliminary investigations into Amazon and Microsoft’s various AI investments and partnerships, including the Redmond-based company’s $16 million investment in Mistral AI, a rival to OpenAI working on large language models. Shortly after, Microsoft hired the team behind Inflection AI, another OpenAI rival, effectively gutting the startup.
Separately, the CMA said it was also attacking Amazon’s $4 billion investment in Anthropic, a US AI company working on large language models.
Big Tech and the quasi-merger
Big Tech’s latest tactic to evade regulatory scrutiny by pursuing “quasi-mergers,” through which it seeks to secure control of new technologies without buying startups outright, is coming under increasing scrutiny. This can be done by making investments, securing seats on boards, hiring founding teams, etc.
In early 2024, the Federal Trade Commission (FTC) launched investigations into investments by Alphabet, Amazon and Microsoft in emerging AI companies to determine whether “partnerships pursued by dominant companies risked distorting the innovation and undermine fair competition.
The AMC’s efforts are part of this same regulatory dynamic. Two of its recently announced “invitations for comment” are still ongoing and could lead to in-depth formal investigations. It is nevertheless telling that the CMA rejects the Mistral AI case on the grounds that it is not “qualified” for investigation under the existing rules.
Alex Haffner, a competition partner at UK law firm Fladgate, says the finding suggests that the structure of Microsoft’s partnership with Mistral AI does not give the larger company sufficient rights or influence, at least in regarding the regulation of mergers and acquisitions. Ultimately, it was a minority investment in a double unicorn that had closed a $415 million funding round a few months earlier.
“In doing so, the decision confirms Microsoft’s stated position on the merger,” Haffner said.
This “stated position” was that a small investment was not enough to provide significant influence on the future direction of a growing AI startup. Microsoft would effectively own less than 1% of Mistral AI when its investment is converted into equity during the French startup’s next financing round.
A Microsoft spokesperson said at the time of the initial announcement of the CMA investigation:
“We remain convinced that common business practices such as recruiting talent or making a fractional investment in an AI startup promote competition and are not the same as a merger.”
Microsoft spokesperson, April 2024
While the CMA argues that Big Tech could adopt new methods to protect itself from antitrust scrutiny, it now confirms that Microsoft had not acquired any “material influence over the commercial policy of Mistral AI”.
“The CMA has considered the information submitted by Microsoft and Mistral AI, as well as the comments received in response to its invitation to comment,” a CMA spokesperson said. “Based on the evidence, the CMA does not believe that Microsoft gained significant influence over Mistral AI as a result of the partnership and therefore does not qualify to be investigated.”
Pollination works
Last month, the CMA sounded the alarm on the growing influence of big tech in the advanced AI market, expressing concerns about the growing connection and concentration between developers in the space in full expansion of generative AI. But the CMA has now said at least one of the deals on its radar cannot be investigated, suggesting big tech’s tactics aimed at cross-pollinating the AI ecosystem at scale could work to some extent.
But that still leaves two cases unresolved: Amazon’s gargantuan investment in Anthropic and Microsoft’s hiring of key Inflection personnel. Could we expect a similar result there?
“The CMA concluded that the agreements between Microsoft and Mistral are not sufficient to give Microsoft ‘material influence’ over Mistral, which is the relevant jurisdictional test,” Haffner said. “Time will tell, but the assumption therefore is that the application of the test is clearer here than in other AI partnerships being investigated by the CMA.”
It’s definitely not that simple. Anthropic has secured Amazon’s largest venture capital investment to date, accounting for more than half of the $7.6 billion the AI company has raised since its founding three years ago. And even though Inflection technically still exists, Microsoft recruited its founders and various key colleagues – in many ways this amounted to an acquisition.
And let’s not forget the other separate, but related, ongoing CMA case involving Microsoft’s close ties to OpenAI. The regulator issued a “formal invitation to comment” to relevant AI and business stakeholders last year, and the European Commission (EC) followed suit in January.
So we probably shouldn’t draw too many conclusions about other pending cases based on today’s news.
“The fact that the CMA has only confirmed the findings of the Mistral investigation is interesting, as it leaves open the position on the other two deals, as well as the CMA’s ongoing investigation into Microsoft’s role in Project Open AI,” Haffner said. “Overall, it is therefore clear that competition authorities continue to be very closely involved in developments in the AI sector, and we can expect several further announcements from the CMA in a near future regarding the results of their ongoing work in this area. .”
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