The Federal Trade Commission (FTC) has launched an investigation into Microsoft’s recent deal with AI startup Inflection, scrutinizing its potential impact on market competition.
In March, Microsoft entered into an agreement with Inflection, which involved bringing Inflection's co-founders Mustafa Suleyman and Karén Simonyan, along with most of their staff, into Microsoft. Suleyman now heads Microsoft's new AI division. As part of the deal, Microsoft agreed to pay Inflection $620 million for a license to sell its AI models on Azure, with proceeds from the sales being used to repay Inflection's investors over time.
The FTC's investigation, reported by The Wall Street Journal, centers on whether Microsoft circumvented antitrust reporting rules. U.S. regulations require companies to disclose acquisitions valued over $119 million to federal authorities. Both Microsoft and Inflection have been subpoenaed to provide information to determine if the deal effectively gave Microsoft control over Inflection.
There is also concern that Microsoft may have tried to evade regulatory scrutiny by "acqui-hiring" — acquiring most of the startup’s staff rather than the company itself. Inflection continues to operate under the leadership of Sean White, formerly of Mozilla. Should Microsoft be found to have failed to report the acquisition properly, the deal could potentially be halted.
Both the FTC and the Justice Department possess the authority to block mergers they believe could harm competition. Assistant Attorney General Jonathan Kanter recently stated that the Justice Department’s Antitrust Division is "actively examining" the AI market to ensure fair competition.
Microsoft is already under FTC investigation regarding its strategic partnership with OpenAI. Similar probes are ongoing in the U.K., although the antitrust watchdog there recently dropped its investigation into Microsoft’s investment in French AI startup Mistral. The FTC is also scrutinizing deals made by rivals Google and Amazon to ensure they do not impede competition.
Alon Yamin, co-founder and CEO of Copyleaks, expressed support for the antitrust probes into AI giants. “While innovation is crucial, unchecked dominance by Nvidia, Microsoft, and OpenAI could stifle competition and limit access to the technology. A healthy AI ecosystem needs a level playing field that brings diverse voices to the table to ensure responsible development and innovation," Yamin stated.
