CMA Halts Probe Into Microsoft’s Inflection AI Staff Hiring

The UK competition regulator, the Competition and Markets Authority (CMA), has cleared Microsoft’s hiring of former staff at Inflection AI.

The CMA in its summary of the investigation, announced that it “has found that the transaction … involving the acquisition by Microsoft Corporation of certain assets of Inflection AI, is a relevant merger situation falling within the merger control jurisdiction of the CMA but that the transaction does not give rise to a realistic prospect of a substantial lessening of competition as a result of horizontal unilateral effects.”

It comes after the CMA had in 2023 warned it was focusing on the AI market and began investigating Foundation Models (FMs). It subsequently confirmed it had “real concerns” with AI Foundation Models (FMs) that are controlled by a small number of tech firms.

CMA investigation

Consequentially, Microsoft’s practices drew its attention in March 2024 when the software giant hired Mustafa Suleyman as head of its newly-created AI unit. Redmond also hired a most of the employees from Inflection, which Suleyman had set up in 2022.

Then in April 2024 Microsoft announced that it was to open a London hub for its new consumer AI division headed by Jordan Hoffmann, who joined from Inflection AI in March.

That same month the CMA began seeking industry feedback on Microsoft’s hiring of Inflection AI staff.

The CMA said at the time that it had identified an “interconnected web of over 90 partnerships and strategic investments involving the same firms: Google, Apple, Microsoft, Meta, Amazon, and Nvidia (the leading supplier of AI accelerator chips).”

It should be remembered that Mustafa Suleyman was a former employee of AI rival Google, and was one of the three three co-founders of DeepMind back in 2010.

Microsoft reportedly paid $650 million (£514m) to Inflection as part of the mass hiring deal, which effectively turned Inflection into a much smaller company with a less ambitious business model.

After leaving DeepMind, Suleyman and LinkedIn co-founder Reid Hoffman had founded Inflection AI, a start-up backed by Microsoft and several prominent tech industry billionaires such as Bill Gates and former Google chief executive Eric Schmidt.

Microsoft is Inflection’s cloud computing provider, and is also a main backer of Inflection competitor OpenAI and provides Azure cloud services to that company as well.

CMA decision

The CMA had until 11 September to decide whether to press ahead with its investigation, but in the end decided not to proceed – even though the hiring of the “core team” of Inflection AI, in its eyes, constituted a “merger”.

“On 19 March 2024, Microsoft announced that it had hired several former Inflection employees, which the CMA understands amounted to almost all of Inflection’s team, including two of its co-founders: Mustafa Suleyman and Karén Simonyan,” said the CMA. “In addition to hiring the core team, Microsoft also entered into a series of arrangements with Inflection including, among others, a non-exclusive licensing deal to utilise Inflection IP in a range of ways.”

“The CMA considers Microsoft to be the ‘Acquirer’,” said the CMA. “Based on the evidence seen by the CMA, the team of staff responsible for development is therefore at the core of any business seeking to develop FMs or chatbots. In this context, the CMA considers that acquiring a team with relevant know-how – even without further assets – may fall within the CMA’s merger control jurisdiction.”

“On this basis, the CMA believes that Microsoft has substantively acquired Inflection’s pre-Transaction FM and chatbot development capabilities,” said the regulator, but added “the CMA found that the Transaction does not give rise to a realistic prospect of an SLC as a result of horizontal unilateral effects arising from the loss of competition in the development and supply of consumer chatbots.”

“The CMA found that the Transaction does not give rise to a realistic prospect of an SLC as a result of horizontal unilateral effects arising from a loss of competition in the development and supply of FMs,” it concluded.