Microsoft Faces UK Probe Over Inflection Staff Hiring

Microsoft is facing another regulatory investigation in the United Kingdom – this time associated with its hiring practices of former staff at AI start-up Inflection.

On Tuesday the UK competition regulator, the Competition and Markets Authority (CMA) announced that it “is investigating Microsoft Corporation’s hiring of certain former employees of Inflection AI, Inc. and its entry into associated arrangements with Inflection.”

It comes after the UK’s CMA had in 2023 begun investigating Foundation Models (FMs), as the market continues to develop at a “whirlwind pace”.

Phase one probe

That investigation last September identified risks associated with AI FMs, and proposed seven guiding principles for the foundation models that underpin AI systems.

Earlier this year the CMA confirmed it had “real concerns” with AI Foundation Models (FMs) that are controlled by a small number of tech firms.

In April the CMA had begun seeking industry feedback on Microsoft’s hiring of Inflection AI start, which took place between April and May 2024.

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).”

AI hiring

Microsoft had made headlines in April when it announced that it is to open a London hub for its new consumer artificial intelligence (AI) division headed by Jordan Hoffmann, who joined the company from start-up Inflection AI in March.

In March 2024 Microsoft had also hired Mustafa Suleyman as head of its newly-created AI unit. It also hired a most of the employees from Inflection, which Suleyman had set up in 2022.

That move was significant, as Suleyman was a former employee of AI rival Google, and is one of the three three co-founders of London-based 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 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.

The deadline for the CMA to announce its decision whether to refer the Merger for a Phase 2 investigation is 11 September 2024.

Previous CMA probes

Microsoft has endured a number of brushes with the British competition regulator recently.

In May 2024 the CMA decided for example that “Microsoft Corporation’s partnership with Mistral AI does not qualify for investigation under the merger provisions of the Enterprise Act 2002.”

But Microsoft has also publicly clashed with the CMA, after the UK regulator had blocked Microsoft’s $69 billion purchase of Activision Blizzard in April 2023.

At the time the CMA provisionally concluded that Microsoft’s proposed acquisition of Activision could result in higher prices, fewer choices, or less innovation for UK gamers.

Microsoft appealed and offered concessions, and eventually the CMA approved the deal in October 2023.

However Microsoft’s conduct during the affair was strongly rebuked by the British regulator, after an angry war of words between Redmond and the CMA.