Microsoft will not be subjected to antitrust scrutiny in the U.K. for its recent investment in French AI startup, Mistral AI. On Friday, the Competition and Markets Authority (CMA) concluded that the partnership “does not qualify for investigation under the merger provisions of the Enterprise Act 2002.”
This decision comes three weeks after the CMA announced several early-stage investigations into AI investments by Amazon and Microsoft, including Microsoft’s $16 million investment in Mistral AI, a competitor to OpenAI working on large language models. Shortly after, Microsoft hired the team behind Inflection AI, another OpenAI rival, effectively dismantling the startup.
Additionally, the CMA indicated it was examining Amazon’s $4 billion investment in Anthropic, a U.S.-based AI company focused on large language models.
Big Tech and the quasi-merger
There has been increasing attention on Big Tech’s strategy to avoid regulatory oversight by pursuing “quasi-mergers.” This tactic allows companies to gain control over new technologies without outright acquiring startups, often through investments, board seats, or hiring founding teams.
Earlier in 2024, the Federal Trade Commission (FTC) initiated investigations into the investments of Alphabet, Amazon, and Microsoft in emerging AI firms to determine whether these partnerships by dominant companies are hindering innovation and fair competition.
The CMA’s efforts align with this regulatory push. Two of its recently announced “invitations to comment” are still ongoing and may lead to formal in-depth investigations. However, the CMA dismissing the Mistral AI case indicates it doesn’t “qualify” for investigation under current rules.
Alex Haffner, competition partner at U.K. law firm Fladgate, notes that the structure of Microsoft’s partnership with Mistral AI doesn’t seem to provide Microsoft with sufficient rights or influence regarding M&A regulation. Ultimately, it was a minority investment in a double-unicorn that had recently closed a $415 million funding round.
“In so doing, the decision vindicates Microsoft’s stated position on the tie-up,” Haffner said.
Microsoft’s position was that a small investment doesn’t offer substantial influence over the future direction of an emerging AI startup. When its investment converts to equity at Mistral AI’s next funding round, Microsoft would own less than 1% of the company.
A Microsoft spokesperson remarked during the CMA’s initial probe announcement:
“We remain confident that common business practices such as the hiring of 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 acknowledges that Big Tech might be using new methods to evade antitrust scrutiny, it has now confirmed that Microsoft hadn’t acquired any “material influence on Mistral AI’s commercial policy.”
“The CMA has considered information submitted by Microsoft and Mistral AI, along with feedback received in response to its invitation to comment,” a CMA spokesperson said. “Based on the evidence, the CMA does not believe that Microsoft has acquired material influence over Mistral AI as a result of the partnership and therefore does not qualify for investigation.”
Pollination works
Last month, the CMA expressed concern over Big Tech’s increasing influence on the advanced AI market, worried about the growing concentration among developers in the rapidly expanding generative AI sector. Yet, the CMA now states that one of the deals it scrutinized doesn’t qualify for investigation, suggesting that Big Tech’s strategies to widely disperse their influence in the AI ecosystem might be effective to some extent.
However, two more cases remain: Amazon’s massive investment in Anthropic and Microsoft’s hiring of key Inflection personnel. Will these cases have similar outcomes?
“The CMA has concluded that the arrangements between Microsoft and Mistral do not give Microsoft ‘material influence’ over Mistral, which is the relevant jurisdictional test,” Haffner said. “Time will tell, but it seems the application of the test here is more straightforward than in other AI partnerships under CMA investigation.”
It’s not as simple. Anthropic received Amazon’s largest venture investment to date, representing over half of the $7.6 billion it has raised since its inception three years ago. While Inflection still technically exists, Microsoft’s acquisition of its founders and key personnel was almost as impactful as acquiring the company outright.
Additionally, the CMA launched a separate ongoing investigation into Microsoft’s close ties with OpenAI. This formal “invitation to comment” targets stakeholders in the AI and business sectors, and the European Commission (EC) followed suit in January.
Therefore, we should refrain from drawing conclusions about the other pending cases based on today’s news.
“That the CMA has only confirmed the conclusions of the Mistral investigation is interesting, as it leaves open the position on the other two deals and the CMA’s ongoing investigation into Microsoft’s role in the OpenAI project,” Haffner said. “Overall, it is clear that competition authorities are closely monitoring developments in the AI sector, and we can expect several more announcements from the CMA soon regarding their ongoing work in this area.”
