Microsoft's AI deal with Inflection AI under FTC antitrust scrutiny

The Federal Trade Commission (FTC) is investigating Microsoft’s $650 million licensing deal with artificial intelligence startup Inflection AI, questioning whether the structure of the deal was designed to avoid antitrust scrutiny.

The deal, made in March, saw Microsoft hire Inflection’s co-founder Mustafa Suleyman and most of its employees, with Microsoft gaining the rights to resell Inflection’s technology. However, the deal did not involve an outright acquisition of Inflection, which continues to operate independently under new leadership.

The FTC is examining whether the deal’s structure was intentionally crafted to circumvent reporting requirements for acquisitions valued at over $119 million. If the FTC determines that Microsoft should have sought government review of the deal, it could initiate enforcement action, potentially including fines and a suspension of the transaction pending further investigation.

This scrutiny comes amid heightened concerns about the concentration of power in the AI sector. FTC Chair Lina Khan has previously voiced worries about tech giants potentially gaining control over the most promising AI applications.

Microsoft’s deal with Inflection, which involved the creation of a new AI division within Microsoft led by Suleyman, is now under the FTC’s microscope. The agency is seeking information about the negotiations and motivations behind the deal, with a focus on whether it was designed to give Microsoft control of Inflection without triggering regulatory review.

Inflection, meanwhile, maintains that it remains independent, and that Microsoft has no investment in the company. The startup has pivoted away from its consumer-focused chatbot, Pi, to focus on services for corporate clients.

This investigation follows a pattern of increased scrutiny of AI investments by major tech companies around the world. The FTC is also planning to investigate Microsoft’s investment in OpenAI.

The outcome of the FTC’s investigation could have significant implications for Microsoft and the broader AI landscape, potentially setting a precedent for future deals in this rapidly evolving field.