Microsoft's AI deal under federal investigation

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The Federal Trade Commission is investigating Microsoft's recent deal with artificial intelligence startup Inflection, as U.S. antitrust regulators step up scrutiny of the red-hot AI industry, according to a person familiar with the matter.

Microsoft announced in March that it had hired Inflection's co-founder and several of its staff to lead its Copilot program, and Inflection said its AI model was hosted on Microsoft's cloud platform. will go As part of the deal, Microsoft is said to have paid an indemnity of $650 million. In its announcement at the time, Microsoft described the move simply as a hiring decision, not an acquisition.

The FTC's investigation into Microsoft concerns whether the company's investment in Inflection constituted an acquisition that Microsoft failed to disclose to the government, one of the people said.

Two people familiar with the matter told CNN that the investigation comes as FTC and Justice Department antitrust officials are nearing a final agreement this week on how Microsoft, Google, Nvidia, OpenAI And others like AI giants should be jointly monitored.

The deal, which could be finalized within days, would appoint the DOJ as Nvidia's lead investigator, while the FTC would take over investigations of Microsoft and OpenAI, the people said. The DOJ will likely continue its role in overseeing Google, one of the people indicated. Any investigation will focus on whether companies have used their dominant positions in the AI ​​industry to harm competition through abusive and illegal behavior.

Microsoft declined to comment on the DOJ-FTC settlement but, in a statement, defended its partnership with Inflection.

A Microsoft spokesperson said, “Our agreements with Inflection allow us to build a team capable of recruiting individuals at Inflection AI and accelerating Microsoft Copilot, while maintaining Inflection as an AI studio in its independent business and Enabled the wish to continue,” said a Microsoft spokesperson. The Company is “confident” it has complied with its reporting obligations.

Inflection and Google did not immediately respond to a request for comment. Nvidia and OpenAI declined to comment. The DOJ and FTC declined to comment. The FTC-DOJ agreement was previously reported by The New York Times. The FTC's Microsoft investigation was first reported by The Wall Street Journal.

FTC Chair Lena Khan has warned in op-eds and congressional testimony that, unchecked, artificial intelligence could “turbocharge” fraud and scams. The agency has published several reminders and warnings that businesses could be held liable for making misleading claims about their AI tools or secretly using consumer data to train AI models. . The FTC is currently investigating Reddit's AI content licensing practices, and is separately investigating OpenAI for possible violations of consumer protection law.

The U.S. agencies' labor-sharing deal opens the door to deeper scrutiny of a sector that has galvanized investors, impressed consumers and raised alarm bells among critics who say AI is too soon to take over. Regulation is needed to prevent large-scale job displacement, discrimination and fraud. In particular, it creates roles for the FTC and DOJ to examine whether tech companies and AI companies are behaving in anti-competitive ways.

And it highlights how enforcers are increasingly trying to force existing laws to affect the industry as the prospect of new US laws governing AI fades away. The United States is widely seen as a laggard in AI regulation as others, such as the European Union, have jumped in with tougher rules about how to use the technology in high-risk contexts. can go. The EU AI Act, for example, outlaws AI-powered social scoring systems and biometric-based tools used to infer a person's race, political leanings or sexual orientation. It also bans the use of AI to interpret people's emotions in schools and workplaces, as well as some types of automated profiling aimed at predicting a person's likelihood of committing crimes in the future.

For years, technology critics and regulators have worried that big tech companies are monopolizing all sectors of the economy. This has led to high-profile US government antitrust suits targeting Amazon, Apple, Google, Meta and Microsoft.

Some worry that tech companies could abuse their powerful roles in business and society to expand their dominance in the fast-growing field of generative AI, which came to the fore in 2022 when OpenAI released ChatGPT. .

Nvidia's soaring stock price has served as a barometer of the AI ​​frenzy, underscoring the company's position as a leading supplier of the computing chips needed to train advanced AI models. On Wednesday, Nvidia became the second-largest publicly traded company in the United States, ending the day with a market capitalization of more than $3 trillion, surpassing Apple.

AI relies on massive amounts of data and computing power, which can give substantial advantages to already dominant firms,” ​​DOJ antitrust chief Jonathan Cantor said in a speech at Stanford University last week. Said Americans depend on only a handful of technologies. The giants could allow them to “control these new markets.”

Critics say one way for tech giants to gain competitive influence in the AI ​​sector is through exclusive partnerships with AI startups. The contracts could potentially “lock in” AI developers as customers of major cloud computing services and give tech giants significant stakes or influence over AI development. These types of deals, including Microsoft's relationship with OpenAI, are the subject of an ongoing FTC study announced in January.

The DOJ is also increasingly vocal on AI issues. In 2022, the agency's antitrust division appointed Stanford University professor and AI expert Susan Athey as its chief economist.

Given the competition in the AI ​​industry, antitrust enforcers should take lessons from how tech giants have behaved competitively in the past, Athey told CNN at a recent event hosted by Bloomberg News in Washington.

This can include gatekeeping or obstructionist tactics, which make it difficult for customers or consumers to switch suppliers, or to be the largest purchaser of key supplies – such as AI chips, for example – and competing competitors. denying them essential supplies.

“We have to look at historical analogs and see where the sources of market power have been and how people have protected them, and those are the tactics that we might be concerned with going forward,” Athey said.

This story has been updated with additional context and developments.

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