Microsoft under scrutiny, to be investigated by UK regulator over hiring Inflection AI staff

The UK competition watchdog has officially started investigating Microsoft’s hiring of employees from start-up Inflection AI, marking an escalation in global regulatory scrutiny of technology companies’ investment activities.

The Competition and Markets Authority (CMA) announced on Tuesday that it has sufficient information to initiate an inquiry into Microsoft’s hiring of certain former Inflection AI employees and related arrangements with the start-up.

This formal merger inquiry follows an earlier phase where the CMA sought public comments on the Microsoft-Inflection AI relationship, amid broader concerns about mergers and acquisitions in the rapidly evolving AI sector. The CMA set a deadline of September 11 to escalate its investigation further.

Microsoft has defended its actions, stating it believes hiring talent fosters competition and asserting that its dealings with Inflection AI should not be categorized as a merger. The tech giant has committed to cooperating fully with the CMA’s inquiries.

In March, Microsoft paid $650 million to acquire key personnel from Inflection AI, including CEO Mustafa Suleyman, a co-founder of Google’s DeepMind, and also secured licensing rights to its technology. Inflection AI, originally focused on consumer AI with its chatbot product Pi, shifted its business model to enterprise AI software after most of its workforce moved to Microsoft.

The transaction has raised eyebrows among regulators and legal experts who argue it resembles an acquisition but circumvents formal merger regulations. In April, the CMA sought public input on whether partnerships like Microsoft’s with Inflection AI should fall under UK merger rules.

Both Microsoft and Inflection AI have maintained that their agreement is not exactly an acquisition and that Inflection AI remains an independent entity, operating on its own, without any interference from Microsoft.

This scrutiny is part of a broader trend where major tech companies’ investments in AI start-ups have come under regulatory review in the US, EU, and UK. Microsoft recently stepped down from its board observer role at OpenAI, and Apple followed suit, amid increasing regulatory scrutiny over tech investments in AI start-ups.

In June, the European Commission indicated it might launch an antitrust investigation into Microsoft’s partnership with OpenAI, shifting focus away from traditional merger control rules. Similarly, the US Federal Trade Commission has begun examining investments by major tech firms like Microsoft, Amazon, and Google in generative AI start-ups.