Microsoft will not face a UK antitrust probe over its recent investment in French artificial intelligence startup Mistral AI with the country’s Competition and Markets Authority (CMA) on Friday Ending up that the partnership “does not qualify for investigation under the merger provisions of the Enterprise Act 2002”.
The decision comes three weeks after the CMA unveiled a trio of early-stage investigations into various Amazon and Microsoft AI investments and partnerships, including the Redmond-based company’s $16 million investment in Mistral AI, an OpenAI competitor working on large language models. Not long after, Microsoft hired the team behind Inflection AI, another OpenAI competitor, essentially killing the startup.
Elsewhere, the CMA also said it was involved in Amazon’s $4 billion investment in Anthropic, a US-based artificial intelligence company that works on large language models.
Big Tech and quasi-merger
There has been increasing scrutiny of Big Tech’s latest tactic to avoid regulatory oversight by seeking “quasi-mergers”, through which they seek to secure control of new technologies without directly buying startups. This can be done through making investments, procuring board seats, recruiting founding teams and so on.
In early 2024, the Federal Trade Commission (FTC) launched investigations into Alphabet, Amazon and Microsoft’s investments in emerging artificial intelligence companies to determine whether “partnerships pursued by dominant companies risk distorting innovation and undermining fair competition”.
The CMA’s efforts are part of the same regulatory push. Two of the recently announced “invitations for comment” are still ongoing and may lead to formal in-depth investigations. However, it is telling that the CMA is dismissing the Mistral AI case on the grounds that it does not “qualify” for an investigation under the existing rules.
Alex Haffner, competition partner at UK law firm Fladgate, says this finding suggests that the structure of Microsoft’s partnership with Mistral AI does not give the larger company sufficient rights or influence, at least when it comes to M&A regulation. After all, it was a minority investment in a double-unicorn that had closed a $415 million round just a few months earlier.
“In this way, the decision vindicates Microsoft’s position on the link,” Haffner said.
This “stated position” was that making a small investment is not enough to gain substantial influence over the future direction of a budding AI startup. Microsoft will effectively own less than 1% of Mistral AI when its investment is converted into equity in the French startup’s next funding round.
A Microsoft spokesperson said at the CMA’s initial announcement of the investigation:
“We remain convinced that common business practices such as recruiting talent or making a fractional investment in an AI startup promote competition and do not equate to a merger.”
Microsoft spokesperson, April 2024
While the CMA argues that Big Tech could adopt new methods to protect itself from antitrust scrutiny, it has now confirmed that Microsoft had not gained any “substantial influence over Mistral AI’s commercial policy”.
“The CMA has considered the information submitted by Microsoft and Mistral AI, together with the comments received in response to its invitation to comment,” a CMA spokesperson said. “Based on the evidence, the CMA does not believe that Microsoft has gained material influence over Mistral AI as a result of the collaboration and therefore does not qualify for an investigation.”
Pollination works
Just last month, the CMA sounded the alarm about Big Tech’s influence in the advanced AI market, raising concerns about the increasing connectivity and concentration among developers in the snowballing AI space. But the CMA has now said that at least one of the deals on its radar does not qualify for investigation, suggesting that Big Tech’s tactics to pollinate the largely artificial intelligence ecosystem may be working to a degree.
But that still leaves two more pending cases: Amazon’s giant investment in Anthropic and Microsoft’s hiring of key Inflection staff. Could we expect a similar result there?
“The CMA concluded that the agreements between Microsoft and Mistral are not sufficient to give Microsoft ‘material influence’ over Mistral, which is the relevant jurisdictional test,” Hafner said. “Time will tell, but the assumption is therefore that the application of the test is clearer here than with the other AI partnerships being considered by the CMA.”
It’s definitely not that cut and dry. Anthropic has landed Amazon’s largest venture investment to date, making up more than half of the $7.6 billion the AI company has raised since it was founded three years ago. And while Inflection technically still exists, Microsoft scooped up its founders and various key colleagues — in many ways, this was as good as an acquisition.
And let’s not forget the other separate, but related, ongoing CMA case looking at Microsoft’s close ties to OpenAI. The regulator launched a formal “call for comments” aimed at relevant stakeholders in the AI and business sector last year, and the European Commission (EC) followed suit in January.
So we probably shouldn’t draw too many conclusions about the remaining pending cases based on today’s news.
“That the CMA only confirmed the conclusions of the Mistral investigation is interesting, as it leaves open the door to the other two deals, as well as the CMA’s ongoing investigation into Microsoft’s role in the Open AI project,” Haffner said. “Overall, therefore, it is clear that the competition authorities continue to engage very closely with developments in the field of artificial intelligence and we can expect several more announcements from the CMA in the near future regarding the outcome of their ongoing work streams in this area .”
