FTC Investigates Microsoft’s $650 Million Deal with AI Startup Inflection

The FTC is investigating whether Microsoft structured its recent deal with artificial intelligence startup Inflection AI to avoid a government antitrust review.

The Wall Street Journal reports that in March, Microsoft hired Inflection AI’s co-founder and nearly all of its employees, agreeing to pay the startup approximately $650 million as a licensing fee to resell its technology. The deal has caught the attention of the FTC, which is now scrutinizing the transaction to determine if Microsoft crafted the agreement to gain control of Inflection while dodging FTC review.

Companies are required to report acquisitions valued at more than $119 million to federal antitrust-enforcement agencies, which have the option to investigate a deal’s impact on competition. The FTC and the Department of Justice share antitrust authority and can sue to block mergers or investments if an investigation finds the deal would substantially reduce competition or lead to a monopoly.

FTC Chair Lina Khan has expressed concern that tech giants could eventually acquire or control the most promising AI applications, giving them a tight grip on systems with humanlike abilities to converse, create art, and write computer code. The FTC has been sifting through AI investments made by leading companies such as Microsoft and Google.

The agency is now focusing on Microsoft’s deal with Inflection, seeking information about how and why they negotiated their partnership. Civil subpoenas sent recently to Microsoft and Inflection seek documents going back about two years. If the agency finds that Microsoft should have reported and sought government review of its deal with Inflection, the FTC could bring an enforcement action against Microsoft, potentially leading to fines and a suspension of the transaction pending a full-scale investigation.

Inflection AI, based in the San Francisco Bay Area, built one of the world’s biggest large language models and launched an AI chatbot called Pi. The company is one of several that have built and sold access to large language models, alongside OpenAI, the creator of ChatGPT, and Google.

Microsoft was an investor in both OpenAI and Inflection. In January, the FTC opened a broad investigation of Microsoft’s investment in OpenAI and Alphabet’s relationship with Anthropic, a rival of OpenAI founded by former OpenAI engineers in 2021.

Read more at the Wall Street Journal here.

Lucas Nolan is a reporter for Breitbart News covering issues of free speech and online censorship.