CMA seeks views on Microsoft’s partnership with OpenAI

The Competition and Markets Authority (CMA) is today providing an early opportunity for the parties and interested third parties to comment on whether the partnership between Microsoft and OpenAI, including recent developments, has resulted in a relevant merger situation and, if so, the impact that the merger could have on competition in the UK.

The Invitation to Comment (ITC) is the first part of the CMA’s information gathering process and comes in advance of any launch of a formal phase 1 investigation.

The speed at which artificial intelligence (AI) is scaling across use cases and markets is unrivalled in economic history, while advances in powerful foundation models (FMs) mean that this is a pivotal moment in the development of this transformative technology. The CMA’s recent report into the rapidly evolving market for FMs noted both opportunities and risks for competition and consumer protection, which were captured in a set of proposed principles to guide the development of the market toward positive outcomes for people and businesses. Critical among these is the need for sustained competition between AI developers which will help to deliver innovation, growth and responsible practices across the sector, as well as the need for open and effective competition in the deployment of FMs across a range of downstream activities.

As part of its ongoing work in this area, the CMA has been closely monitoring the impact of partnerships and strategic agreements which could result in a weakening of competition in the development or use of FMs. The partnership between Microsoft and OpenAI (including a multi-year, multi-billion dollar investment, collaboration in technology development and exclusive provision of cloud services by Microsoft to OpenAI) represents a close, multi-faceted relationship between two firms with significant activities in FMs and related markets.

There have recently been a number of developments in the governance of OpenAI, some of which involved Microsoft. In light of these developments, the CMA is now issuing an ITC to determine whether the Microsoft / OpenAI partnership, including recent developments, has resulted in a relevant merger situation and, if so, the potential impact on competition.

The CMA will review whether the partnership has resulted in an acquisition of control – that is, where it results in one party having material influence, de facto control or more than 50% of the voting rights over another entity – or change in the nature of control by one entity over another.

Sorcha O’Carroll, Senior Director for Mergers at the CMA said:

The invitation to comment is the first part of the CMA’s information gathering process and comes in advance of launching any phase 1 investigation, which would only happen once the CMA has received the information it needs from the partnership parties.

The CMA is now inviting views on whether the partnership between Microsoft and OpenAI, including recent developments, results in the creation of a relevant merger situation and, if so, the impact of the partnership on competition in the UK.

More information on the CMA’s investigation can be found on the Microsoft / OpenAI partnership merger inquiry case page.

Alongside this review, the CMA is continuing with its wider work looking at the implications of FMs for competition and consumer protection and will be publishing an update on that work in March 2024, including on how FM developers are accessing key inputs (such as expertise, data and computing power) through investments, mergers, acquisitions and partnerships. At the same time, the CMA continues to progress its cloud infrastructure market investigation to consider whether there are competition concerns and, if so, what interventions can improve the supply of these important services for UK customers.

Notes to editors

1. More information on the CMA’s Microsoft / OpenAI partnership merger inquiry and the ITC can be found on its case page
2. A relevant merger situation refers to a transaction that meets certain criteria under the Enterprise Act 2002 (the Act). A range of different kinds of transactions and arrangements may constitute a relevant merger situation, including, for example, the acquisition of a minority shareholding or, in some circumstances, commercial arrangements such as outsourcing arrangements.
3. In order for arrangements to amount to a relevant merger situation under the Act, three criteria must be met: (i) first, either two or more enterprises must cease to be distinct, or there must be arrangements in progress or contemplation which, if carried into effect, will lead to enterprises ceasing to be distinct – this means that there must be an acquisition of control or change in the level of control held by at least one enterprise over another; (ii) second, at least one of the ‘turnover test’ (the UK turnover of the target exceeds £70 million) or the ‘share of supply test’ (the enterprises ceasing to be distinct both supply or acquire goods or services of any description and have a combined share of 25% or more of such acquisition or supply in the UK) set out in section 23 of the Act must be met; and (iii) third, either the merger must not yet have taken place or the date of the merger must be no more than four months before the day the reference is made, unless the merger took place without having been made public and without the CMA being informed of it (in which case the which case the four-month period starts from the earlier of the time the merger was made public or the time the CMA was told about it). This four-month deadline may be extended in certain circumstances. Further detail is set out in the CMA’s jurisdictional and procedural guidance (CMA2), chapter 4.
4. This ITC is being issued ahead of any decision to launch a phase 1 merger investigation. The CMA needs to gather certain information from Microsoft and OpenAI before it can start a phase 1 investigation, including information about their UK activities, data and internal documents. This period of information gathering is known as pre-notification and can take a number of months.
5. Microsoft is a global technology company offering a wide range of products and services, with a global turnover of nearly £184 billion in the financial year 2022.
6. OpenAI is an FM developer. FMs are AI systems with broad capabilities that can be adapted to a range of different, more specific purposes.
7. In September 2023, the CMA published a report following its initial review of FMs and proposed principles which aim to ensure consumer protection and healthy competition are at the heart of responsible development and use of FMs.