By Muvija M, Chavi Mehta and Aditya Soni
LONDON (Reuters) -Microsoft's partnership with ChatGPT maker OpenAI is under US and UK antitrust scrutiny, the British regulator and a media report said on Friday, following the startup's boardroom battle that led to the sudden ouster and return of CEO Sam Altman.
After the dramatic episode last month, Microsoft (NASDAQ:MSFT), a major OpenAI backer, was granted a non-voting, observer position at the company by a new three-member initial board. Microsoft's representative can attend OpenAI's board meetings and access confidential information, but cannot vote on matters including electing or choosing directors.
The companies have not revealed who from Microsoft will take the non-voting position and what a final OpenAI board would look like.
OpenAI's parent is a non-profit company, a type of entity rarely subject to antitrust scrutiny. In 2019 it set up a for-profit subsidiary, in which Microsoft owns a 49% stake, according to a source. But a Microsoft spokesperson disputed that on Friday, saying details of its agreement were confidential, that it does not "own any portion" of OpenAI, and is entitled to a share of profits.
The software giant has committed to pumping more than $10 billion into the startup, allowing it to take the lead in a race for AI revenue with Alphabet (NASDAQ:GOOGL)'s Google.
"There have recently been a number of developments in the governance of OpenAI, some of which involved Microsoft," the UK Competition and Markets Authority said on Friday.
The CMA is reviewing whether to launch a probe into Microsoft's investment to see if it could hurt UK competition.
The US Federal Trade Commission (FTC) is also examining whether the investment could have violated antitrust laws, Bloomberg News reported, adding that the inquiries were preliminary and the agency has not opened a formal investigation.
The FTC declined to comment. Microsoft President Brad Smith said in statement that "the only thing that has changed is that Microsoft will now have a non-voting observer on OpenAI's board."
"(That) is very different from an acquisition such as Google's purchase of DeepMind in the UK," he added, citing the deal by its main rival in 2014.
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Other regulatory probes could follow given the growing concentration in AI, said Max von Thun, Europe director at Open Markets Institute, a non-profit organisation focused on strengthening antitrust law.
"It is essential that antitrust authorities move quickly to investigate these deals, including unwinding them if necessary, to preserve competition and prevent this critical emerging technology from being monopolized."
European Union antitrust regulators said they have been following "very closely the situation of control."
Britain's CMA has invited interested parties such as Google to comment on the review by Jan. 3, 2024.
The CMA will need to find evidence that the recent fall-out from the Altman affair has led to material changes in the governance of OpenAI and Microsoft's influence over its affairs, said Alex Haffner, competition lawyer and partner at Fladgate.
Even if it does not pursue a full probe, the preliminary investigation will better inform the CMA's broader oversight of the fast-developing AI sector, he said.
Microsoft has recently tangled with both the FTC and the CMA on its $69 billion acquisition of "Call of Duty" videogame maker Activision Blizzard (NASDAQ:ATVI) over antitrust concerns.
The CMA had blocked the Activision deal earlier in the year but later changed its mind after Microsoft amended its acquisition plan.