FTC Probes Microsoft’s $650M Inflection Deal as US Regulators Take Aim at AI Leaders

The Federal Trade Commission (FTC) is reportedly investigating Microsoft’s (MSFT) relationship with startup Inflection AI to determine if the tech giant’s actions violate antitrust rules for mergers and acquisitions (M&A).

The news comes amid reports that regulators are set to open investigations into Microsoft, OpenAI, and Nvidia’s (NVDA) conduct and their influence in the artificial intelligence (AI) industry.

Microsoft Reportedly Hired Inflection Team Amid $650 Million Deal

Microsoft reportedly paid $650 million to license Inflection’s technology earlier this year, but during the same time it also hired senior members of the Inflection team and “almost all of its employees,” according to a report from The Wall Street Journal Thursday.

The tech giant announced in March that it had hired Inflection co-founder Mustafa Suleyman and Inflection Chief Scientist Karén Simonyan to join its AI unit. The company framed this as a simple hiring decision to build its AI unit, rather than an acquisition scenario.

In the announcement, Microsoft added that “several members of the Inflection team have chosen to join Mustafa and Karén at Microsoft,” including “some of the most accomplished AI engineers, researchers, and builders in the world.”

Inflection also announced the departure of the senior employees and an “important change,” saying that Inflection-2.5, its AI model, will be hosted on Microsoft Azure.

Probe Concerns Whether Microsoft’s Inflection Deal Violated Antitrust Law

The reported FTC investigation concerns whether Microsoft’s $650 million deal with Inflection could constitute an informal acquisition that avoided government approval.

When navigating large-value M&A deals, companies are required to notify the FTC, which then reviews the acquisitions to determine if proposed agreements raise any antitrust concerns.

“Although there are some exemptions, for the most part, current law requires companies to report any deal that is valued at more than $101 million to the agencies so they can be reviewed,” the FTC website said.

A Microsoft spokesperson told Investopedia, “Our agreements with Inflection gave us the opportunity to recruit individuals at Inflection AI and build a team capable of accelerating Microsoft Copilot, while enabling Inflection to continue pursuing its independent business and ambition as an AI studio.”

“We take our legal obligations to report transactions under the HSR [Hart-Scott-Rodino] Act seriously and are confident that we have complied with those obligations,” the spokesperson said.

The FTC declined to comment, while Inflection didn’t immediately respond to Investopedia’s request for a statement.

FTC, DOJ Could Open New Investigations Into Microsoft, OpenAI, and Nvidia

Separately, the FTC and Department of Justice (DOJ) are reportedly set to open new investigations into Microsoft, OpenAI, and Nvidia.

The FTC is expected to lead the probe into Microsoft and OpenAI, while the DOJ focuses on Nvidia, The New York Times reported, citing unidentified sources familiar with the matter.

The antitrust investigations will reportedly examine the companies’ conduct and influence on the AI industry, rather than the impacts of AI acquisitions and partnerships that are the focus of other probes.

Earlier this year, the FTC launched an inquiry into the generative artificial intelligence (GenAI) investments and partnerships of Alphabet (GOOGL), Amazon.com (AMZN), Anthropic, Microsoft, and OpenAI.

Like the FTC, the DOJ declined Investopedia’s request to comment on the potential Microsoft, OpenAI, and Nvidia investigations.

Microsoft shares were about 0.2% lower at $423.38 around 3:30 p.m. ET on Thursday, while Nvidia declined 1.7% to $1,203.