Microsoft’s $620M Inflection Deal Under FTC Investigation

The Federal Trade Commission (FTC) is investigating Microsoft over its deal with AI startup Inflection over potential impacts on market competition.

In March, Microsoft struck a deal with Inflection bringing co-founders Mustafa Suleyman and Karén Simonyan, along with most of the staff, to the company.

Suleyman now leads Microsoft’s new AI division, with Microsoft agreeing to pay Inflection $620 million for a license to sell its AI models on Azure. The startup’s investors would then be repaid over time from the sale proceeds.

According to The Wall Street Journal, the FTC is looking into the deal over concerns Microsoft may have side-stepped antitrust reporting rules.

Companies are obligated to disclose acquisitions worth more than $119 million to federal authorities. 

Both companies have been sent subpoenas seeking information to find out if the deal gave Microsoft effective control of the startup.

The FTC also wants to see if Microsoft tried to avoid a potential probe by snapping up most of the startup’s staff rather than the company itself — or “acqui-hiring.”

Inflection is still operating under Sean White, formerly of Mozilla. However, If Microsoft is found to have failed to report the acquisition, the deal could be stopped.

Both the FTC and the Justice Department have the power to block a potential merger if they feel it could impact competition. Assistant Attorney General Jonathan Kanter said this week that the Justice Department’s Antitrust Division is “actively examining” the AI market to ensure fair competition.

Related:FTC Opens Probe into OpenAI, Anthropic and Cloud Partners

Microsoft is already subject to FTC probes into its strategic partnership with OpenAI. Similar investigations into its OpenAI ties are being conducted in the U.K., though the antitrust watchdog recently dropped an investigation into Microsoft’s investment in French AI startup Mistral.

The FTC is also examining deals made by rivals Google and Amazon to ensure the market leaders are not impacting competition.

“The DOJ and FTC's antitrust probe into AI giants is a positive move. While innovation is crucial, unchecked dominance by Nvidia, Microsoft and OpenAI could stifle competition and limit access to the technology," said Alon Yamin, co-founder and CEO of Copyleaks. "A healthy AI ecosystem needs a level playing field that brings diverse voices to the table to ensure responsible development and innovation."