Saturday, July 20, 2024

Microsoft, Amazon and Google Face FTC Investigation of AI Contracts

The Federal Trade Commission on Thursday opened an investigation into multibillion-dollar investments by Microsoft, Amazon and Google in artificial intelligence startups OpenAI and Anthropic.

These agreements allow large companies to develop deeper relationships with their smaller competitors while avoiding most government scrutiny. Microsoft has invested billions of dollars in OpenAI, the maker of SatGBD, while Amazon and Google have each committed billions of dollars to another leading AI start-up.

Regulators typically focus on bringing antitrust cases against deals in which tech giants buy competitors outright or use acquisitions to expand new businesses, leading to price hikes and other harms to consumers, and companies don't consistently challenge buyout stakes in startups. UPS. The FTC's investigation will examine how these investment deals change the competitive landscape and could inform any investigation by federal antitrust regulators into whether the deals violated laws.

The FTC asked Microsoft, OpenAI, Amazon, Google and Anthropic to describe their influence over their partners and how they worked together to make decisions. The company also said it would seek to provide any internal documents that might shed light on the deals and their potential impact on competition.

“Our study sheds light on whether investments and partnerships pursued by dominant firms distort innovation and undermine fair competition,” FTC Chairman Lina Khan said in a statement.

The investigation is the agency's first major effort to understand how companies are using partnerships and investments to rapidly expand their influence in AI. Last year, his agency filed an antitrust lawsuit accusing Amazon of artificially raising prices and asking the courts to adopt more new theories about how corporations can harm the economy.

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Other regulators internationally are scrutinizing investments by some big tech companies in AI start-ups. Last month, the Competition and Markets Authority, a British regulator, said it was reviewing whether Microsoft's deal with OpenAI was within its scope and harmed competition in the economy. The European Commission also said it was looking into whether its antitrust laws would apply.

In a statement, Microsoft's competition attorney Rima Alaili said, “The United States has assumed a global AI leadership position as key U.S. companies work together.” Partnerships, including Microsoft's with OpenAI, “encourage competition and accelerate innovation,” he said.

Google spokesman Peter Schattenfels said the company hopes the study will “shine a bright light” on companies that “have a long history of locking in customers” and take the same approach when developing AI tools. Microsoft's cloud computing business has an exclusive license to use OpenAI's AI models, while Google's deal with Anthropic does not include exclusive technology rights, he said.

Amazon and OpenAI declined to comment. Anthropic did not respond to a request for comment.

Brad Smith, President of Microsoft, said in a social media post in December The company has “formed a partnership with OpenAI that has fostered greater AI innovation and competition, while protecting the independence of both companies.” The arrangement is “very different from an acquisition,” he said.

The FTC and the Justice Department, which scrutinize corporate mergers to see if they affect competition, have in recent years split responsibility for investigating whether tech giants have violated antitrust laws. The FTC has filed antitrust lawsuits against Amazon and Meta, while the Justice Department has sued Google and is investigating Apple's conduct.

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The FTC has additional powers to create public investigations that look at specific corporate behavior and its effect on the economy. For example, in 2021, it published a report looking at acquisitions by technology companies. determines Many of them are not good enough to meet the standards for mandatory government inspection. More recently, the company He investigated How social media companies and video sites deal with deceptive advertising.

Relations between the tech giants and AI start-ups have faced increased scrutiny since November, when OpenAI's board ousted its chief executive, Sam Altman. In the tumultuous days that followed, Microsoft's chief executive, Satya Nadella, mr. Advised Altman and later offered to hire him and his team directly, raising questions about Microsoft's influence over start-up operations. Mr. Altman eventually returned to OpenAI.

As part of Thursday's investigation, the FTC asked Microsoft, Amazon, Google's parent company, Alphabet, OpenAI and Anthropic to detail agreements between the giants and start-ups, including whether they have access to seats or other oversight. to each other. Microsoft joined OpenAI's board in November but has no voting rights on its decisions.

Microsoft has offered $13 billion to effectively own a 49 percent stake in the startup. The New York Times previously reported that the company worked to keep its stake below 50 percent due to antitrust concerns. Amazon has said it will invest up to $4 billion in Anthropic. Google has committed to invest over $2 billion in Anthropic.

A more formal investigation may follow a more formal investigation into whether intercompany agreements violate antitrust laws. FTC and Justice Department officials are in discussions about which agency will review the deal between Microsoft and OpenAI, according to a person familiar with the matter who spoke on condition of anonymity because the discussions are confidential.

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An FTC spokeswoman said the study was a first step in understanding a new market for the technology, and that any company could use the findings.

William Kovacic, the agency's former head, said the study would allow officials to better understand the “creating technical problem” after criticism that the agency has been slow to address competition issues in the economy.

“It's a strategy to front the issue,” he added.

Separately, the FTC last year launched an investigation into whether ChatGPT harmed consumers, focusing more on whether the technology could be used to commit fraud. (The Times sued Microsoft and OpenAI for using the copyrighted work.)

“America's longstanding national commitment to fostering fair and open competition has been an essential part of what has made this country an economic powerhouse and a laboratory of innovation,” Ms. Khan said in a Times guest essay last year. “We again find ourselves at a critical decision point.”

Trip Mickle Contributed reporting from San Francisco, and Karen Weiss From Seattle.

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