Microsoft may face UK probe into OpenAI partnership after taking board seat

Updated at 7:16 AM EST

Microsoft  (MSFT) - Get Free Report shares edged lower in early Friday trading after competition authorities in Britain said they may open a probe into the tech giant's partnership with ChatGPT maker OpenAI.

The Competition and Markets Authority (CMA) said that Microsoft's seat on the OpenAI board, which it assumed following the chaotic exit and return of Founder and CEO Sam Altman last month, could lead to what it called an "acquisition of control" over the San Francisco startup. 

The CMA said it would look into whether the board seat, and Microsoft's influence, would create "de facto control" over OpenAI.

"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 Foundation Models," the CMA said in a statement.  "The partnership between Microsoft and OpenAI represents a close, multifaceted 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," the statement added. "In light of these developments, the CMA is now issuing an [invitation to comment] 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." 

Microsoft shares were marked 0.55% lower in premarket trading to indicate a Friday opening bell price of $368.90 each.

Microsoft responds to UK OpenAI statement

"The only thing that has changed is that Microsoft will now have a nonvoting observer on OpenAI’s Board, which is very different from an acquisition such as Google’s purchase of DeepMind in the UK," Microsoft President Brad Smith said in a statement to Reuters. "We will work closely with the CMA to provide all the information it needs."

Related: Microsoft's 'Succession'-style move could guarantee its dominance in one critical area

OpenAI revamped its board after Altman's return, which in large part was orchestrated by Microsoft CEO Satya Nadella. The company added former U.S. Treasury Secretary Larry Summers, joining former Salesforce  (CRM) - Get Free Report Co-CEO Bret Taylor to a newly comprised oversight committee.

That decision proved crucial in retaining the vast majority of OpenAI staff, nearly all of whom signed a letter threatening to leave if the board wasn't dismissed following its shambolic handling of Altman's departure. Altman's move saw the tech entrepreneur immediately hired by OpenAI's biggest shareholder, Microsoft, to lead a new AI-development division.

Microsoft has touted potential of ChatGPT

Nadella, who lobbied for Altman's return under the condition that its corporate governance structure was overhauled, noted at the time that “irrespective of where Sam is, he’s working with Microsoft" in terms of the tech giant's AI ambitions.

"We are encouraged by the changes to the OpenAI board. We believe this is a first essential step on a path to more stable, well-informed, and effective governance," Nadella said in a post on X.

"Sam, Greg, and I have talked and agreed they have a key role to play along with the OAI leadership team in ensuring OAI continues to thrive and build on its mission," he added. "We look forward to building on our strong partnership and delivering the value of this next generation of AI to our customers and partners."

Microsoft has touted the potential of ChatGPT, a tool that uses human language to process instructions, to close the gap on market leader Google, the eponymous lead product of parent company Alphabet.  (GOOGL) - Get Free Report

Investors are betting that AI adoption will help Microsoft — which generated just $3.2 billion in search revenue last year — challenge the market dominance of Google, which churned around $43 billion.

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