Microsoft dodges British antitrust investigation into its Mistral AI stake

Microsoft will not face antitrust investigation in Britain over its recent investment in French AI startup Mistral AI, at the country’s Competition and Markets Authority (CMA) on Friday in conclusion that the partnership “does not qualify for examination under the merger provisions of the Enterprise Act 2002.”

The decision comes three weeks after the CMA unveiled a trio of early-stage investigations into Amazon and Microsoft’s various AI investments and partnerships, including the Redmond-based company’s $16 million investment in Mistral AI, an OpenAI rival working on large language models. Soon after, Microsoft hired the team behind Inflection AI, another OpenAI rival, effectively wiping out the startup.

Elsewhere, the CMA also said it was poking at Amazon’s $4 billion investment in Anthropic, a US-based AI company working on major language models.

Big Tech and the Quasi-Merger

Increasing attention is being paid to Big Tech’s latest tactic to evade regulators’ scrutiny by “quasi-mergers”, with which they try to secure control over new technologies without directly buying startups. This can be by making investments, acquiring seats on boards, hiring founding teams, and so on.

In early 2024, the Federal Trade Commission (FTC) launched investigations into Alphabet, Amazon, and Microsoft’s investments in emerging AI companies to determine whether the “partnerships pursued by dominant companies risk disrupting innovation and fair competition to undermine.”

The CMA’s efforts are part of that same regulatory push. Two of the recently announced “invitations to comment” are still ongoing and could lead to formal in-depth investigations. Yet it is significant that the CMA dismisses the Mistral AI case because it does not “qualify” for investigation under the existing rules.

Alex Haffner, a competition partner at British law firm Fladgate, said this finding suggests that the structure of Microsoft’s partnership with Mistral AI does not grant the larger company sufficient rights or influence, at least when it comes to mergers and acquisitions. Ultimately, it was a minority investment in a double unicorn that had closed a $415 million round just a few months earlier.

“This decision confirms Microsoft’s position on the collaboration,” Haffner said.

This “strong position” was that making a small investment is not enough to gain meaningful influence in the future direction of an emerging AI startup. Microsoft would effectively own less than 1% of Mistral AI if its investment is converted into shares in the French startup’s next funding round.

A Microsoft spokesperson said at the time of the CMA’s initial announcement of the investigation:

“We remain convinced that common business practices, such as hiring talent or making a fractional investment in an AI startup, promote competition and are not the same as a merger.”

Microsoft spokesperson, April 2024

While the CMA claims that Big Tech could use new methods to protect itself from antitrust scrutiny, it has now confirmed that Microsoft has not acquired “material influence over Mistral AI’s commercial policies”.

“The CMA has considered the information submitted by Microsoft and Mistral AI, together with the feedback received in response to the invitation to comment,” a CMA spokesperson said. “Based on the evidence, the CMA does not believe that Microsoft has acquired material influence over Mistral AI as a result of the collaboration and is therefore ineligible for investigation.”

Pollination works

Just last month, the CMA sounded the alarm about Big Tech’s growing influence in the advanced AI market, raising concerns about the growing disconnect and concentration between developers in the snowballing generative AI space. But the CMA has now said that at least one of the deals on its radar is not eligible for investigation, suggesting that Big Tech’s tactics to pollinate the AI ​​ecosystem far and wide could be working to some extent.

But that still leaves two unresolved issues: Amazon’s massive investment in Anthropic and Microsoft’s hiring of key staff from Inflection. Can we expect a similar outcome there?

“The CMA has concluded that the arrangements between Microsoft and Mistral are not sufficient to give Microsoft ‘material influence’ over Mistral, which is the relevant jurisdictional test,” Haffner said. “Time will tell, but the assumption is therefore that the application of the test here is clearer than in the other AI partnerships being investigated by the CMA.”

It’s certainly not that short-sighted. Anthropic received Amazon’s largest venture capital investment to date, accounting for more than half of the $7.6 billion the AI ​​company has raised since its founding three years ago. And while Inflection technically still exists, Microsoft brought in its founders and several key colleagues—in many ways, that was as good as an acquisition.

And let’s not forget the CMA’s other separate, but related, ongoing case looking at Microsoft’s close ties to OpenAI. The regulator last year launched a formal ‘invitation to comment’ aimed at relevant AI and business stakeholders, and the European Commission (EC) followed suit in January.

So we probably shouldn’t draw too many conclusions about the other ongoing cases based on today’s news.

“That the CMA has only confirmed the conclusions of the Mistral investigation is interesting, as it leaves open the position on the other two deals, as well as the CMA’s ongoing investigation into Microsoft’s role in the Open AI project,” he said. Haffner. “Overall, it is therefore clear that competition authorities remain very closely involved in developments in the AI ​​sector, and we can expect a number of further announcements from the CMA in the near future on the outcome of their ongoing work streams in this area . .”