Big Tech Under Scrutiny: FTC Probes Alphabet, Amazon, and Microsoft’s AI Investments

A Saga of Cloud Giants, AI Startups, and Antitrust Concerns

The US Federal Trade Commission (FTC) has embarked on a series of inquiries into Alphabet Inc., Amazon.com Inc., and Microsoft Corp.’s investments and partnerships with artificial intelligence (AI) startups Anthropic and OpenAI. These investigations delve into a complex landscape of cloud-services giants and leading AI software developers, raising concerns among antitrust enforcers about the reliance of AI startups on dominant tech companies for funding and infrastructure.

FTC’s Investigative Focus

The FTC has issued subpoenas to gather information on investments in Anthropic and OpenAI, examining the potential competition impacts in the technology industry due to these partnerships. The commission is scrutinizing the role of AI in innovation and the need for compliance with existing laws.

Company Responses: Navigating the Inquiry

Google asserts that it doesn’t possess exclusive rights to Anthropic’s technology, emphasizing the lack of board seat or voting rights in the investment. Microsoft stresses the significance of collaborations between independent companies as a driver of competition and innovation. Amazon and Anthropic have declined to comment on the inquiry.

AI Startups’ Growing Influence

AI startups are gaining prominence in the technology sector, shaping the future of various industries. Microsoft has integrated OpenAI’s AI tools into its products, while Google plans to embed its large language model, Gemini, into its experimental search tool. Microsoft’s investment in ChatGPT maker OpenAI has garnered attention, leading to antitrust reviews in the UK and the European Union.

Investment Structures and Reporting Requirements

The deals between tech giants and AI startups involve convertible notes, which convert to equity during funding rounds. This structuring avoids reporting requirements under US merger law. Microsoft’s OpenAI transaction wasn’t reported due to lack of control under US law and OpenAI’s non-corporate status. Google and Amazon’s convertible notes also don’t require notification until conversion.

FTC’s Authority and Market Studies

The FTC’s 6(b) authority empowers it to issue subpoenas and conduct market studies. Gathered information can be used to open official investigations or assist existing probes. The FTC’s ongoing studies on pharmaceutical middlemen and supply chains exemplify the lengthy process of analyzing market data.

Antitrust Probes by Multiple Agencies

The FTC and the Justice Department share jurisdiction over antitrust probes. Internal discussions center on which agency should lead AI-related investigations. The Justice Department has a history with Microsoft-related antitrust issues, while the FTC recently reviewed Microsoft’s acquisition of Activision Blizzard. The European Commission and the UK’s Competition and Markets Authority are also examining partnerships between digital market players and generative AI developers.

Conclusion: The Evolving Landscape of Competition and Innovation

The FTC’s inquiries into Alphabet, Amazon, and Microsoft’s investments in Anthropic and OpenAI highlight the evolving landscape of competition and innovation in the technology industry. These investigations underscore the need for careful scrutiny of AI-related partnerships to ensure compliance with antitrust laws and promote a fair and competitive market. As regulatory agencies worldwide continue their probes, the future of AI and its impact on the tech industry remain in the spotlight.