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It turns out regulators aren’t going to let Microsoft scoop up AI talent however it pleases. The Federal Trade Commission is reportedly investigating the company over its strange deal to “acqui-hire” a burgeoning rival to OpenAI: the AI startup Inflection.
The tech giant paid Inflection a $650 million so-called “licensing fee” to use its AI models and hire most of its employees, including its CEO Mustafa Suleyman, in March. That chunk of money appeared to be aimed at appeasing Inflection’s shareholders, giving them a return on their initial investment in the startup before sucking up the company’s talent.
Inflection was started in 2023 by Suleyman, who’s known for co-founding Google DeepMind, and LinkedIn co-founder Reid Hoffman. Like Anthropic, Inflection is a Public Benefit Corporation, or B-Corp, meaning it’s required to meet certain standards of social and environmental performance, accountability, and transparency. Inflection’s chatbot Pi was launched as a “supportive and compassionate” alternative to rival products.
“Microsoft has taken the heart and lungs of this company,” tech expert Scott Galloway said on his and tech journalist Kara Swisher’s podcast Pivot at the time. Swisher added: “There’s gonna be lawsuits in the AI area… And there should be.”
Swisher’s predictions may soon come to fruition. The FTC is investigating whether the company poached staffers and paid Inflection a “licensing fee,” rather than buying the company outright, in an attempt to avoid a government antitrust review, The Wall Street Journal reported Thursday.
A Microsoft spokesperson told Quartz in an email, “Our agreements with Inflection gave us the opportunity to recruit individuals at Inflection AI and build a team capable of accelerating Microsoft Copilot, while enabling Inflection to continue pursuing its independent business and ambition as an AI studio.” They said the company takes its legal obligations seriously and is “confident that we have complied with those obligations.”
Some experts agree. They see Microsoft’s Inflection deal not a as problem, but rather a driver of innovation. Former General Counsel for the FTC Alden Abbott said in a statement that partnerships between small firms and big corporations such as Microsoft’s with Inflection “should be applauded.”
Referring to the probe into both Microsoft and a newly announced investigation into Nvidia over alleged anticompetitive practices in the AI space, Abbott said, “By bringing complementary technologies on board, the two large established companies may be able to enhance their competition with the other big leading competitors in [the] AI space, including Google, Meta, and IBM.”
“Such competition will tend to speed up innovation and introduce new and better technologies into [the] AI space, benefiting American consumers and technological advancement,” he added. “Preventing smaller firms from entering into partnerships with the large firms could by contrast slow innovation and consumer welfare enhancement.”