Last month's turbulent events at OpenAI, culminating in the swift reinstatement of co-founder Sam Altman, have triggered a new inquiry by the U.K.'s Competition and Markets Authority (CMA). The controversy also ushered in a more significant role for Microsoft, which secured a board seat following substantial investments. The CMA is now examining whether the intensified collaboration between OpenAI and Microsoft constitutes a "relevant merger situation," prompting an official "Invitation to Comment" from the regulatory body.

The initial phase involves the CMA's information gathering process, allowing both companies and third parties to provide feedback on the evolving partnership. While a formal investigation could follow, the term "relevant merger situation" encompasses diverse relationships impacting market competition, even in the absence of a direct merger or acquisition. Microsoft's substantial investment and operational collaboration with OpenAI fall within this regulatory purview.

The partnership's intricacies involve Microsoft's significant financial backing and operational support, with both companies closely engaged in AI service development, leveraging Microsoft's Azure cloud platform. The recent governance upheavals at OpenAI, which involved Microsoft's pivotal role in resolving the situation, have drawn the CMA's attention, leading to the current inquiry.

The CMA underscores the rapid expansion of AI across various sectors, emphasizing concerns about a limited competitive landscape in foundational models (FMs) development. The close ties between Microsoft and OpenAI, including a multi-billion dollar investment and exclusive cloud services provision, have raised questions about potential dominance in FM and related markets.

As the CMA contemplates a possible full-blown investigation, several criteria from the country's Enterprise Act come into play. Issues such as the distinctiveness of the businesses, revenue generation from their collaboration, and their market share in AI will be evaluated. Regardless of the investigation's outcome, the CMA's scrutiny sheds light on the Microsoft/OpenAI relationship, offering a foundation for ongoing oversight in the dynamic AI sector.

Alex Haffner, a competition partner at U.K. law firm Fladgate, notes the CMA's potential to better understand governance arrangements within OpenAI, even if the investigation doesn't progress further. This preliminary scrutiny contributes to the broader regulatory considerations surrounding AI development and its impact on the industry's landscape.