The rapid evolution of foundation models and GenAI has recently become the focus of competition authorities.
Policy update
Most competition authorities, especially the UK’s Competition and Markets Authority (CMA) and the European Commission, are trying to get a better understanding of the competition issues that AI raises and how to address them
In September 2024, the EC released a policy brief addressing competition in GenAI and virtual worlds. And on 16 October it launched a tender for a study on how AI would impact the Digital Markets Act, that regulates Big Tech. In April, the CMA published the outcome of its review of foundation models. And in July, the US authorities, the CMA and the EC published a joint statement on competition on GenAI
Competition concerns
Most authorities agree on the competition concerns: foundation models require a lot of data, a lot of computing power, substantial investments and highly skilled specialists. Big Tech companies have an advantage in all those areas and can gain a significant advantage that could distort competition in AI.
Recent merger cases
Most mergers and acquisitions in AI do not fulfil the merger thresholds in EU and UK and therefore do not get examined by the authorities. The UK, for example, is introducing a new merger control threshold in the new year that could capture some of these transaction (one party has £350m turnover in the UK and a 33% market share in any market, and the target has a link to the UK – even if no revenues). And the EU is considering possible changes to the Merger Regulation. A few years ago, it had reinterpreted a provision of the Regulation (article 22 EUMR) giving itself the power to review mergers below the EU thresholds, but such interpretation has been quashed by the European Court of Justice so the Commission now has to rethink. Some authorities are suggesting using the value of the transaction rather than turnover to capture these transactions under merger control rules, as Austria and Germany have done. But today, more than acquisitions, partnerships between Big Tech and small AI start-ups are becoming prevalent. Partnership agreements tend not to fulfil the criteria for merger review and we have a few recent examples, notably Microsoft/OpenAI, Microsoft/Mistral AI, Amazon/Anthropic.
Acqui-hires
People are a key asset in AI. We are starting to see large companies buying smaller companies for the people they employee or, in an effort to avoid merger filings, acquire just the people and enter into an agreement with the start-up. An example is Microsoft's announcement in March 2024 that it had hired several former Inflection AI employees, which amounted to almost all of Inflection AI’s team, including two of its co-founders. In addition, Microsoft also entered into a series of arrangements with Inflection AI including, among others, a non-exclusive licensing deal to utilise Inflection AI IP in a range of ways. The CMA, with its flexible merger test, took jurisdiction and reviewed it as a merger transaction but it was cleared as the CMA considered that it did not lead to a substantial lessening of competition. The EC tried to get jurisdiction but had to accept that the transaction did not fulfil the test under EU rules.
What next?
In the next few years, we will see competition authorities trying to deal with the competition issue AI raises as well as reconsider their powers in order to have the ability to review these transactions. The learning from the growth of the tech sector, where competition intervention was not immediate and arguably too late when it did happen is something the competition authorities are well aware of. They are keen to avoid an equivalent scenario when it comes to AI businesses.
