The News
Apple on Thursday joined the list of big tech companies being sued for allegedly monopolistic practices by the U.S. government, which along with overseas regulators has ratcheted up the heat on Silicon Valley’s giants.
Their response: Bring it on.
Big tech companies keep chumming the waters by pursuing investments and partnerships that will only increase their influence over next-generation technologies. They have poured billions of dollars into AI startups that might someday compete with them. Google and Apple are in talks over an AI partnership that closely resembles their existing search-engine deal, which is already the focus of a Justice Department lawsuit. They are fighting back in court.
Commercial pressures are winning over regulatory caution. Microsoft, no stranger to major antitrust action, has been especially front-footed. It successfully defended its $75 billion takeover of Activision, beating the Federal Trade Commission in court; used its coffers to lure cash-strapped AI startups onto its cloud platform; and this week acqui-hired most of another AI company, Inflection.
These arrangements will test the bounds of traditional antitrust enforcement, which is focused on control takeovers.
“Is this really a passive investment or is something more going on?” FTC Chair Lina Khan said in January. “Anytime you have control or influence being exercised through some of these partnerships… it could have implications for competition.”
In this article:
Liz’s view
When we broke the story last year of Microsoft’s $10 billion investment in OpenAI, I confidently told CNBC to think of it as a takeover. I started to regret that when details emerged that made it look more like a commercial deal between a vendor and a supplier, albeit a strange one. Microsoft didn’t have control (which became extremely clear later) or a straight economic stake (OpenAI is run by a nonprofit), which are two hallmarks of an M&A deal.
But since then, Microsoft, Amazon, and Google have taken stakes in and struck partnerships with several AI startups that increasingly look less like corporate venture investing and more like takeovers camouflaged as commercial arrangements or big hires.
U.S. antitrust regulators are already investigating whether those investments might be stealth takeovers and are seeking internal documents from Google, Amazon, and Microsoft. So are regulators in Europe and the U.K. Fair bet there’s a corporate memo somewhere explaining that a full acquisition of one of these startups would never get antitrust approval but that a partnership would deliver most of the same benefits.
Khan doesn’t care whether Microsoft sends checks to all of Inflection’s investors and cancels its stock certificates. She cares whether a lot of what used to happen at Inflection is now going to happen at Microsoft. It seems like it will: Inflection’s assets were its software and its people, and Microsoft now has access to both.
In a delightful wrinkle, though, Microsoft is going to be sending checks to all of Inflection’s investors. The Information reported that the venture firms will share in the money Microsoft makes selling Inflection’s software and that they will “fully recoup their investment, and more.” That’s called an M&A premium.
Room for Disagreement
Inflection was quick to say that its arrangement with Microsoft isn’t exclusive and that Pi will be available on “other cloud hosting platforms in the near future.” That’s essentially the same argument that Microsoft made successfully during its takeover of Activision. It promised to keep Activision’s Call of Duty and other popular games on Nintendo Switch and Sony’s PlayStation, which compete with its Xbox, for 10 years. The FTC, unswayed, tried to block the deal anyway. Microsoft won in court, where a judge explicitly commended its commitments.
Notable
- Big tech companies say they’re dominant because their products are better, but their actions show otherwise, star antitrust lawyer Eric Posner writes for Project Syndicate.