NVIDIA CEO Jensen Huang delivers a keynote address at the NVIDIA GTC Artificial Intelligence conference at the SAP Center in San Jose, Calif., March 18, 2024. (Justin Sullivan/Getty Images/TNS)
The United States has launched an antitrust investigation into two of the world's most valuable companies, Microsoft Corp and Nvidia Corp, over their monopolies in the fast-developing field of artificial intelligence, according to people familiar with the matter.
Microsoft has invested more than $13 billion into a partnership with OpenAI, using the startup's generative AI technology in its Bing search service, Edge internet browser and Windows. Nvidia, the world's most valuable chipmaker, has acknowledged allocating its chips to customers it believes are likely to use them soon, raising concerns that it has too much influence over the cutting-edge AI semiconductor market.
The two U.S. antitrust agencies also agreed to share responsibilities over AI: The Federal Trade Commission will handle an investigation into Microsoft's relationship with OpenAI, while the Justice Department will look into Nvidia's dominance in AI chips, said the people, who asked not to be identified discussing the talks between the agencies. The Justice Department will continue to oversee Alphabet Inc.'s Google, the people said.
The two agencies reached the agreement in recent days after more than six months of negotiations, according to people familiar with the matter. The deal gives each agency the power to launch antitrust investigations into the conduct and recent transactions of the respective companies.
The FTC also opened an investigation into whether Microsoft failed to properly notify antitrust regulators about its deal with Inflexion AI, according to people familiar with the matter. The Redmond, Washington-based software giant agreed in March to pay the startup $650 million to license its AI software and hired much of Inflexion's staff. The FTC can impose fines if it finds that Microsoft violated deal reporting laws.
A Microsoft spokesperson said the company hasn't been contacted by the FTC about OpenAI.
“Our agreement with Inflection provides us with the opportunity to hire talent at Inflection AI and build a team that can accelerate Microsoft Copilot, while also allowing Inflection to continue to pursue its independent business and ambitions as an AI studio,” the company said in a statement. “We take our legal obligations to report transactions seriously and are confident that we are in compliance with those obligations.”
The Justice Department, FTC, OpenAI, Google and Nvidia all declined to comment. The FTC-DOJ settlement was first reported by The New York Times.
The Justice Department and the FTC jointly enforce U.S. antitrust laws and work together internally to coordinate which agencies investigate mergers or anticompetitive conduct through a process called clearance. High-profile cases like those involving Google have historically sparked fierce clearance battles between the two agencies.
The deal was negotiated directly between Assistant Attorney General Jonathan Cantor and FTC Chairman Lina Khan, who met in person this week on the sidelines of conferences in Washington, according to people familiar with the matter.
The Justice Department initially proposed splitting the cases up by company, with all antitrust issues related to Microsoft being handled by the DOJ and issues related to Nvidia being referred to the FTC, according to people familiar with the matter. The FTC has had dealings with Nvidia in the past, overseeing its recent merger and suing to block the company's acquisition of Arm in December 2021. Nvidia has since walked away from that deal.
The Justice Department's proposal is in line with past practice: With the exception of Microsoft's recent acquisition of Activision Blizzard, the attorney general has overseen the company since 1993 and is familiar with the search and browser market due to its recent lawsuit against Google.
The FTC opposed this division of powers, arguing that it had the right experience to take on Microsoft and that its consumer protection obligations meant it was in a better position to challenge problematic conduct by AI startups.
The committee is in the early stages of investigating the cloud-computing market and has been seeking public input since last year. As part of that investigation, online rivals and others have complained about Amazon.com Inc. and Microsoft Corp., the No. 1 and No. 2 cloud companies that control more than 55% of the market.
The bureau requested the information from OpenAI last year as part of an investigation into whether the company engaged in unfair or deceptive practices that caused “reputational harm” to consumers.
In January, the FTC began investigating Microsoft's investment in OpenAI and a deal by Google and Amazon to invest in rival AI startup Anthropik. The five-member FTC did not notify the Justice Department before announcing its investigation, stoking tensions between the two agencies, according to people familiar with the matter.
Last week, the Justice Department held a public workshop on AI competition at Stanford University, attended by dozens of companies from the industry, and while Nvidia was rarely mentioned by name, the companies said a shortage of high-performance chips needed to train AI-based models is having a major impact on the industry.
Nvidia executives have openly acknowledged that it allocates supplies of chips and other products to customers. They decide who gets what based on whether the recipients can immediately use those products in operational data centers, a mechanism that Nvidia says is designed to keep data center operators from hoarding chips.
The semiconductor industry has long endured periods of insufficient supply to meet demand, but ramping up production has left it with more chips than buyers. Recently, electric car maker Tesla founder Elon Musk said he was diverting some Nvidia chips ordered for Tesla to other companies he controls because his company doesn't have the space to run them right away.
Overall, NVIDIA said it's struggling to get enough supply from its manufacturing partners to meet surging demand, and while supplies are improving, shortages are likely to continue.
The European Union also looked into Microsoft's investment in OpenAI but ultimately decided not to launch a formal investigation. The UK's competition watchdog has also said it would look into the partnership, but last month it separately decided that Microsoft's deal with French AI company Mistral AI was not subject to an investigation.
