June 20, 2024

Tech giants have been on an artificial intelligence spending spree, doling out billions of dollars to invest in, poach from, and gobble up smaller companies developing the world’s AI technology.

Amazon has poured $4 billion into AI startup Anthropic to use its tech. Apple purchased Canadian startup DarwinAI earlier this year, adding to a long list of the company’s quiet AI acquisitions. Microsoft made a strange deal to “acqui-hire” the startup Inflection, paying a $650 million “licensing fee” to hire its chief executive Mustafa Suleyman and hire most of its staff.

Those companies join just a few other players that dominate the AI space: Nvidia commands the chip market for data centers that power AI software, and OpenAI leads the AI chatbot space.

But the exclusive party may be short-lived. The Department of Justice and the Federal Trade Commission have reportedly reached a deal to investigate Microsoft, Nvidia, and Open AI over potentially anti-competitive behavior in the AI space, according to The New York Times. The FTC is separately probing Microsoft over its Inflection deal.

“I do feel strongly that an investigation into this is warranted, and it’s likely to do significant good, whether a case gets brought or not,” Barry Barnett, an antitrust lawyer at Susman Godfrey, told Quartz in an interview. “The concern that the Antitrust Division and the FTC Bureau of Competition have is that there’s going to be moat building by these gigantic entities that have tremendous resources — and they want to get ahead of that.”

Nvidia declined to comment, but Microsoft told Quartz that it takes its legal obligations seriously and is “confident that we have complied with those obligations.” OpenAI did not immediately respond to requests for comment.

Tech companies have already been under heavy scrutiny from U.S. antitrust regulators. The DOJ in March filed a sweeping antitrust lawsuit against Apple for its alleged monopoly over the smartphone market. The DOJ and Google made their closing arguments in a potentially historic antitrust trial this month as part of a four-year lawsuit that accused Google of holding a monopoly over the search engine market. Google has another pending suit from the DOJ over alleged anti-competitive practices in another market: digital advertising. Not to mention the FTC’s lawsuits against Amazon and Facebook focusing on their respective dominance of online retail and personal social networking.

Antitrust regulators in the U.S. and abroad are likely taking preemptive action in the AI space because they regret being late to the game regulating internet giants, said Dirk Auer, director of competition policy at the International Center for Law and Economics. If they’d cracked down on Big Tech internet companies such as Google and Amazon earlier, there would likely be more competition in the search, online retail, and smartphones spaces today.

The FTC and DOJ probes into Microsoft, OpenAI, and Nvidia could lead to lawsuits against the AI giants. But those cases wouldn’t necessarily succeed, experts said.

Experts believe regulators’ avenues for regulation are weak

While regulators are calling out Nvidia, Microsoft, and OpenAI over alleged anticompetitive practices in the AI market, the companies themselves are very distinct: Nvidia is a hardware provider, Microsoft is a capital-B Big Tech company, and OpenAI is a startup. Because of their differences, regulators’ pursuit of cases against the company (if at all) would look distinct.

A case against Nvidia would likely focus on its in-house business practices such as bundling its AI chips with services and giving rebates to customers, Auer said. Cases against Microsoft and OpenAI would focus on how their deals with other firms have consolidated the AI industry.

OpenAI and Microsoft, Auer said, represent “a crystallization of issues that antitrust authorities are worried about,” such as large, incumbent platforms like Microsoft entering into agreements with AI startups like OpenAI to “essentially protect their market position in that way, or even gain control over those AI startups, and in that way, extend their dominance to AI,” Auer said.

Auer thinks regulators’ case against OpenAI would be relatively weak. While OpenAI did not respond to a request for comment, Auer believes the firm would argue that while it’s competing aggressively with competitors, the AI market is too emergent for one player to hold a monopoly just yet.

“So long as that’s the case, I don’t think there’s much of an antitrust issue,” Auer said.

What cases would mean for the wider U.S. AI market and its consumers

Nvidia, Microsoft, and OpenAI would have to devote substantial resources to compliance rather than creating the latest and greatest AI products, Auer said. That could benefit the AI market by allowing rivals to catch up to their dominant market positions. But those very competitors could catch heat from regulators, as well, given the government’s increasing scrutiny of tech and AI — which would hamper innovation.

Regulatory scrutiny is particularly impactful to AI startup firms that don’t have cash flows like OpenAI, potentially requiring them to hire compliance teams rather than devoting resources to developing money-making products quickly.

Barnett said consumers should know the investigation “is a good thing” for them and could help ensure that AI companies with less resources can compete and innovate and provide consumers a choice among different AI tools. That would give them more choices of AI tools and reduce their overall costs.

Others disagree, seeing Big Tech’s AI deals as a driver of innovation, and regulatory scrutiny as a hindrance. For example, former General Counsel for the FTC Alden Abbott said in a statement that partnerships between small firms and big corporations “should be applauded.”

“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.”

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