The UK's Competition and Markets Authority (CMA) has initiated a formal investigation into Microsoft's recent hiring of former Inflection AI employees and its partnership with the startup, the regulator announced on Tuesday.

This move comes as part of increased global scrutiny of potential anti-competitive behaviour in the artificial intelligence industry over the past 18 months. Microsoft's various deals with smaller AI startups have faced mounting examination from regulators worldwide.

In March, the tech giant appointed Mustafa Suleyman, co-founder of Google DeepMind, as head of its newly-created AI unit. The company also hired several employees from Inflection, which Suleyman established in 2022. Reuters reported that Microsoft had agreed to pay Inflection approximately $650 million as part of the deal, granting access to Inflection's AI models and allowing the startup to reimburse its investors.

A Microsoft spokesperson responded to the CMA's investigation, stating: "We are confident that the hiring of talent promotes competition and should not be treated as a merger. We will provide the UK Competition and Markets Authority with the information it needs to complete its enquiries expeditiously."

The CMA has set a deadline of 11 September to decide whether to refer the deal for a more in-depth investigation. This inquiry is part of a broader examination of AI partnerships, with the regulator also seeking views on collaborations between Amazon and Anthropic.

Microsoft has already faced questions regarding its partnerships with leading AI startups such as OpenAI and France's Mistral AI. In a move aimed at alleviating concerns from US and British antitrust regulators about the extent of its control over OpenAI, Microsoft recently relinquished its board observer seat at the company.

The CMA's investigation will assess whether Microsoft's hiring of former Inflection employees and associated arrangements have resulted in the creation of a relevant merger situation under the Enterprise Act 2002. If so, the regulator will determine whether this has led, or may lead, to a substantial lessening of competition within any UK market.

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