Cooperation between Microsoft and OpenAI currently not subject to merger control

Microsoft’s involvement in and its cooperation with OpenAI is not subject to merger control in Germany. OpenAI is the company behind the AI program ChatGPT.

Andreas Mundt, President of the Bundeskartellamt: “We thoroughly examined the possibility of the companies having to notify Microsoft’s involvement in OpenAI. However, we have concluded that the previous investments and the cooperation between the two companies are not subject to merger control. Artificial intelligence is a key technology when it comes to competition in the further development of the digital economy. On the one hand, AI provides opportunities to stimulate competition, but on the other hand, there is the risk of the large internet companies further consolidating their positions of power. We need to keep a very close eye on how the market develops and, in particular, on the extent to which the major players get involved in young, up-and-coming companies in this sector. If Microsoft were to increase its influence on OpenAI in the future, we would have to re-examine whether the companies are subject to notification under merger control.”

Microsoft had already secured its influence on OpenAI at an early stage, starting with an investment of one billion US dollars in 2019. At the time, the investment was already part of a wider partnership allowing Microsoft to access the technologies developed by OpenAI. As their cooperation progressed, both companies further deepened their partnership. In January 2023, Microsoft decided to provide another considerable contribution by making a multi-billion dollar investment in OpenAI. At the same time, the contractual basis for their cooperation was further developed in the interests of both companies.

The authority examined whether Microsoft’s involvement in OpenAI was subject to merger control. In this regard, the Bundeskartellamt assessed two questions cumulatively.

First, the question had to be answered whether the link between Microsoft and OpenAI constituted a concentration as defined by law. Under German competition law, a material competitive influence on the other company is sufficient to establish this, while having control over the other company is, unlike under the European merger control regime, not essential. The Bundeskartellamt assumes that Microsoft gained material competitive influence on OpenAI as early as 2019, or at the latest when the partnership was deepened in 2021. This question therefore had to be answered in the affirmative.

Second, the authority examined whether Microsoft’s involvement gave rise to a notification obligation based on the so-called transaction value threshold (Section 35(1a) of the German Competition Act (GWB)) due to the amount of the investment made in OpenAI and whether OpenAI’s activities in Germany were substantial. However, it was established that OpenAI’s activities in Germany were not substantial until 2023. The Bundeskartellamt therefore took a close look at how the contractual and economic terms of the cooperation between Microsoft and OpenAI had developed in the recent past. The reason for this is that, under certain circumstances, the strengthening of an existing link between two companies can also give rise to a notification obligation under merger control. In the present case, however, it could not be assumed that the existing link relevant to competition had deepened. The second question thus had to be answered in the negative.

In the end, the examination of all possible aspects suggested that Microsoft’s involvement was not subject to a notification obligation under merger control in Germany.

If Microsoft were to increase its influence on OpenAI in the future, it would have to be re-examined whether a notification obligation exists under competition law. As the companies are presently not considered to be affiliated within the meaning of competition law, their cooperation must comply with the rules of competition law.

Irrespective of this, the Bundeskartellamt is currently examining whether Microsoft is of paramount significance for competition across markets as defined under the rules of extended abuse control in the digital economy (Section 19a GWB) (see press release of 28 March 2023). The authority has already found Amazon, Apple, Alphabet/Google and Meta/Facebook to be in such a position of power (Amazon and Apple have filed appeals against the decisions, which are pending before court). Based on these rules, the authority is able to more effectively take action against and put an end to anti-competitive conduct by companies.

A case summary is available below.