Microsoft's multibillion-dollar investment in OpenAI could face EU merger probe

Microsoft's multibillion-dollar investment in artificial intelligence firm OpenAI could face a full-blown merger investigation in the European Union, EU officials signaled Tuesday.

The European Commission, which is the executive arm of the EU, said that it was embarking on a competition investigation looking at the markets for virtual worlds and generative artificial intelligence.

As part of its assessment, the Commission said that it wants to understand how competitive these markets are currently and gain insight on how competition law can help these fields.

The EU Commission also said it is "looking into some of the agreements that have been concluded between large digital market players and generative AI developers and providers" and singled out the Microsoft-OpenAI tie-up as a particular deal it will be studying.

"The European Commission is checking whether Microsoft's investment in OpenAI might be reviewable under the EU Merger Regulation," the Commission said in a statement on Tuesday.

Microsoft did not immediately respond to a CNBC request for comment.

The Commission said it has sent requests for information to "several large digital players" and is also seeking views from interested parties, which have until March 11 to submit responses.

"Virtual worlds and generative AI are rapidly developing," Vestager said in a statement Tuesday. "It is fundamental that these new markets stay competitive, and that nothing stands in the way of businesses growing and providing the best and most innovative products to consumers."

Microsoft has put billions of dollars into OpenAI, the firm behind the popular AI chatbot ChatGPT. The company has integrated some OpenAI technology into its Office, Bing, and Windows products and provides OpenAI with its own Azure cloud computing tools.

The Redmond, Washington-based technology giant first invested in OpenAI in 2019, contributing $1 billion in cash.

The company then grabbed headlines last year, when it reportedly poured a further $10 billion into OpenAI, with its total investment to date reportedly swelling to $13 billion.

News of the EU review comes after the U.K.'s Competition and Markets Authority announced in December that it was launching an initial review into Microsoft's investment. The U.S. Federal Trade Commission is also reportedly assessing the tie-up, according to Bloomberg News.

The CMA said it is assessing whether Microsoft's stake in AI created a "relevant merger situation," citing "a number of developments in the governance of OpenAI, some of which involved Microsoft" as a primary source of concern.

Earlier in the year, OpenAI faced a period of tumult when its CEO Sam Altman was ousted from the board in a shock move. In a dramatic turn of events, ex-Twitch CEO Emmett Shear briefly took the top job, before being removed and replaced with Altman, while the board was given a makeover.

As part of that refresh, Microsoft added its own observer to sit on the board, leading to concerns that the company may be exerting control over OpenAI. For its part, Microsoft has sought to stressed that its designated board observer, who was recently named Dee Templeton, is a nonvoting member.

At the time of the CMA announcement, Microsoft said that it did not in any way hold equity ownership in OpenAI, while OpenAI said that it remained independent and operates competitively.

"Their non-voting board observer does not provide them with governing authority or control over OpenAI's operations," an OpenAI spokesperson told CNBC via email in December.

"While details of our agreement remain confidential, it is important to note that Microsoft does not own any portion of OpenAI and is simply entitled to share of profit distributions," Frank Shaw, Microsoft Chief Communications Officer, said in a December statement.

At the heart of concerns is Microsoft's close partnership and investment in OpenAI, which gives the Redmond titan access to one of the most advanced developers of AI tools today. OpenAI's GPT-4 large language model can handle a rumored 25,000 words of input text — a big step up from the existing ChatGPT limit of 4,096 characters.

Academics have said that GPT-4 has demonstrated human-level performance in various academic exams, while some AI researchers and technologists have speculated GPT-4 may come close to artificial general intelligence, or AGI, which is meant to be as smart or smarter than humans.

- CNBC's Hayden Field and Kif Leswing contributed to this report