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- The FTC is investigating Microsoft's deal with Inflection AI, the Wall Street Journal reported.
- The probe examines if the deal was designed to dodge regulatory scrutiny and gain control.
- The Department of Justice is also scrutinizing such 'acquihire' deals in the tech industry.
The US' top competition watchdog is investigating whether Microsoft's deal to hire a majority of Inflection AI's workers and pay the company $650 million to license its tech was struck as a way to dodge scrutiny.
According to The Wall Street Journal, citing a person with knowledge of the matter and records it has seen, The Federal Trade Commission has requested documents from the companies dating back two years to understand whether the deal was formed to give Microsoft control of Inflection and fly under the radar of regulators.
Inflection's cofounder Mustafa Suleyman joined Microsoft to lead its AI efforts in March, and most of Inflection's 70-person staff followed. Inflection's new leadership team said last month that the company has just 12 people working there.
The Department of Justice is also looking at deals like this, referred to as "acquihires." The DOJ's antitrust chief Jonathan Kanter told the Financial Times that "acqui-hires are something that antitrust enforcers" will examine.
He continued: "We're not using stylistic or formalistic characteristics of how these companies [explain these deals]. What we look at are the market realities.
"We are focused on the facts. If the form is different but the substance is the same, then we will not hesitate to act," he said.
If the FTC finds that Microsoft should have reported the deal to regulators, the watchdog could ask a court to fine Microsoft or pause the deal while the FTC conducts a full-blown investigation and assesses how it impacts competition, per the WSJ.
Microsoft president Brad Smith told the FT that it didn't buy Inflection because "we didn't want to own the company." Instead, he said, Microsoft "wanted to hire some of the people who worked at the company."
Kanter also said urgent scrutiny is needed over Big Tech's control over AI.
When the Microsoft and Inflection deal was announced, spectators questioned whether this deal laid out a new blueprint for Big Tech to avoid the scrutiny of antitrust regulators.
Gavin Baker, managing partner of investment firm Atreides Management, said on X: "If the Microsoft/Inflection deal stands, then this is the roadmap for every large tech company to make acquisitions."
Microsoft, Inflection AI, and the FTC didn't immediately respond to requests for comment from Business Insider, made outside of normal working hours.