Aerial combat: OpenAI considers antitrust complaint against Microsoft over cloud dominance

OpenAI executives have discussed filing an antitrust complaint against Microsoft with US regulators, marking a dramatic escalation in tensions between the AI partners. The potential federal complaint would argue that Microsoft is using its dominant cloud position and contractual leverage to suppress competition, with insiders describing it as a “nuclear option” that could unravel one of the AI industry’s most important business relationships.

What you should know: The friction centers on OpenAI’s stalled efforts to restructure from a nonprofit into a public benefit corporation, which requires Microsoft’s approval.

• The two companies have been unable to agree on restructuring details after months of negotiations, with OpenAI wanting Microsoft to hold a 33% stake in exchange for foregoing rights to future profits.
• OpenAI also seeks to modify existing clauses that give Microsoft exclusive rights to host OpenAI models on its Azure cloud platform.
• Microsoft invested $1 billion in OpenAI in 2019, growing to $13 billion total, with exclusive hosting rights through their partnership agreement lasting until 2030.

The big picture: This potential antitrust action represents a significant shift in the Microsoft-OpenAI relationship that has defined much of the current AI landscape.

• The partnership began in 2019 and includes billions in funding plus Microsoft’s exclusive rights to OpenAI intellectual property for products like Copilot through 2030.
• However, Microsoft is no longer OpenAI’s exclusive cloud provider as of January, with OpenAI planning to add Google Cloud services to meet growing computing demands.
• The shift coincides with OpenAI’s participation in the $500 billion Stargate Project to build AI infrastructure in the United States.

Regulatory scrutiny: The Microsoft-OpenAI partnership has already attracted significant regulatory and legal attention.

• The US Federal Trade Commission began examining the partnership in detail last year under the Biden administration.
• Competitors like Google argued the deal harmed competition by blocking rivals from hosting OpenAI’s models and imposing extra costs.
• Elon Musk, the Tesla and SpaceX CEO, has sued to block OpenAI’s conversion to for-profit status, alleging contract violations by prioritizing profit over public good.
• Meta Platforms asked California’s attorney general in December to block OpenAI’s for-profit conversion.

What they’re saying: Despite the tensions, both companies maintain a public front of cooperation.

• “Talks are ongoing and we are optimistic we will continue to build together for years to come,” Microsoft and OpenAI said in a joint statement to Reuters.
• Microsoft noted in January that “key elements” of the partnership remain in place through their 2030 contract, including revenue-sharing arrangements.

Why this matters: An antitrust complaint could reshape the competitive dynamics of the AI industry by potentially breaking up the partnership that has given Microsoft significant advantages in the generative AI race while providing OpenAI with crucial computing infrastructure and funding.