Microsoft relinquishes its OpenAI board observer seat to avoid antitrust scrutiny.

BRUSSELS, July 10 (Reuters) - In a strategic move to ease concerns from U.S. and UK antitrust regulators, Microsoft has relinquished its board observer seat at OpenAI. This decision is a response to the growing scrutiny over Microsoft's influence on the rapidly advancing AI startup amid the surging popularity of generative artificial intelligence.

Despite this move, a source at the U.S. Federal Trade Commission (FTC) indicated on Wednesday that it is unlikely to fully address the agency's antitrust concerns. The FTC is currently conducting a comprehensive review of acquisitions and partnerships involving major technology firms and leading AI companies, including Microsoft and OpenAI.

Microsoft assumed the non-voting, observer position on OpenAI's board in November after OpenAI CEO Sam Altman reassumed control of the company. This position allowed Microsoft to attend board meetings and access confidential information without voting rights on critical issues such as director appointments. However, the arrangement, along with Microsoft's substantial investment of over $10 billion in OpenAI, has raised alarm among antitrust regulators in the European Union, Britain, and the U.S., regarding the extent of Microsoft's control over OpenAI.

In a letter to OpenAI dated July 9, Microsoft stated that the observer seat provided valuable insights into the board's operations without undermining its independence. The company attributed its decision to relinquish the seat to the positive developments at OpenAI since Altman's return, including new partnerships, innovation, and a growing customer base. "Over the past eight months, we have witnessed significant progress by the newly formed board and are confident in the company's direction. Given all of this, we no longer believe our limited role as an observer is necessary," Microsoft stated in the letter.

Last month, EU antitrust regulators indicated that the partnership would not be subject to the bloc's merger rules, as Microsoft does not exert control over OpenAI. However, they plan to seek third-party opinions on the exclusivity clauses within the agreement. In contrast, British and U.S. antitrust authorities continue to harbor concerns and questions about Microsoft's influence over OpenAI and the latter's autonomy.

According to an antitrust lawyer who chose to remain anonymous due to the sensitivity of the issue, Microsoft's decision to drop the observer seat is a strategic move to mitigate the visible evidence of potential control over OpenAI, complicating the efforts of antitrust regulators to prove otherwise. The UK's Competition and Markets Authority declined to comment on the matter. Microsoft and OpenAI are increasingly competing to offer AI technology to enterprise customers, seeking to generate revenue and showcase their independence to regulators. Additionally, Microsoft is broadening its AI portfolio on the Azure platform and has appointed Inflection's CEO to lead its consumer AI division, a move seen as an attempt to diversify beyond its association with OpenAI.

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