The U.K.’s Competition and Markets Authority has launched an investigation into the partnership between Google’s parent company Alphabet and artificial intelligence firm Anthropic.

Google agreed to invest up to $2 billion in Anthropic last year and also received a 10% stake in return for a $300 million injection from late 2022. The AI safety and research startup, co-founded by former OpenAI executives Dario and Daniela Amodei, also hosts its Claude models on Google Cloud Vertex AI.

Anthropic, Google react to investigation

The CMA first made its interest in the partnership known in July, when it invited those with information to comment on whether it represents a “relevant merger situation” that will “result in a substantial lessening of competition within any market or markets in the United Kingdom for goods or services.”

This week, the CMA said it had gathered enough information to warrant a phase 1 investigation, an initial review into whether there is a realistic prospect of the merger substantially lessening competition. In doing so, it will be able to decide whether a more in-depth phase 2 investigation is necessary, and a result will be given before Dec. 19.

An Anthropic spokesperson told TechRepublic in an email: “We continue to cooperate with the CMA and provide them with the complete picture about Google’s investment and our commercial collaboration.

“We are an independent company and none of our strategic partnerships or investor relationships diminish the independence of our corporate governance or our freedom to partner with others. Anthropic’s independence is a core attribute – integral both to our public benefit mission and to serving our customers wherever and however they prefer to access Claude.”

A Google spokesperson told TechRepublic in an email: “Google is committed to building the most open and innovative AI ecosystem in the world. Anthropic is free to use multiple cloud providers and does, and we don’t demand exclusive tech rights.”

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CMA’s distinctive approach to Alphabet-Anthropic and Amazon-Anthropic Partnerships

In September, the CMA cleared the partnership between Amazon and Anthropic of competition concerns in part because Anthropic’s turnover was below the threshold for a relevant merger situation. The two companies together also do not control 25% or more of any market in the country, and therefore do not pose a significant threat to competition.

While Amazon and Alphabet have similar market capitalization, the latter’s is bigger by about $40 billion, as of this month, which could tip the scales. CMA’s investigation into the Alphabet-Anthropic partnership indicates key differences from Amazon’s investments and suggests a unique impact competition.

The hiring of senior employees from Anthropic competitor Inflection by Microsoft was deemed a relevant merger by the CMA in September, but it did not pose a significant threat to competition. Inflection’s proprietary chatbot, Pi, was not a dominant player in the market, and the company was not sufficiently innovative.

However, the CMA may view Anthropic’s deal differently. Microsoft paid Inflection $650 million as part of their partnership, about a third of what Anthropic has accepted from Alphabet.

The CMA is also still looking into whether the connections between Microsoft and OpenAI open up the possibility of a merger, which could impact competition.

Why is the CMA investigating Big Tech firms?

Big Tech firms are rapidly investing in young AI startups to gain early control and capitalise on the AI boom. Notably, this can be seen through partnerships such as Microsoft and OpenAI, NVIDIA and Inflection AI, and, of course, Google and Anthropic.

However, such collaborations can lead to market dominance, making it more difficult for other independent companies to get funding, attract talent, or compete with the advanced technology and reach of the big players.

Complete mergers and acquisitions often trigger extensive regulatory scrutiny and potential antitrust actions for this reason, which can delay or block proceedings. To avoid this situation, big tech players instead make strategic investments in the most promising startups and hire their top talent, allowing them to gain influence and access to innovative technologies unchecked.

Indeed, according to the CMA, the AI industry currently contains “an interconnected web of over 90 partnerships and strategic investments involving the same firms.”

In an April report on how the CMA is looking into AI foundational models, the authority said, “Without fair, open, and effective competition and strong consumer protection, underpinned by these principles, we see a real risk that the full potential of organisations or individuals to use AI to innovate and disrupt will not be realised, nor its benefits shared widely across society.

“That is why we have set out the underlying principles that we consider critical to safeguard those conditions. It is essential for competition agencies to work with market participants and other interested stakeholders to shape these positive outcomes.”

SEE: Delaying AI’s Rollout in the U.K. by Five Years Could Cost the Economy £150+ Billion, Microsoft Report Finds

The CMA is looking to identify relevant merger situations that allow large tech companies to “shield themselves from competition” in the U.K. It says that “a range of different kinds of transactions and arrangements” could represent a relevant merger with the provisions of the Enterprise Act 2002.

The Digital Markets, Competition, and Consumers Bill that was passed in May also “anticipates new powers for the CMA.” According to the April report, the CMA can “enforce consumer protection law against infringing firms” and apply non-compliance penalties of up to 10% of a firm’s worldwide turnover.

“We are ready to use these new powers to raise standards in the market and, if necessary, to tackle firms that do not play by the rules through enforcement action,” it said.

Furthermore, in July, the CMA released a joint statement with the European Commission, U.S. Department of Justice, and U.S. Federal Trade Commission, where they committed to studying whether the AI industry allows for sufficient competition.