The European Commission takes note of the withdrawal of the initial referral requests by seven Member States to review under Article 22 of the EU Merger Regulation ('EUMR') the acquisition of certain assets of Inflection AI, Inc. ('Inflection') by Microsoft Corporation ('Microsoft). The deadline for the Commission to decide upon these requests was 19 September 2024. Following the judgment by the Court of Justice of the European Union of 3 September 2024 in the Illumina/GRAIL case, holding that Member States cannot refer a transaction to the Commission under Article 22 of the EUMR when not competent to review the transaction under their national merger control rules, all seven Member States that submitted an initial referral have decided to withdraw their requests. Therefore, the Commission will take no decision in this matter.
Microsoft, a global technology company headquartered in the US, offers a wide range of products and services to customers including, among others, an AI chatbot called Microsoft Copilot, a cloud computing platform called Azure, a PC operating system known under the name of Microsoft Windows, and productivity services called Microsoft 365. Inflection, headquartered in the US, is a technology company that, until the transaction, developed a machine learning and generative AI foundation model and an AI chatbot called Pi.
The transaction and the referral procedure
On 19 March 2024, Microsoft announced the hiring of the two co-founders of Inflection, assigned with the task of advancing Copilot and other consumer artificial intelligence products and research at Microsoft. In addition to the hiring of these two co-founders, Microsoft made employment offers to most of Inflection's staff and agreed, amongst others, on a non-exclusive license for Inflection's intellectual property and, according to reports, on a waiver of any legal rights by Inflection for hiring the latter's staff.
Upon review of the details of the transaction and its implementation, based on information provided to the Commission by Microsoft and Inflection, the Commission considers that the transaction involves all assets necessary to transfer Inflection's position in the markets for generative AI foundation models and for AI chatbots to Microsoft. Further, in view of Inflection's announcement on 19 March 2024 that the 'new Inflection' would shift its focus to a different activity, namely its AI studio business, the Commission regards the agreements entered into between Microsoft and Inflection as a structural change in the market that amounts to a concentration as defined under Article 3 of the EUMR.
The transaction did not reach the notification thresholds set out in Article 1 of the EUMR and was also not notified in any Member State. Based on information requested from Microsoft and Inflection, in July 2024 the Commission considered that the concentration satisfies all criteria for a referral under Article 22 of the EUMR. This provision allows Member States to request the Commission to examine a merger that does not have an EU dimension but affects trade within the Single Market and threatens to significantly affect competition within the territory of the Member States making the request.
Consequently, the Commission sent a letter pursuant to Article 22(5) of the EUMR inviting Member States to refer the transaction to it for review.
In response to this letter, seven Member States submitted a referral request pursuant to Article 22(1) of the EUMR, explaining that, in their view, the transaction amounted to a concentration which satisfies the criteria for a referral pursuant to Article 22 of the EUMR. Other Member States and countries of the European Economic Area were invited to join the requests. Following the Court of Justice's judgment in the Illumina/GRAIL case, all Member States have chosen to withdraw their referral requests or request to join these referrals, resulting in the end of this procedure.
The Commission will continue to work together with Member States and the parties to concentrations to assess whether their transactions will be reviewed under national merger control regimes or referred to the Commission in line with the legal requirements for such referrals as clarified in the recent Illumina/GRAIL judgment of the Court of Justice.
