Watch the full video:  https://www.youtube.com/watch?v=911FXh1aYdU

Note: In addition to the video, please see the following related article:

“Microsoft’s Deal with a Startup Comes under Federal Investigation”

According to the article, the Federal Trade Commission (FTC) is investigating a recent Microsoft deal with artificial intelligence startup Inflection, according to a person familiar with the matter, as U.S. antitrust regulators ramp up scrutiny of the red-hot AI industry.

Microsoft announced in March that it had hired Inflection’s co-founders and a number of its staff to lead its Copilot program, and Inflection said its AI model would be hosted on Microsoft’s cloud platform. As part of that deal, Microsoft was said to have paid Inflection $650 million. In its announcement at the time, Microsoft described the move as merely a hiring decision, not as an acquisition.

The FTC Probe

The FTC probe into Microsoft concerns whether the company’s investment in Inflection constituted an acquisition that Microsoft failed to disclose to the government, one of the people said.

The investigation comes as antitrust officials at the FTC and the Justice Department are nearing a final agreement on how to jointly oversee AI giants such as Microsoft, Google, Nvidia, OpenAI and others, according to media sources.

The agreement would appoint the DOJ as the lead investigator of Nvidia, while the FTC would take responsibility for investigating Microsoft and OpenAI, the people said. The DOJ will likely continue its role in overseeing Google, one of the people indicated. Any investigations would focus on whether the companies have used their dominant positions in the AI industry to harm competition through abusive and illegal behavior.

The agreement shows enforcers are poised for a broad crackdown on some of the most well-known players in the AI sector, said Sarah Myers West, managing director of the AI Now Institute and a former AI advisor to the FTC.

“Clearance processes like this are usually a key step before advancing an investigation,” West said. “This is a clear sign they’re moving quickly here.”

Microsoft’s Defense

Microsoft declined to comment on the DOJ-FTC agreement but, in a statement, defended its partnership with Inflection.

“Our agreements with Inflection gave us the opportunity to recruit individuals at Inflection AI and build a team capable of accelerating Microsoft Copilot, while enabling Inflection to continue pursuing its independent business and ambition as an AI studio,” a Microsoft spokesperson said, adding that the company is “confident” it has complied with its reporting obligations.

FTC Chair Lina Khan has warned in op-eds and congressional testimony that, left unchecked, artificial intelligence could “turbocharge” fraud and scams. The agency has published numerous reminders and warnings that businesses can be held liable for making misleading claims about their AI tools or for covertly using consumer data to train AI models. The FTC is currently investigating Reddit’s AI content licensing practices, and is separately investigating OpenAI for possible violations of consumer protection law.

Division-of-Labor Agreement

The U.S. agencies’ division-of-labor agreement opens the door to more intensive probes of a sector that has energized investors, enthralled consumers and raised alarm bells among critics who say AI urgently needs regulation to forestall widespread job displacement, discrimination and fraud. Specifically, it carves out roles for the FTC and DOJ to review whether tech giants and AI companies are behaving in anticompetitive ways.

And it highlights how enforcers are increasingly trying to bring existing laws to bear on the industry as prospects for new U.S. laws governing AI have dimmed. The United States is widely viewed as a laggard on AI regulation as others such as the European Union have leapfrogged it with tough rules about how the technology can be used in high-risk contexts. The EU AI Act, for example, outlaws social scoring systems powered by AI and any biometric-based tools used to guess a person’s race, political leanings or sexual orientation. It also bans the use of AI to interpret the emotions of people in schools and workplaces, as well as some types of automated profiling intended to predict a person’s likelihood of committing future crimes.

For years, technology critics and regulators have worried that major tech companies may be monopolizing entire sectors of the economy. That has led to high-profile US government antitrust suits targeting Amazon, Apple, Google, Meta and Microsoft.

Some fear that tech companies could abuse their powerful roles in business and society to extend their dominance into the fast-growing field of generative AI, which exploded onto the scene in 2022 when OpenAI released ChatGPT.

The AI Frenzy

Nvidia’s soaring stock prices have served as a barometer of the AI frenzy, underscoring the company’s position as a leading supplier of computing chips necessary for training advanced AI models. On Wednesday, Nvidia became the second-largest publicly traded company in the United States, ending the day with a market capitalization of more than $3 trillion and edging out Apple.

“AI relies on massive amounts of data and computing power, which can give already-dominant firms a substantial advantage,” DOJ antitrust chief Jonathan Kanter said last week in a speech at Stanford University, adding that Americans’ reliance on just a handful of technology giants could allow them to “control these new markets.”

Exclusive Partnerships

One way for tech giants to wield anticompetitive influence in the AI sector, critics say, is through exclusive partnerships with AI startups. The agreements can potentially “lock in” AI developers as customers of large cloud computing services and give the tech giants significant stakes or influence over the development of AI. Those types of deals, including Microsoft’s relationship with OpenAI, are the subject of an ongoing study by the FTC announced in January.

The DOJ Response

The DOJ has also become increasingly vocal on AI issues. In 2022, the agency’s antitrust division hired Susan Athey, a Stanford University professor and AI expert, to be its chief economist.

In looking at competition in the AI industry, antitrust enforcers should take lessons on how technology giants have behaved anticompetitively in the past, Athey told the media.

That could include gatekeeping or bottlenecking tactics, making it harder for consumers or customers to switch providers, or becoming the biggest buyer of key supplies — such as AI chips, for example — and denying those necessary supplies to competing rivals.

“We should look back to historical analogues and see where sources of market power have been and how people have preserved them, and those are the kinds of tactics we might worry about going forward,” Athey said.

That the DOJ is picking up oversight of Nvidia from the FTC is particularly notable, West said.

“It’s possible that means criminal penalties are now on the table, because that’s one of the tools DOJ uniquely carries.”

Discussion Questions

1. Define artificial intelligence.

Artificial intelligence (AI) is generally defined as the ability of a digital computer or a computer-controlled robot to perform tasks commonly associated with intelligent beings. The term AI is frequently applied to the task of developing systems that possess the intellectual processes that characterize humans, such as the ability to reason, discover meaning, generalize, or learn from experience. Sine their development in the 1940s, digital computers have been programmed to carry out very complex tasks, such as discovering proofs for mathematical theories or playing chess, with great proficiency. However, despite continuing advances in computer processing speed and memory capacity, there are currently no programs that can match full human capabilities over wider domains or in tasks requiring much everyday knowledge. With that being said, some programs have attained the performance levels of human experts and professionals in executing certain specific tasks so that AI in this limited sense is found in applications as wide-ranging as medical diagnosis, computer search engines, voice or handwriting recognition, and chatbots.

2. In your reasoned opinion, should the DOJ and the FTC be proactive or reactive in terms of addressing AI-related antitrust issues? Explain your response.

This is an opinion question, so student responses may vary. Your author personally remains hopeful and confident in the ability of the federal government and its supporting administrative agencies to make a meaningful, positive difference in the lives of people. Exercising regulatory authority in this area could range from focusing on the possibility of AI rendering workers obsolete (and what, if anything, to do about worker obsolescence) to how to “game-plan” the possibility of AI “running amok” and the response to such an apocalyptic scenario.

3. As highlighted in Article 1 of the newsletter (“Supreme Court Overturns 1984 Chevron Precedent”), the U.S. Supreme Court recently significantly weakened the power of federal administrative agencies to approve regulations. How might the Court’s decision affect the ability of the Federal Trade Commission (FTC), a federal administrative agency, to oversee the AI industry?

In your author’s opinion, this is a fascinating, yet potentially troubling, question. As indicated in the responses to Article 1, Discussion Questions 1, 2 and 3 of this newsletter, the U.S. Supreme Court’s repeal of the Chevron doctrine means that administrative agency actions can now be more frequently called into question, particularly in terms of whether the agency has the actual authority to act on a particular issue pursuant to the authority expressly and clearly granted to it by the U.S. Congress. One of the principal missions of the FTC is the promotion of consumer protection, but “consumer protection” is only broadly defined. Students should be encouraged to research the exacting authority Congress has delegated to the FTC regarding AI. Remember, with the repeal of the Chevron doctrine, administrative agencies like the FTC are no longer given deferential authority.