Competition regulation

UK regulator approves Microsoft-Inflection AI partnership

The UK’s Competition and Markets Authority (CMA) has cleared Microsoft’s partnership with Inflection AI and the hiring of some of its former staff, determining that the deal does not warrant further investigation. The CMA initiated a probe in July to assess potential competition concerns, given that both companies are involved in developing consumer chatbots.

The regulator concluded that Inflection AI held only a small share of UK users for chatbots and AI tools before the acquisition and needed more capacity to expand its user base significantly. This limited influence alleviated concerns about the deal’s impact on competition.

Earlier this year, Microsoft hired Mustafa Suleyman, a co-founder of Google, to lead its new AI division, along with several employees from Inflection, which he founded in 2022. Reports suggest that Microsoft paid approximately $650 million in the deal, which granted them access to Inflection’s AI models and allowed the startup to repay its investors, including prominent figures like Bill Gates and former Google CEO Eric Schmidt.

Google faces antitrust trial in US over ad dominance

Google is set to face a critical antitrust trial as the US Department of Justice targets the tech giant’s advertising practices, accusing the company of using its dominance to stifle competition and harm news publishers. The legal case will be heard in Alexandria, Virginia, and marks another important move in the Biden administration’s broader campaign to curb the influence of Big Tech through the enforcement of antitrust laws.

The trial will scrutinise Google’s less-visible but highly lucrative adtech system, which connects advertisers with website publishers and accounted for over 75% of Google’s $307.4 billion in revenue last year. While the Justice Department recently won against Google in a separate case concerning the company’s search engine monopoly, this new trial will delve into how Google allegedly maintains a ‘privileged position’ as the dominant middleman in the digital advertising market.

Prosecutors and a coalition of states argue that Google’s dominance in adtech is due to its strategy of tying together tools for advertisers and publishers, effectively controlling critical parts of the advertising ecosystem. They claim Google controls 91% of the ad server market, over 85% of ad networks, and more than half of the ad exchange market, making it nearly impossible for competitors to gain a foothold. Google, however, disputes these figures, arguing that when broader markets like social media and streaming are considered, its market share is significantly lower.

It is expected to feature testimony from key players in the advertising industry and executives from major news organisations that have felt the impact of Google’s practices. The Justice Department will likely argue that the consolidation of the digital advertising market, primarily driven by Google, has contributed to the decline of journalism, with one-third of US newspapers closing or being sold since 2005.

On the other hand, Google is expected to defend its business practices by highlighting its tools’ benefits to small businesses and publishers, arguing that a breakup would stifle innovation and harm these smaller players. The company has lined up witnesses to support this narrative, including current and former executives, such as YouTube CEO Neal Mohan, who played a significant role in developing Google’s adtech.

EU chipmakers push for ‘Chips Act 2.0’ and quicker support measures

Europe’s leading computer chip industry group, ESIA, has urged the European Union to accelerate aid and introduce a revamped ‘Chips Act 2.0’ to support the sector. The group, which represents key chipmakers like Infineon, STMicroelectronics, and ASML, also called for the appointment of a dedicated ‘Chips Envoy’ to oversee the bloc’s semiconductor strategy.

The first EU Chips Act, launched in April 2023, aimed to boost Europe’s global chip market share to 20% by 2030. Despite several major projects, including a €10 billion TSMC plant in Dresden and a €30 billion Intel project in Magdeburg, the industry is not on track to meet the goal. Delays and the absence of timely aid have raised concerns, particularly around Intel’s ambitious project.

The ESIA is calling for a more streamlined aid process and fewer export restrictions to bolster the sector. While the group acknowledges the need for security, it advocates for a more proactive approach that focuses on incentives rather than defensive trade policies. Recent restrictions on ASML’s high-tech exports to China exemplify the challenges the industry faces.

Amid these obstacles, Europe’s chip sector is seeking strong leadership and faster policy implementation to compete globally. The success of upcoming projects and the timely rollout of ‘Chips Act 2.0’ are seen as vital for Europe’s future in semiconductor manufacturing.

Japan faces Chinese backlash over chip equipment restrictions

China has issued a stern warning to Japan, threatening severe economic retaliation if it intensifies restrictions on selling and servicing chipmaking equipment to Chinese companies. The warning came as part of China’s ongoing effort to counter Japan’s alignment with US measures to limit China’s semiconductor production capabilities.

Toyota Motor reportedly informed Japanese officials that China may retaliate by cutting off access to essential minerals required for automotive manufacturing. The concerns were raised during recent meetings between Chinese and Japanese officials, where China’s stance on the issue was made clear.

Japan recently began limiting exports of 23 types of semiconductor manufacturing equipment, joining a US-led initiative to curb China’s ability to produce advanced chips. These restrictions have sparked fears of further economic conflict between the two nations.

Toyota and China’s foreign ministry have yet to comment on the matter, while tensions over trade controls continue escalating in the region.

CCIA supports USTR’s challenge to Canada’s Digital Services Tax

The Computer and Communications Industry Association (CCIA) has expressed strong support for the US Trade Representative’s (USTR) recent announcement regarding consultations with Canada over its digital services tax (DST). The action marks the initial step in a formal dispute process under the US-Mexico-Canada Agreement (USMCA). If the issue is not resolved within 75 days, the US may escalate the matter to a dispute settlement panel.

The DST, enacted through Bill C-59, is perceived by the CCIA and other trade associations as discriminatory against US companies, primarily targeting large foreign tech firms based in the US. The DST imposes a 3% tax on revenue generated by foreign companies from Canadian users, affecting firms with global revenues exceeding $1.1 billion, which includes major US companies like Google and Meta. CCIA’s Vice President of Digital Trade, Jonathan McHale, highlighted the negative impact of the DST, estimating potential losses of up to $2.3 billion annually for US companies and significant job losses.

Why does this matter?

The association has long advocated for US action against the DST, emphasising that it undermines the fair market access stipulated in the USMCA and could set a precedent for similar measures by other countries. In response, Canadian officials have stated that the consultations are part of ongoing discussions and reiterated their commitment to international tax agreements. Canadian officials suggested that the DST would be rescinded if a multilateral solution is achieved.

Amazon and rivals supply Chinese firms with US tech

Chinese entities linked to the state are turning to cloud services from Amazon and its rivals to access advanced US chips and AI capabilities that are otherwise restricted. Over the past year, at least 11 Chinese organisations have sought cloud services to bypass US export restrictions on high-end AI chips, according to tender documents.

Amazon Web Services (AWS) was specifically mentioned as a provider in several cases, though Chinese intermediaries were used to access the services. US regulations focus on the export or transfer of physical technology, leaving a loophole for cloud-based access. This has allowed US companies to profit from China’s growing demand for computing power.

Efforts to close this loophole are ongoing. US legislators have expressed concerns, and the Commerce Department is considering new rules to tighten control over remote access to advanced technology. AWS has stated that it complies with all applicable laws, including trade regulations in the countries where it operates.

Microsoft’s cloud services have also been sought by Chinese universities for AI projects. These activities highlight the increasing demand for US technology in China and the challenges in enforcing export controls. Both Amazon and Microsoft declined to comment on specific deals, but the implications for US-China tech relations are significant.

Judge in Dallas blocks FTC’s ban on noncompete agreements

A federal judge in Dallas has blocked the Federal Trade Commission’s (FTC) ban on noncompete agreements, which would have made it difficult for workers to join competing employers or start their own businesses. The ruling, issued by US District Judge Ada Brown, prevents the ban from taking effect on 4 September, although the FTC may still appeal the decision. Judge Brown stated that the FTC had exceeded its authority, calling the ban ‘unreasonably overbroad’ and potentially causing ‘irreparable harm.’

The FTC has expressed disappointment with the ruling, emphasising its commitment to challenging noncompete agreements that they argue restrict economic freedom, hinder innovation, and depress wages. The agency is considering an appeal, which would go to the Fifth Circuit Court of Appeals. In the meantime, the FTC will have to address noncompete issues on a case-by-case basis.

The ruling stems from a lawsuit filed by tax firm Ryan LLC, supported by the US Chamber of Commerce and Business Roundtable, which argued that the ban would make it harder for companies to retain talent. Despite the FTC’s claim that the ban would enable the creation of over 8,500 new businesses annually, the judge’s decision has put the nationwide ban on hold.

EU probes subsidy advantage of Chinese electric vehicle

As a part of its ongoing investigation, the European Commission has imposed a final duty of 36.3% on imported electric vehicles manufactured in China. Some specified companies who have cooperated with the EU in the process of the investigation will, however, be subjected to a reduced tariff rate of 21.3%.

The EU launched the investigation in October 2023 against the backdrop of a witnessed spike in low-cost electric vehicle export from China to the EU and is expected to conclude by November this year. It seeks to examine whether Chinese clean tech products are dumping subsidised goods in the EU market and if Chinese-owned entities operating within the EU avail of any other unfair subsidy advantages.

The final duty needs further approval from EU’s 27 countries and will take effect unless a majority of 15 countries representing 65% of the EU population vote against it. These duties are expected to be confirmed by 30 October and typically last for five years. Meanwhile, talks between Europe and China could also lead to a compromise to mitigate or avoid the tariffs altogether.

Top investor urges boards to strengthen AI competency

Norway’s $1.7 trillion sovereign wealth fund, one of the world’s largest investors, is calling for improved AI governance at the board level across its portfolio companies. Carine Smith Ihenacho, the fund’s Chief Governance and Compliance Officer, highlighted the need for boards to not only understand how AI is being used but to also establish robust policies to ensure its responsible application. The fund, which holds stakes in nearly 9,000 companies, has already shared its views on AI with the boards of 60 major firms.

The call for enhanced AI competency in Norway comes as the fund has increased its focus on the technology sector, where it has significant investments in major tech companies like Microsoft and Apple. The fund’s emphasis is on ensuring that AI is used responsibly, particularly in high-impact sectors such as healthcare. Smith Ihenacho stressed that boards must be able to address key questions about their AI policies and risks, even if they don’t have a dedicated AI expert.

Despite its concerns, the fund supports the responsible use of AI, recognising its potential to drive innovation and productivity. The push for better AI governance is part of the fund’s broader strategy to maintain high standards in environmental, social, and corporate governance (ESG) across its investments.

As the AI sector continues to grow, the fund’s recommendations reflect a broader trend towards increasing accountability and transparency in the use of emerging technologies.

US DOJ considers breaking up Google after antitrust ruling

The US Department of Justice is exploring various options, including potentially breaking up Alphabet’s Google, after a recent court ruling found the tech giant guilty of illegally monopolising the online search market. The ruling was considered a significant victory for federal authorities challenging Big Tech’s dominance, which determined that Google spent billions to establish an illegal monopoly as the world’s default search engine.

Among the remedies the DOJ considers are forcing Google to share data with competitors and implementing safeguards to prevent the company from gaining an unfair advantage in AI products. Discussions have also included the possibility of divesting key assets such as the Android operating system, the AdWords search ad program, and the Chrome web browser.

Why does this matter?

The following case is part of a broader effort by federal antitrust regulators, who have previously taken action against other tech giants like Meta Platforms, Amazon, and Apple, accusing them of maintaining illegal monopolies. Alphabet and the DOJ have not yet commented on the ongoing deliberations.