Stifling Progress: How Khan's FTC is Derailing AI Advancement
This week Microsoft and Apple withdrew from their observer roles on OpenAI's Board of Directors. This action was taken partly in response to concerns expressed by regulators in the US and Europe about Microsoft's influence over OpenAI. While this move is intended to demonstrate that Microsoft and Apple are maintaining an arm's length relationship with OpenAI, questions remain about the true nature of their involvement.
Usually appointed on behalf of a specific shareholder or group of shareholders, board observers represent the interests of investors by monitoring the board's activities and decisions. Their focus is often on operational, go-to-market and finance-related issues. While board observers can observe discussions, ask questions, and provide input during meetings, sharing their experience and expertise, they don't have the authority to vote on resolutions or directly influence board decisions.
From this observers’ perspective, in the age of AI, Microsoft and Apple's relationships with OpenAI are beneficial for innovation and technological progress. These partnerships enable rapid advancement in AI technology, bringing cutting-edge solutions to consumers and businesses faster and smaller companies benefit from the rising tide, published research and expansion of expertise in the AI community.
The problem lies with Lina M. Khan, Chair of the Federal Trade Commission, who has overstepped her role in enforcing antitrust and consumer protection laws. Khan's assertive approach, supported by both other agencies in the Biden Administration and European regulators, has created a chilled effect across small, medium, and especially gargantuan-sized tech M&A deals. Khan’s approach stifles innovation and hinders the natural evolution of the tech industry. By imposing regulatory constraints on tech M&A, Khan is effectively limiting the potential for groundbreaking collaborations and advancements that could arise from strategic partnerships between established tech giants and innovative AI companies. This overzealous regulatory environment risks slowing down technological progress and weakening America's competitive edge in the global AI race.
In September 2022, Khan testified before the Senate Judiciary Subcommittee on Antitrust, Competition Policy, and Consumer Rights. She outlined the FTC's vigorous enforcement actions over the past year, targeting major transactions in the semiconductor, defense, energy, healthcare, and digital markets. Key cases included blocking Nvidia Corp.'s proposed $40 billion acquisition of Arm Ltd., the largest semiconductor merger ever attempted, and Lockheed's acquisition of Aerojet, which would have eliminated the only remaining independent supplier of key missile propulsion in the U.S. The FTC also sued to block Meta's proposed acquisition of VR studio Within Unlimited (founded in 2014, raised more than $50 million from VC as an independent VR studio and had 58 employees as 2023), arguing it would reduce competition and innovation. The FTC also successfully amended its complaint against Meta, the company formerly known as Facebook, in a lawsuit that sought the divestment of Instagram and WhatsApp. In January of this year, the federal court denied Facebook’s motion to dismiss the FTC’s case and the lawsuit is ongoing. (Sources: Various Federal Trade Commission documents) A study published in February 2024 indicated that global tech M&A volumes were down 51% year over year, although M&A deals valued at less than $1 billion have seen a modest resurgence since the start of this year.
This observer also believes Khan's actions are ineffective because they will not lessen the influence of Microsoft and Apple over OpenAI's product strategy. In the longer term, we may see other software, hardware, and cloud service providers – such as AWS or Google (GCS) – become the preferred vendors for OpenAI as demand increases and it faces more scrutiny globally.
It's worth noting that Microsoft is not being singled out. Probes have been launched or regulatory penalties and actions threatened against various tech giants, including Nvidia Corp.'s dominance over AI chips, Amazon's collaboration with Anthropic, META's (Facebook) market position and influence, and others.
Regulators – especially Chair Khan – are overlooking a crucial aspect of the AI revolution: In this era of rapidly advancing artificial intelligence, robust partnerships are essential. These collaborations are not just about business growth; they're vital for ensuring AI systems are developed and deployed responsibly. By working together, tech leaders and tech giants alike can better address critical concerns such as AI safety, cybersecurity, fairness and bias mitigation, algorithmic transparency, and building public trust. Moreover, these alliances can accelerate innovation while simultaneously implementing necessary safeguards. Without such cooperation, we risk hampering progress and potentially compromising the ethical development of AI technologies that could benefit society at large.