By Yadarisa Shabong and Martin Coulter

(Reuters) – Britain’s competition regulator has started a formal investigation into Microsoft’s hiring of some former staff of Inflection AI and its partnership with the startup, it said on Tuesday.

Over the past 18 months, regulators around the world have increasingly focused on potentially anti-competitive behaviour in the AI industry, with Microsoft’s various deals with smaller startups facing mounting scrutiny.

In March, the tech giant hired Mustafa Suleyman, co-founder of Google DeepMind, as head of its newly-created AI unit. It also hired a number of employees from Inflection, which he set up in 2022.

Reuters reported that Microsoft had agreed to pay Inflection about $650 million as part of the deal. This allowed it access to Inflection’s AI models, and enabled the startup to reimburse its investors, who include former Google CEO Eric Schmidt and Bill Gates.

Responding to the UK Competition and Markets Authority’s (CMA) investigation, a Microsoft spokesperson said in an emailed statement to Reuters: “We are confident that the hiring of talent promotes competition and should  not be treated as a merger.

“We will provide the UK Competition and Markets Authority with the information it needs to complete its enquiries expeditiously.”

The CMA has until Sept. 11 to decide whether or not it would refer the deal for a more in-depth investigation.

Microsoft was already facing questions over its partnerships with leading AI startups such as OpenAI and France’s Mistral AI.

Last week, it gave up its board observer seat at OpenAI in a move aimed at easing U.S. and British antitrust regulators’ concerns about the extent of its control over the AI startup.

The CMA has also sought views on partnerships between Amazon and Anthropic.

(Reporting by Yadarisa Shabong in Bengaluru and Martin Coulter in London; Editing by Anil D’Silva and Emelia Sithole-Matarise)