AI Tech Power Grab Is New Target of FTC and DOJ Antitrust Investigations

The decision by the Federal Trade Commission and the Department of Justice to investigate how the biggest players in the computer chip and software industry are conspiring to control the artificial intelligence industry was a long time coming.

So too was the rise to power of the key players behind the surge in AI technology that is already taking over more of our world than most people realize.

In the early 2000s, the office of Jensen Huang, the founder and Chief Executive Officer of Nvidia, Inc., now the dominant cutting-edge player in computer graphics and artificial intelligence (AI)-powered GPUs (graphics processing units) in the world, featured a unique work of art on the wall.

It showed Huang dressed in a medieval knight’s garb, towering above a field littered with grotesquely murdered dead. The bodies were labeled with the names of companies Nvidia had taken on as competitors in the rapidly growing computer graphics industry. Chipmaker AMD was in the bloody rubble at Huang’s feet. So was Silicon Graphics, a 1982 startup whose custom chips, OpenGL image rendering software, and customized version of Linux known as IRIX, literally changed industries as varied as entertainment, medical care via digital imaging, and fossil fuel exploration; it was a company without which Pixar Animation Studios, DreamWorks Animation, and Industrial Light & Magic, the special effects software house behind the Star Wars films, might never have become the entertainment powerhouses they are today.

That framed original art piece in Huang’s office was a testament to his intensely competitive nature, as well as to his early success in driving out any serious competition to his controlling the throne of power in the computer graphics industry.

This week, a little over twenty years since those days, Huang’s Nvidia crossed the threshold of holding a market value of over $3 trillion. That happened on June 5, when its stock total rose to $3.011 trillion. It is now the second most valued stock in the world, having recently surpassed the valuations of tech giants like Apple and Amazon. It is also closing in quickly on Microsoft, the number one most-valued company in the world, with a total stock market capitalization of $3.168 trillion.

What is driving Huang’s company to the top this time is no longer just the computer graphics area. It is now the broader field of artificial intelligence (AI), the new buzzword in computing and business in general which is already reshaping almost every industry on the planet. Huang is positioning his company’s latest generation of GPUs as ready to take on the existing giants of the tech industry in becoming the dominant player in this new industry. Just as he did in computer graphics, he intends to take no prisoners and leave more tech companies behind in the dust, just as he did in that image from his office from the early 2000s.

Huang is far from alone in his battle to have Nvidia be the must-have supplier of advanced AI.

This fledgling industry, which is already reshuffling the balance of power in multiple tech areas, has attracted billions of dollars in targeted investments, both inside and outside the companies making them, so they can control not just market share but also the “mind” share of the public at large.

It is why Microsoft CEO Satya Nadella has pumped an estimated tens of billions of dollars into OpenAI, the parent of ChatGPT, the now well-known AI-powered “bot” which is now available on almost every smartphone, tablet, and computer in the world. Microsoft also recently announced its CoPilot+ PCs, the first line of computers and laptops which were designed from the ground up as “AI-enhanced”; it did so in partnership with OpenAI, whose AI tech powers Microsoft’s own powerful CoPilot online software, and Qualcomm, the smartphone chip leader which developed a new dedicated line of “Neural Processing Units” (NPUs) to provide a range of new capabilities for the new Microsoft PCs.

The industry growth is also why Google invested so heavily in its own line of AI software technology. On the public front, that began with Google’s early introduction of Bard, an AI-powered search tool. That was supplanted this year by its Google Gemini software, along with a sweeping reinvention of its search algorithms and how it provides answers to search. Google search is already replacing its standard search answers with a summarized narrative answer to search questions rather than a list of links which might be relevant to the user.

Alphabet, Google’s parent, had previously made substantial investments in machine learning technology for a variety of fields, including advanced robotics and autonomous driving solutions, including Waymo, which now powers driverless taxis in several cities.

Microsoft, OpenAI, and Google have also their own introduced separate versions of AI-powered still and video graphics generation tools. What Nvidia might bring in along these lines has not yet been revealed, but Huang’s speeches about AI tech and its GPUs are hinting strongly that something very big along these lines may soon be in the works.

It the combination of all these moves which triggered a range of federal scrutiny into the attempts of this collective of tech giants to seize control of much of the exploding artificial intelligence industry, by being first to market, by developing early broad intellectual property, and by using multiple means to block competitors.

That “take no prisoners” approach that Nvidia and the other tech companies are using is behind why the Federal Trade Commission last year began looking into multiple abuses of power in how AI-powered tools and systems are rolling out.

In July 2023, the agency opened the first investigation of its kind against OpenAI. At that time, it was looking into misuse of people’s personal data to power OpenAI’s ChatGPT services, as well as the reckless nature of some of the responses to questions of its bots, which the FTC cited as able to “generate statements about real individuals that are false, misleading, or disparaging”, and which individuals damaged as a result could not protect themselves from.

One of the widely shared examples of those dangerous and wrongful answers OpenAI’s chatbot was one which accused an American professor of law of sexual harassment. It cited a Washington Post article as the reference for the claim, but the article never existed. Neither did even the allegations of sexual harassment against the professor, at least until the chatbot made them up.

After the AI tech dominance battlefield became more intense by the end of 2023, the FTC announced in early January a broad widening of its investigations into how the industry was growing and how the biggest players were flexing their powers to lock out rivals even at this early stage.

That was when the Commission ordered Microsoft, OpenAI, Google parent Alphabet, Amazon, and Anthropic, the creator of Claude, another AI-powered chat and augmentation software solution which Alphabet and Amazon are already working with, to turn over extensive documentation on their business practices regarding the AI industry. The probe is looking into how investments and proprietary partnerships in this industry may constitute unlawful monopolistic practices, in potential violation of the over one-hundred-year-old Sherman Anti-Trust Act.

“Our study will shed light on whether investments and partnerships pursued by dominant companies risk distorting innovation and undermining fair competition,” said FTC Lina Khan in a public statement issued at the time about its investigation.

Khan expanded on this separately in January during an introductory talk at a forum about the artificial intelligence industry which shed further light on what her agency is looking at.

“We’re scrutinizing whether these [company] ties enable dominant firms to exert undue influence or gain privileged access in ways that could undermine fair competition,” she told the audience.

According to other sources, the British Competition and Markets Authority is also carrying out a similar action within its market space. It is also expected the European Commission will soon announce a related study of its own.

In the background beyond this, the Department of Justice has been looking into ways Microsoft has been leveraging its early investments in AI, and its market dominance with the Windows operating system which it plans to use to push new AI-powered solution throughout the world, to gain early control in this new area. In some ways what Microsoft is doing is eerily like how it and microprocessor innovator Intel partnered to commandeer the way key computing chip hardware and software linked together as the first wave of that market first exploded in the 1990s.

On June 7, news broke that the Justice Department and the FTC have agreed on how to break up the enormous task of digging into what the DOJ told the Financial Times called ““monopoly choke points and the competitive landscape” in this extremely valuable new business.

Under the broad outlines of the agreement, with details still to be finalized, the Federal Trade Commission will have responsibility and purview over the investigation of Microsoft’s AI strategy. That will include the linkages with OpenAI and integration of the ChatGPT service into its software offerings, past investment details with them which could potentially make it impossible to others to access some of the most powerful aspects of OpenAI’s technology.

Microsoft is currently OpenAI’s biggest shareholder, thanks to its original $10 billion investment in the company. That also secured for it an “observer” seat on its Board of Directors, a position which is non-voting but provides it with a position from which to learn about and influence new strategic directions for that enterprise.

It was also revealed on June 7 that the FTC is looking into if Microsoft deliberately manipulated a series of events to secure proprietary access to AI software developed by the company Inflection, without having to notify regulators of the equivalent of a merger. The first public reveal about this came in March 2024, when Microsoft announced it had signed a deal with Inflection giving it an exclusive license to its software for $650 million. As part of that arrangement, Microsoft also hired “away” Mustafa Suleyman, the CEO of Inflection, as well as many of his key employees.. Suleyman is now heading a new AI division at Microsoft, with the employees who came with him reporting into the new division. It is assumed those employees will develop new versions of the software licensed from their original company.

Although the licensing of the software and the transfer of key Inflection employees to Microsoft is not strictly speaking an acquisition, regulators are looking at whether the Redmond, Washington based tech giant did this so it did not have to give advance notice of what it was doing to the FTC. Under U.S. laws, companies are required to file reports of any acquisition valued at over $119 million with the government. Microsoft gave no such notification.

The issue is sufficiently contentious that Microsoft had spokesperson Becca Dougherty issue a rare public statement about a transaction it apparently considers routine, and which should not be subject to scrutiny.

“Our agreements with Inflection gave us the opportunity to recruit individuals at Inflection AI and build a team capable of accelerating Microsoft Copilot,” she said when the news that the FTC was looking into the Inflection deal came out. “We take our legal obligations to report transactions under the HSR Act seriously and are confident that we have complied with those obligations.”

The law Dougherty was referring to is the 1978 Hart-Scott-Rudino Antitrust Improvements Act. It is one of the most wide-ranging expansions of regulations against the creation of monopolies passed since the original Sherman Antitrust Act became law in 1890.

With the FTC taking charge of the Microsoft-led consortium encompassing OpenAI and Inflection, the division of responsibilities to investigate antitrust activities in the industry turns over investigation of Nvidia’s numerous partnership deals, pricing arrangements, chip supply, and core technology licensing to the Department of Justice.

Nvidia has so far not issued a statement about any of this.

Each probe will take time even before charges may be filed, a process which could take over a year on its own. Then there are the court cases which could follow, which in turn would take years beyond that to resolve.

By the time that happens, each of the tech giants, led most vigorously by Microsoft and Nvidia, will have already left numerous weaker AI company casualties on the business battlefield around them.