On November 15, 2023, the German Federal Cartel Office (“FCO”) concluded that Microsoft’s investments in and cooperation with OpenAI, Inc. (“OpenAI”) do not constitute a notifiable merger under German law. 
Microsoft has been a significant investor in OpenAI since 2019, with its most recent multi-billion dollar investment taking place in early 2023. OpenAI, the organization behind the artificial intelligence (“AI”) chatbot “ChatGPT”, has granted Microsoft a 49 % stake and access to its technologies. OpenAI’s systems now operate on Microsoft’s Azure-based supercomputer, and the cooperation between the two entities has been further solidified through an enhanced contractual basis.
The FCO’s Assessment
The FCO assessed the cooperation without public announcement and determined that it is not subject to merger control in Germany, thereby relieving the parties of any current obligation to notify their cooperation. The FCO’s examination focused on two key questions:
- Whether the cooperation constituted a concentration under Sec. 37 of the German Act against Restraints of Competition (“ARC”).
- Whether Microsoft’s investment triggered the notification obligation based on the transaction value threshold under Sec. 35(1a) ARC.
The FCO affirmed the first question, finding that Microsoft had gained material competitive influence over OpenAI. This is a lower standard than under the European merger control regime, which requires control over the other company. For the transaction value threshold to be met, the investment would need not only to exceed a certain threshold but also the OpenAI must have substantial activities in Germany. The FCO found that OpenAI’s activities in Germany were not substantial prior to 2023 and assumed that the existing cooperation between the two companies was not competitively strengthened based on the contractual and economic conditions.
The FCO is seemingly the first national competition authority to declare that this cooperation does not fall under merger control. Consequently, the cooperation is subject to general competition rules. However, the FCO is likely to revisit the case soon due to the expectation of Microsoft increasing its involvement in OpenAI and the confirmation that OpenAI developed significant activities in Germany in 2023, likely due to ChatGPT going public.
Future Implications, Jurisdictional Challenges and Sec. 19a ARC
The significance of digital advancements in technologies like AI is underscored by their potential to stimulate competition. As major digital enterprises continue to invest in AI companies, AI partnerships will become increasingly relevant. National competition authorities are wary of the risks of market consolidation in the digital sector. FCO president Mundt has emphasized the need to closely monitor market developments, particularly the involvement of major players in emerging companies in this sector. Collaborations in the digital sector will continue to pose questions from a merger control perspective, specifically whether these collaborations meet traditional merger thresholds and whether AI companies have substantial activities in Germany.
The Higher Regional Court of Dusseldorf recently ruled that the FCO lacked jurisdiction to review Meta’s (formerly Facebook) acquisition of Kustomer because of the absence of substantial activities in Germany. This ruling has made it more challenging for digital mergers to fall within the purview of Germany’s merger control regulations. However, the FCO retains the ability to scrutinize the activities of digital companies, particularly under Sec. 19a for undertakings with paramount cross-market significance (“PCMS”). The FCO has initiated proceedings against various digital companies including Microsoft. Moreover, the latest amendments of the ARC, which entered into force on November 7, 2023, have provided the FCO with new powers to intervene in the aftermath of a sector inquiry. The FCO can now impose both behavioral and structural measures without the actual occurrence of a competition law infringement or any individual wrongdoing of a company after a sector inquiry. The FCO’s new abilities to remedy disruptions of competition identified in a sector inquiry will become particularly relevant in the digital sector. The FCO has already conducted sector inquiries relating to online advertisement and messenger and video services.
 Higher Regional Court of Dusseldorf (Kart 11/21 (V) – Meta (Facebook)/Kustomer) decision of November 23, 2022, only available in German here. For more information on the case’s background, please see our Antitrust Watch blog article available here.
 The FCO already designated Alphabet, Amazon, Apple and Meta as undertakings of PCMS. An overview regarding all the FCO’s proceedings pursuant to Sec. 19a ARC against digital companies is available only in German here. See the FCO’s Press Release of March 28, 2023 regarding Microsoft, available in English here.