The news: The Department of Justice (DOJ) is examining whether Google’s licensing deal with Character AI was designed to avoid regulatory scrutiny in violation of antitrust laws, per Bloomberg.

The probe’s outcome could affect similar inquiries by the Federal Trade Commission (FTC) into the Microsoft-OpenAI and Amazon-Anthropic licensing partnerships.

What’s the deal? In August 2024, Google and Character AI, a chatbot startup, signed a “reverse acquisition” agreement worth about $2.7 billion.

• The deal included Google acquiring Character AI’s co-founders and most of its staff, along with non-exclusive rights to its software.
• The agreement quickly raised red flags in the tech community due to concerns about whether Character AI was worth that much.

Everything but the company: Major tech companies are increasingly using acqui-hires and licensing deals to sidestep the intense scrutiny that can come with tech M&As. These tactics have been more heavily investigated in the EU and the UK than in the US.

• Microsoft and OpenAI’s deal gives Microsoft 20% of OpenAI’s revenues and rights to its IP through 2030, though that partnership may be fragmenting.
• In March 2024, Microsoft hired nearly all of Inflection AI’s workforce and purchased the licensing rights to its software for about $650 million.
• Amazon has invested over $8 billion in Anthropic. The startup uses Amazon Web Services (AWS) as its primary cloud provider and training partner, and Amazon offers Anthropic’s Claude on Amazon Bedrock.

Why does it matter? Regulators may be concerned that tech giants are cornering talent from AI startups through evasive deal-making, especially as AI-skilled workers are in high demand. AI job postings are up 72.1% YoY, and there were 23,208 new AI job postings in April, per LinkUp.

Our take: Depending on its pace, a DOJ decision could set precedents for how AI partnerships are scrutinized. Despite the Trump administration’s generally laissez-faire approach to business, regulators and judges are continuing to push forward with antitrust enforcement of multibillion-dollar deals.

The consequences could be significant if Big Tech snaps up all of the rising startups on the market, leaving AI software dominance and pricing standards concentrated in the hands of just a few players.

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