Microsoft Steps Down from Observatory Role on OpenAI’s Board Amidst Growing EU Scrutiny

• Microsoft's deputy general counsel, Keith Dolliver, in a letter to OpenAI announced the company's resignation from its observatory role on the OpenAI board. The decision is effective immediately.
• Although Microsoft says it's stepping down because OpenAI no longer needs its subversion, the actual reason could be the growing regulatory scrutiny in the U.S. and Europe.
• Interestingly, Apple, too, had earlier decided to take an observatory seat on the OpenAI board amidst ChaGPT-iPhone integration. However, it has followed in Microsoft's footsteps and has dropped the idea.

Microsoft has decided to quit its observer seat' on the OpenAI board amidst growing regulatory scrutiny over the relationship between big tech firms and AI startups in the U.S. and Europe.

The decision was communicated on Tuesday (July 9) through a letter penned down by Microsoft's deputy general counsel, Keith Dolliver, to OpenAI. This decision is effective immediately.

What's even more interesting is that Apple, which was expecting to take on an observatory role on OpenAI's board amidst the integration of ChatGPT with iPhones, will also no longer take the seat.

Apple has declined to comment on the matter, but a person with direct knowledge of the case has confirmed Apple's stance on this.

Brief History of Microsoft's Partnership with OpenAI

Microsoft is one of the biggest investors in OpenAI, having already invested $13 billion in the AI firm. Last year, when OpenAI was riddled with chaos and Sam Altman was briefly ousted from the company, Microsoft was asked to take an observatory seat on the board.

An observatory member is one who can take part in discussions but cannot participate in voting.

This partnership proved to be beneficial for both companies. OpenAI benefited from Microsoft's funding, computing powers, and cloud storage, whereas Microsoft benefited from being one of the first to get hands on OpenAI's powerful AI tech.

However, according to Microsoft, times have changed now, and the observatory role is no longer needed. It further said that OpenAI has witnessed tremendous growth since last year's drama, and its newly formed board is more than capable of taking the business ahead without supervision.

OpenAI has responded to Microsoft's letter with gratitude, thanking Microsoft for showing confidence in the new board. We look forward to continuing our successful partnership," a spokesperson from OpenAI said.

Actual Reason behind Microsoft Quitting OpenAI Board

Regardless of what Microsoft says, it's very likely that the actual reason it let go of its observatory role is the impending antitrust investigation from the EU.

Lately, the EU Commission has been extremely focused on big companies like Microsoft to ensure they don't hijack the market. The Commission wants every single industry to have fair competition and enough opportunities for smaller rivals.

This is why in January of this year, it announced that it would be looking into some of the agreements that have been concluded between large digital market players and generative AI developers and providers."

Lo and behold, the Microsoft-OpenAI tie-up was singled out as a case that the EU Commission will be studying.

However, the Commission concluded that Micorosft's observatory rule doesn't undermine OpenAI's independence. Sadly, though, the investigation didn't stop there, as the regulators are now seeking third-party opinions on the matter.

It's also worth noting that something similar happened in the U.S. as well. The Federal Trade Commission has decided to study the partnership between five tech companies (Microsoft being one of them) and generative AI startups.

All in all, the likelihood of Microsoft deciding to step down from the OpenAI board to avoid another legal entanglement is very high.

Read more: FTC & the DOJ launch antitrust investigation against Microsoft

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