FTC wants Microsoft's relationship with OpenAI under the microscope Microsoft's OpenAI headaches might not be going away following reports that now the US Federal Trade Commission (FTC) is considering an investigation into the Windows giant's investment in the company. At question, should the FTC opt to open a formal examination, is whether any antitrust rules have been broken. Despite the …
IMHO Microsoft has had an outsized influence on OpenAI's leadership and mission by providing substantial support for Altman. If they had not provided that support, Altman would have remained out, and Toner and others would have stayed on the original OpenAI board, in support of the company's original mission. The 700 or so folks who signed a letter to reinstate Altman may not have done so if Microsoft hadn't shown unwavering support for him (or maybe there was some other outside influence at play?), but, if they had resigned as a result, and the company had subsequently folded, it would have done so in fulfilment of its missiion that it is better to fold than to push "dangerous" AI out onto the world. The company's safeguards were working, but were meddled with by Microsoft's influence.
(I know nothing about antitrust rules though)
I suspect it is to get around tax laws. It started as a non profit foundation, which is handy for founders to make tax deductible donations to get it off the ground. It also has a for profit piece, which is handy for founders wishing to toss in more money and be able to profit from that investment.
I would think that sort of structure would be appealing to startups in general if there is a lot of investment required to even find out if there is a viable product to be had. Just stipulate that the founders of the non profit side will have the opportunity to be a founder of the for profit side. That would increase your ROI since the "dead money" invested to validate the idea is not part of the second round investment in the for profit side, and if the whole thing falls flat you get a tax deduction on regular income, versus an offset on capital gains.
Not quite sure why that hasn't been seen with other startups before. I guess most of them don't have the sort of startup costs that a company like OpenAI would, and also because no one thought of this (or perhaps assumed the IRS would come down hard on whoever dared try it)
As I've linked before, this Retuers article
seems to describe the construct: OpenAI was founded as a non-profit but they needed more funding, so they created a for-profit subsidiary to raise funds but have no voting power within the board.
So Microsoft, therefore, was able to invest in the for-profit subsidiary, which would promise dividends and returns on profits, but have no voting rights.
From here, and it looks like a BIG "from here", it seems that the FTC doesn't have much of a case. MS simply invested in the subsidiary as openly and as easily as any other person or investment bank might, and MS would know they wouldn't have any controlling interest or even 'shareholder' votes. In other words, OpenAI structured themselves to gain 'silent' investors and MS was simply one (admittedly, a BIG $$$ investor) of many.
I wonder just how legal it is for a non profit to own a for profit subsidiary. I suppose that sort of thing happens all the time e.g. if I donate a few million in Apple stock to a non profit. But having sole ownership and control of a for profit subsidiary is very different.
The IRS and SEC move slowly, but I wouldn't be shocked if this is under scrutiny and we'll see something about this in the future.
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