Hire power

On 19 March Satya Nadella, Microsoft’s chief executive, announced that Mustafa Suleyman and Karén Simonyan, two of the founders of Inflection AI, were “joining Microsoft to form a new organization called Microsoft AI”.^{1MicrosoftMustafa Suleyman, DeepMind and Inflection Co-founder, joins Microsoft to lead Copilot19 Mar 2024} Mr Suleyman, who also co-founded DeepMind, becomes an executive vice-president and chief executive of the new outfit, reporting to Mr Nadella; Mr Simonyan becomes chief scientist. “Several members of the Inflection team,” the announcement adds, “have chosen to join”.^{1MicrosoftMustafa Suleyman, DeepMind and Inflection Co-founder, joins Microsoft to lead Copilot19 Mar 2024} Microsoft’s own phrase for the others is “some of the most accomplished AI engineers, researchers, and builders in the world”.^{1MicrosoftMustafa Suleyman, DeepMind and Inflection Co-founder, joins Microsoft to lead Copilot19 Mar 2024}

The verb is doing a great deal of work. Nobody has been bought. Nobody has been acquired. People have merely chosen, in large numbers and on the same day, to go and work for the same firm. The announcement gives no price and does not describe a purchase of any kind.^{1MicrosoftMustafa Suleyman, DeepMind and Inflection Co-founder, joins Microsoft to lead Copilot19 Mar 2024}

We think this is a merger in everything but its paperwork, and that competition authorities should treat it as one. That is not an argument against the deal. Mr Suleyman may well make Microsoft’s Copilot better. It is an argument about who gets to decide, and when.

Start with what the law is for. Section 7 of the Clayton Act, passed in 1914, bars a company from acquiring the stock or the assets of another where the effect “may be substantially to lessen competition”.^{5Legal Information Institute, Cornell Law School15 U.S. Code section 18: Acquisition by one corporation of stock of another15 Oct 1914} The statute does not ask whether a deal is called a merger. It asks what the deal does. A start-up whose founders, researchers and engineers have left for a rival is, as a competitor, worth rather less than it was the day before. Its main assets walk out of the door in the morning. Whether a lawyer would call that an acquisition depends on the lawyer.

The enforcers have been busy drawing the boundaries lately, which makes the omission conspicuous. In December 2023 America’s Justice Department and Federal Trade Commission published new merger guidelines. One covers acquisitions of partial ownership or minority interests; another covers mergers that reduce competition for workers.^{4US Department of Justice and Federal Trade CommissionMerger Guidelines18 Dec 2023} A hire of this scale touches both ideas without being caught by either. In the same month Britain’s Competition and Markets Authority began asking whether Microsoft’s partnership with OpenAI had created a “relevant merger situation”, testing whether one party has gained material influence or de facto control over the other.^{3UK Competition and Markets AuthorityCMA seeks views on Microsoft's partnership with OpenAI8 Dec 2023} In January the FTC ordered Alphabet, Amazon, Anthropic, Microsoft and OpenAI to hand over information about their investments and partnerships, giving them 45 days to reply.^{2Federal Trade CommissionFTC Launches Inquiry into Generative AI Investments and Partnerships25 Jan 2024} Regulators are looking hard at the ways big firms tie themselves to small ones. They have not yet looked at the way big firms simply take the staff.

The best defence is that talent is mobile and should stay so. Workers who leave one employer for another are the ordinary stuff of a healthy labour market, and a regime that treated every large hiring round as a merger would freeze the Valley in place. That is a fair worry. The answer is a threshold, not a free pass. A single engineer joining a rival is a job. A founding team and most of a company’s staff arriving together by prior arrangement, is a transaction, whatever the press release says.

There is a second defence: that the start-up was not going to win anyway, and its backers are being paid for something that might otherwise have been worth little. That may be true here, and it is exactly the sort of question a review exists to ask. Reviewers can and do clear deals that rescue weak firms. What they should not be asked to do is find out from the newspapers.

Companies will notice. If a reverse acqui-hire clears with no filing and no questions, the template is cheap to copy. Any big firm that fancies a start-up’s people but not its liabilities, its customers or its scrutiny will have a route that avoids all three. Founders of young AI firms, who spend most of their working lives trying to be bought, will learn that they can be hired instead.

We would not ask the agencies to block this deal. We would ask them to examine it, and to say publicly which features of a talent transfer trigger a filing. Congress, if it wishes, can make the answer explicit. Until then the rule is a curious one: an acquisition requires a regulator’s attention, but a firm that takes everything except the name does not.

Microsoft says the people chose to come. The regulators should be allowed to ask why they all chose on the same Tuesday.