Global investment in AI surged to approximately USD 252 billion in 2024, representing a thirteen-fold increase since 2014. As AI technologies become deeply embedded across key economic sectors such as finance, manufacturing, retail, education, energy and healthcare, they are not just transforming business models; they are also increasingly attracting scrutiny from competition authorities. The European Commission (EC) and other key competition regulators have started to assess how AI-driven transactions could impact market dynamics and competitive fairness.
In July 2024, the EC, the UK Competition and Markets Authority (CMA), the US Department of Justice (DOJ) and the Federal Trade Commission (FTC) signed a joint statement on competition in generative AI foundation models and AI products, signalling an intention to align their thinking on key issues, partnerships, financial investments and other connections between firms related to the development of generative AI. In September 2024, the EC published a competition policy brief focusing on potential competition issues in AI and virtual worlds. The EC has committed to closely monitoring big tech companies' investments in and acquisitions of smaller players developing AI foundation models, with a particular focus on addressing potentially anti-competitive "killer acquisitions" – acquisitions of a threatening future or incipient competitor – by a leading supplier in the digital and AI sectors.
The EC and EU national competition authorities have several ways that they can screen such deals.
EU Merger Control
EU merger control applies to M&A deals that involve an acquisition of direct or indirect control provided that the deal parties satisfy applicable revenue thresholds.
- Jurisdictional Issues. EU merger control is
not always able to capture deals in the AI sector because many do
not result in a lasting change of control and/or the companies
involved do not meet the relevant revenue thresholds.
In 2024, authorities paid close attention to AI partnerships, i.e. collaboration arrangements between large tech companies and smaller developers of AI foundation models that involve significant investment in smaller players and often acquisition of their core teams, IP and know-how. Since these agreements are typically not structured as traditional M&A transactions, they do not necessarily involve an acquisition of control, and, as a result, fall outside the scope of EU merger control.
For example, the EC found that Microsoft's firing and re-hiring of OpenAI's CEO and the arrangement giving Microsoft an observatory seat on OpenAI's board in November 2023 did not give Microsoft control over OpenAI. In contrast, the EC concluded that Microsoft's acquisition of Inflection's key personnel, including its CEO and Chief Technical Officer, and a license to Inflection's key IP constituted a lasting change of control. However, it remains to be seen how far the EC is willing to stretch the concept of control to capture these types of deals.
The UK CMA has also been looking at AI partnerships. For example, the CMA concluded that the broader partnership between Microsoft and OpenAI gave Microsoft material influence over OpenAI's commercial policy. UK merger control can be triggered by an acquisition of material influence (e.g. acquisitions of minority shareholdings where an investor obtains preferential consultation rights, or where the target is dependent on inputs from or expertise of the investor); this lower threshold allows the CMA to intervene in deals that do not necessarily result in a change of control. The CMA, however, decided not to investigate the deal further because OpenAI was not commercializing any products in the UK at the time. According to the CMA, the 2023 developments in the governance of OpenAI did not increase Microsoft's level of control over OpenAI and thus could not be investigated under the UK's merger control laws.
Even though the CMA's threshold for intervention under its merger laws is lower than the EC's (material influence over commercial policies under UK law vs lasting change of control in the EU), the CMA still faces challenges to reviewing AI partnerships and "acqui-hires" using merger control concepts.
Many AI partnerships also fail to meet the revenue thresholds to trigger EU merger control. For example, in Microsoft/Inflection, Inflection's turnover did not meet either EU or national merger control thresholds. Modifying the EU merger control thresholds, which are contained in the EU-level regulation, in a reasonable time frame would be very difficult. The EC instead intends to cooperate with national competition authorities, some of which have more flexible rules to catch deals below the thresholds (see below).
- Article 22 EUMR Referrals. Article 22 of the EU Merger Regulation (Article 22 EUMR) allows EU Member States to request that the EC review transactions below EU revenue thresholds if the transaction affects trade between Member States and threatens to significantly affect competition within the territory of the relevant Member State or States making the request. In 2021-2024, this referral mechanism had been seen as a key instrument to tackle killer acquisitions, as it was interpreted to allow the national competition authorities to refer to the EC cases that did not meet either national or EU merger thresholds. However, the 2024 judgment of the EU Court of Justice (ECJ) in Illumina/GRAIL has greatly limited the scope of this type of referral. The ECJ ruled that national competition authorities must themselves have jurisdiction to review transactions under their national merger control system to be able to refer them to the EC. The ECJ also clarified that Article 22 EUMR does not authorise the EC to review any below-threshold deal. As a result of this ruling, several national competition authorities withdrew requests for referral to the EC, including for Microsoft/Inflection, which did not meet EU or national merger control thresholds (see below).
National Competition Authorities' Powers
As mentioned above, national competition authorities may be better placed to capture lower-value deals related to AI as they have more tools for this and potentially more flexibility to update their merger control rules than does the EU.
- Call-In Powers. More EU Member States may consider giving their competition authorities the "golden power" to review deals that their authorities fear may distort competition in national markets but that do not meet their merger notification thresholds. Denmark, Hungary, Italy, Latvia, Lithuania, Sweden and EEA Member States Iceland and Norway can "call in" such below-threshold deals for review. This is a potential way to fill any perceived enforcement gap post-Illumina/GRAIL because these national competition authorities may review these deals themselves or refer them to the EC at their discretion. Whether the EC will be able to review transactions referred to it by a national authority that called in a below-threshold transaction is the subject of an ongoing appeal before the General Court.
- Abuse of Dominance Investigations. The ECJ's 2023 Towercast judgment confirmed that EU national competition authorities can investigate non-notifiable acquisitions by dominant companies. This can be particularly relevant for AI deals involving big tech companies that hold dominant positions in some markets. However, Towercast only applies to already dominant companies and does not allow the agencies to look into all acquisitions by dominant companies but only those in which the deal creates the degree of dominance that "would substantially impede competition, that is to say, that only undertakings whose behaviour depends on the dominant undertaking would remain in the market".
- Deal-Value Thresholds. Because Towercast sets a high bar for intervention, Member States that want to broaden their powers to review transactions could consider revising existing thresholds or adding new transaction value thresholds (as Austria and Germany have) to their merger control laws. This deal-value threshold could capture AI-related deals where the target's revenues are low but the deal's value is considerable due to the target's potential. Any such deal-value thresholds need to be set at the right levels. For example, Microsoft/Inflection did not meet the German deal value thresholds because the target did not have substantial presence in Germany as the regulator concluded that the number of Inflection's Pi chatbot users in Germany was too low.
Substantive Review
The EC believes that transactions in the AI industry could lead to increased vertical integration by enabling big tech incumbents to prevent (potential) competitors from accessing key AI inputs, including computing infrastructure, data and talent, and/or to exclude them from the downstream AI solutions markets. Alternatively, the EC fears that transactions in the AI industry could allow incumbents to reinforce their ecosystems. The EC is also concerned by potential killer acquisitions, i.e. tech giants buying potential competitors in generative AI and thereby cementing their incumbent positions in the AI solutions markets.
While none of these risks can be excluded, M&A activity can also promote innovation and competition. For example, AI partnerships can benefit the growth of AI start-ups as they can receive essential inputs to enter and grow in the market while also allowing big tech players to improve their services to end consumers. The prospect of being acquired by a large tech company can also be a great incentive to innovate. It is often seen as a profitable exit strategy for smaller firms and promotes competition in that way.
In addition, the EU needs to strengthen its position in AI to increase its overall competitiveness. To promote private investment in the EU AI sector (in addition to the public-private initiatives such as InvestAI), the EU regulatory landscape must become more forward-looking and agile. One way to do this could be to focus less on existing market shares and give more prominence to arguments emphasizing the positive effects of a transaction on innovation and benefits for consumers in the long run. This could also include the EC's openness to accepting parties' commitments to invest in the target as a precondition for clearing the deal where the EC has concerns that the parties will not pursue investments and development post-closing (the CMA recently did this in Vodafone/CK Hutchison). However, it remains to be seen how the EC will balance any restrictive effects of a transaction and its potential positive effects on innovation in future deal reviews.
Digital Markets Act
Article 14 of the EU's Digital Markets Act (DMA) also requires companies designated as "gatekeepers" to inform the EC of deals where the other party to the deal provides core platform services or other services in the digital sector. These provisions currently apply only to the seven entities (for now) that have been designated as gatekeepers. This requirement allows the EC to become informed of deals irrespective of whether the transaction is notifiable under the EU or national merger control regimes. However, the EC may not investigate the deals unless they meet the EU merger control thresholds. The EC must instead inform the national competition authorities of the deals, and these authorities may investigate the deals themselves or choose to send the case to the EC for review.
As of 3 March 2025, gatekeepers have informed the EC of 25 deals. The EC has investigated only two of them; however, neither investigation resulted from the gatekeeper's obligation under the DMA. Microsoft/Activision Blizzard was notified to the EC under the EUMR, and Microsoft/Inflection was referred to the EC by seven EU Member States under Article 22 EUMR prior to the gatekeeper's submission under the DMA. Thus, it has yet to be seen how efficient this DMA mechanism is for both deal monitoring and enforcement.
Other Screening Mechanisms
Parties to M&A deals in the AI sector should also carefully assess the applicability of other deal screening mechanisms in the EU.
- Foreign Subsidies Regulation (FSR). The FSR applies to investments in companies active in the EU by investors who received financial contributions from foreign governments. The FSR sets notification thresholds and grants the EC powers to initiate ex officio investigations, including into closed deals. The EC analyses whether the subsidies from the foreign government would have affected deal bids and competition in the EU. The FSR regime applies irrespective of whether the deal is notifiable under the EUMR.
- Foreign Direct Investment (FDI). An investment in an AI-related target based in the EU requires national FDI approval(s) if the AI product developed by the target falls under the categories of critical technologies, military or dual-use items. AI-related deals may also be caught by other, wider Member State FDI laws.
- Outbound Investment Screening. The EC has suggested introducing outbound investment screening for semiconductors, AI and quantum technologies. The EC has invited EU Member States to review, together with relevant stakeholders, outbound investments made by EU investors in these technologies in non-EU countries since 2021. The evaluation should end in 2026. If the assessment identifies sufficient economic security risks to the EU, the EC may introduce an outbound screening mechanism at the EU or national level.
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