• The U.K. Competition and Markets Authority said Wednesday that Microsoft's deal to acquire "certain assets" from AI company Inflection "does not give rise to a realistic prospect of a substantial lessening of competition (SLC) as a result of horizontal unilateral effects."
• It did, however, maintain its view that the agreement constituted an effective "merger."
• The CMA has a separate ongoing probe into Microsoft's multibillion-dollar investment into AI giant OpenAI.

LONDON — Microsoft's hiring of employees from Inflection AI, the artificial intelligence startup started by DeepMind co-founder Mustafa Suleyman, has been cleared by the U.K.'s competition regulator and will not face an in-depth competition investigation in the country.

The Competition and Markets Authority said in a statement Wednesday that the U.S. tech giant's deal to acquire "certain assets" from Inflection does count as a "relevant merger situation" in Britain, but that it ultimately "does not give rise to a realistic prospect of a substantial lessening of competition (SLC) as a result of horizontal unilateral effects."

In March, Microsoft announced the hiring of Suleyman from Inflection, along with a number of other key employees at the firm. Suleyman was appointed Microsoft's executive vice president and CEO of Microsoft AI. The newly formed unit of Microsoft focused on its artificial intelligence products, including Copilot, the company's AI assistant, which it integrated into Windows and Microsoft 365

In addition to Suleyman's new role, the Redmond, Washington-based tech giant also selected Karen Simonyan to join Microsoft as its chief scientist, reporting to Suleyman. Both Suleyman and Simonyan were former employees of DeepMind, the Google-owned AI lab.

In July, the CMA referred Microsoft's hiring of Inflection talent for an initial merger investigation, on the grounds that it was assessing the potential that the constituted a merger under U.K. rules and therefore could result in a "substantial lessening of competition" within the AI sector.

However, on Wednesday, the CMA said that, after taking some time to evaluate Microsoft's arrangement with Inflection, it did not find any risk of a substantial lessening of competition. It did, however, maintain its view that the agreement constituted an effective merger.

Microsoft was not immediately available for comment when contacted by CNBC Wednesday.

The CMA had not previously spelled out exactly how the hiring of Inflection AI employees could undermine competition. The regulator said it assessed Microsoft's "entry into associated arrangements with Inflection," in addition to the recruitment of the employees.

On Wednesday, the regulator said that those arrangements included a "nonexclusive licensing deal to utilise Inflection IP [intellectual property] in a range of ways."

Microsoft has not publicly revealed any details of a licensing arrangement with Inflection — only that it took on "several members" of the company's 70-person team. Reuters and The Wall Street Journal reported that the firm paid Inflection $650 million in licensing fees to resell its AI models via its Azure cloud computing platform.

The Inflection arrangement isn't the only pact with a Big Tech company and AI startup that regulators in the U.K. are assessing. The CMA has a separate ongoing probe into Microsoft's multibillion-dollar investment into AI giant OpenAI. It is also investigating whether a tie-up between Amazon and AI company Anthropic constitutes a merger that may harm competition.

Microsoft and Amazon have both denied that any of their partnerships with smaller AI firms constitute mergers, stressing that the companies they're investing in and partnering with are operating independently.

Meanwhile, the Federal Trade Commission in the U.S. is also reviewing multiple deals between Big Tech companies and AI startups — including Microsoft's arrangement with Inflection.