F.T.C. Launches Antitrust Investigation Into Microsoft

Regulators are demanding information from the company on its cloud computing, artificial intelligence and cybersecurity products.

The Federal Trade Commission has opened an investigation into whether Microsoft has violated antitrust law in multiple segments of its wide-ranging business, according to two people familiar with the inquiry, the latest salvo in a battle by the government to rein in the most powerful tech companies.

The agency recently sent a long and detailed formal request for information to the company asking about its cloud computing, artificial intelligence and cybersecurity products, the people said. Of particular interest to the F.T.C. is the way that Microsoft bundles its cloud computing offerings with office and security products, they added, alongside the company’s growing power in the artificial intelligence space.

The aggressive move by the F.T.C. comes as its chair, Lina Khan, is probably heading out the door with less than two months left in the Biden administration. Ms. Khan, 35, has pushed the agency to police big companies and has tried to get ahead of fast-moving changes in the technology industry.

Ms. Khan is expected to leave her post as part of the transition to the administration of President-elect Donald J. Trump, after which the focus of tech regulation could change.

The inquiry into Microsoft continues the Biden administration’s scrutiny of the biggest tech companies over the way people consume information, communicate and shop online. Already, the F.T.C. has sued Amazon and Meta, accusing them of anticompetitive behavior and stifling rivals. The Justice Department has also sued Google over its dominance in advertising technology, and Apple for making it difficult for consumers to leave its tightly knit universe of devices and software.

Microsoft, one of the most valuable companies in the world with a disparate business that includes its Windows operating software, social media platform LinkedIn and video game platform Xbox, had so far largely escaped the recent ramp up in antitrust scrutiny.

But in the late 1990s, the government attempted to break up the company over the dominance of its operating system and its efforts to stymie rivals to its own web browser. A judge ordered the breakup of the company, but his decision was overturned by an appeals court.

It’s unclear if Mr. Trump will continue the aggressive push to rein in tech companies. During his first administration, the Justice Department began one of the current antitrust lawsuits against Google, and the F.T.C. filed its antitrust lawsuit against Meta.

Microsoft and the F.T.C. declined to comment. Bloomberg News and The Financial Times first reported details of the investigation.

Microsoft, which was founded in 1975, is now valued a over $3 trillion. In recent years, it has made major moves to expand from its origin as a maker of personal computer software. That included acquiring video game software company Activision Blizzard for $69 billion last year — a sale the F.T.C. failed to block.

The company’s Azure cloud computing business, which essentially rents out computing power and accompanying services to other companies, has become a flagship product. Microsoft is the largest investor in the artificial intelligence start-up OpenAI, and has partnered with it to sell access to OpenAI’s systems through Azure.

(The New York Times has sued OpenAI and Microsoft, claiming copyright infringement of news content related to A.I. systems. The two companies have denied the suit’s claims.)

Microsoft has come under recent scrutiny for high-profile system failures that have underscored the central role it plays in the infrastructure of the internet. In July, an update by cybersecurity firm CrowdStrike caused computers around the world running Microsoft’s Windows operating system to crash, standing travelers in airports and impeding 911 operators. Previously, Chinese hackers gained access to high-profile government email accounts through Microsoft cloud security.

As part of its investigation, the F.T.C. is looking at how Microsoft handles licenses for software used in the cloud, according to the two people.

An earlier statement from the agency about cloud computing specifically cited a comment from NetChoice, an industry group that represents competing cloud providers Google and Amazon, that accused Microsoft of locking customers into its cloud computing services by changing the terms under which customers could use products like Office. If the customers wanted to use another cloud provider instead of Microsoft, they had to buy additional software licenses and effectively pay a penalty, the group said.

Microsoft has long faced criticism from competitors that it bundles its products in a way that makes it hard for rivals to compete.

Regulators in the European Union earlier this year said that Microsoft had violated its antitrust rules when it packaged Teams, a productivity tool that allows co-workers in remote locations to speak to each other, with Office tools like Excel and Word.

The F.T.C. is also investigating Microsoft’s investments and conduct in its A.I. business, said the two people familiar with the inquiry. In addition to partnering with OpenAI, which makes the ChatGPT chatbot, Microsoft has woven A.I. into many of its products, including its Bing search engine.

But regulators are putting A.I. under a microscope. The F.T.C. and the Justice Department over the summer reached a deal to split up responsibility for looking at issues regarding the fast-growing technology. The F.T.C. received authority over Microsoft and OpenAI while the Justice Department agreed to look at Nvidia, the most prominent manufacturer of computer chips used to run generative A.I. programs.

In January, the F.T.C. also started a broad inquiry into strategic partnerships between tech giants and A.I. start-ups, including Microsoft’s investment in OpenAI. That partnership has raised questions about whether it was structured to allow Microsoft to avoid a regulatory review.

Some in Silicon Valley think the move came too late to keep A.I. competitive.

“As always, the regulators are experts in shutting the barn door after the horses have bolted,” said Venky Ganesan, an investment partner at Menlo Ventures, which funds a wide range of startups including those in A.I.

Mike Isaac contributed reporting.

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