In the race to lead in artificial intelligence, large tech companies are absorbing talent and products from innovative startups. This strategy often proves more cost-effective than developing the technology independently, and these acquisitions are made without formal buyouts. This practice has raised concerns in the U.S. Senate, where three senators are calling for an investigation, fearing maneuvers to bypass antitrust regulations.
Late last month, Adept, a San Francisco-based startup, announced a deal that sends its CEO and key employees to Amazon, while also granting a license for its AI systems and datasets. These types of agreements, known as "reverse acquisitions" or "poaching," are being criticized by some in Washington, who view them as a way to circumvent antitrust laws.
Senator Ron Wyden, a Democrat from Oregon, expressed concern over this trend of consolidation in the AI market. "A few companies control a significant portion of the market and focus on buying talent instead of innovating," Wyden told The Associated Press. These practices, he argues, may be designed to avoid antitrust scrutiny, allowing large corporations like Amazon, Microsoft, and Google to strengthen their dominance without formally acquiring smaller competitors.
Senator Elizabeth Warren of Massachusetts and Senator Peter Welch of Vermont joined Wyden in requesting an investigation by the Department of Justice and the Federal Trade Commission (FTC). In a letter sent last Friday, the senators urged regulators to take action against undue consolidation in the tech industry.
A New Approach
Michael A. Cusumano, a business professor at the Massachusetts Institute of Technology, explained that these "reverse acquisitions" are a new twist on a common practice in the tech industry. "Acquiring only some employees and licensing the technology, leaving the company operational but not really competing, is a new spin," Cusumano remarked. In March, for example, Microsoft employed a similar strategy by hiring Mustafa Suleyman, co-founder and CEO of the AI company Inflection, along with other key scientists from the company. This increasingly common move has also caught the attention of European regulators.
For AI startups like Adept, building advanced systems is costly, requiring computer chips, data centers, extensive training data, and highly skilled computer scientists. Adept announced that its deal with Amazon would allow it to focus on its vision without the pressures of fundraising.
"They may have decided that they don't have a real future on their own and prefer to be acquired indirectly," Cusumano said. For startups, these "acquisitions" can be a way to survive in a competitive market, although for some, like law professor John F. Coyle, this practice is clearly a tactic to avoid antitrust issues.
Washington’s Response
The Department of Justice and the FTC have received the senators' letter but have so far declined to comment further. In recent years, President Joe Biden's administration and lawmakers from both parties have advocated for stricter oversight of the tech industry, which has curbed large acquisitions that might have gone unnoticed in the past. According to Cusumano, the shift by big tech towards fewer direct acquisitions and more "reverse acquisitions" is a smart strategy, but not necessarily effective in avoiding scrutiny.
As tech giants seek to dominate the burgeoning AI market, the practice of "poaching" talent and licensing technology raises important questions about fair competition and innovation. The call to action by Senators Wyden, Warren, and Welch could be the first step towards greater regulation in the AI industry.
