AI Foundation Models – UK Competition and Markets Authority flags concerns

The UK Competition and Markets Authority (CMA) has been conducting an ongoing review of AI foundation models (FM) since May 2023. Following their initial report in September 2023, the CMA has been monitoring developments and engaging with stakeholders. On 11 April 2024, the CMA published an update paper (accompanied by a speech) and on 16 April, it published its fuller technical report which details the analysis behind last week’s publications.

The update paper notably signals much more clearly that the CMA has concerns over AI, and that it intends to take action early to tackle the risks to competition and consumer protection it has identified. Specifically, in Sarah Cardell’s speech she notes “when we started this work, we were curious. Now…we have real concerns”. The update paper also helpfully sets out in more detail the key competition risks identified so far, finalises the guiding principles it expects businesses in FM markets to follow, and sets out their next steps.

What are the CMA’s findings?

The CMA observed the following key developments in the fast-moving FM sector, since September 2023:

• consumers and businesses are increasingly using generative AI
• there are more FMs available publicly than in September 2023, and they are increasingly complex and capable
• FM development still hinges on availability of compute, data and expertise – to which large technology companies typically have greater access
• FMs are being released on a range of platforms and integrated in an increasing number of digital products and services, often involving the largest technology firms, and
• the FM value chain is becoming more interconnected, through a combination of vertical integration, partnerships and strategic agreements between firms

Three risks to fair, open and effective competition

The CMA acknowledged that FMs, and AI more generally, have the potential to boost productivity in many sectors, drive innovation in existing markets, and allow entirely new products and services to be created.

However, the CMA also noted that FM development so far has been characterised by rapid innovation, and expressed concerns that the FM sector is developing in ways that risk negative market outcomes. In particular, the CMA highlighted three key interlinked risks to fair, open and effective competition:

1. firms that control critical inputs for developing FMs may restrict access to them to shield themselves from competition
2. powerful incumbents could exploit their positions in consumer or business facing markets to distort choice in FM services and restrict competition in FM deployment
3. partnerships involving key players could reinforce or extend existing positions of market power through the value chain (e.g. the CMA identified over 90 partnerships involving ‘GAMMAN’ firms (Google, Apple, Microsoft, Meta, Amazon, Nvidia))

What guiding principles are the CMA urging the FM sector to adhere to?

In their initial September 2023 report, the CMA proposed guiding principles for the FM sector to create positive outcomes for competition and consumer protection. In their update paper, the CMA finalised the principles:

• access: Ongoing ready access to input
• diversity: Sustained diversity of business models and model types
• choice: Sufficient choice for businesses and consumers so they can decide how to use FMs
• fair dealing: No anti-competitive conduct
• transparency: Consumers and businesses have the right information about the risks and limitations of FMs, and
• accountability: FM developers and deployers are accountable for FM outputs

The CMA highlighted that they “urge firms to align their business practices with the principles”. FM businesses should, therefore, be mindful of the principles going forward and consider implementing policies, procedures, training and monitoring to manage risks.

What’s next?

In response to the CMA’s concerns around the possibility of firms who control critical inputs for developing FMs restricting access, the CMA are:

• examining the conditions of competition in the provision of public cloud infrastructure services as part of their ongoing Cloud Market investigation
• examining the competitive landscape in AI accelerator chips and the impact on the FM value chain as part of their next phase of work, and
• under the new Digital Markets, Competition and Consumers Bill (see here for background on the Bill), the CMA will consider FM developments when considering which areas to prioritise for investigation

In response to the CMA’s concerns around partnerships involving key players reinforcing or extending existing positions of market power, the CMA are:

• monitoring current and emerging partnerships closely, and
• stepping up the use of merger control, and identifying more clearly and coherently which types of partnerships fall within merger rules

The CMA’s AI FM review is ongoing and another update will be published in Autumn 2024. In the meantime, as well as the feedback received from stakeholders, the CMA will also publish:

• a paper on AI accelerator chips, which will consider their role in the FM value chain
• joint research with the Digital Regulation Cooperation Forum on consumer understanding of FM services, and
• a joint statement with the Information Commissioner’s Office on the interaction between competition, consumer protection and data protection in FMs

Comment

The CMA’s update more broadly reflects wider global trends of competition authorities’ increasing scrutiny in digital markets. Competition regulators and practitioners from across the world recently gathered for the American Bar Association Antitrust Spring Meeting 2024, where AI and Big Tech became the main discussion topic. Whilst the legal and regulatory landscape for AI is still developing, regulators are clearly paying extremely close attention to AI and considering strategies to address potential concerns. Competition authorities often listen and respond to each other’s findings, but the need to gain knowledge and insight from ongoing investigations is heightened in such rapidly developing markets. Accordingly, the outcome of the CMA’s AI FM review will likely be of interest to regulators across many jurisdictions, meaning the potential impact of the CMA’s findings could reach beyond just the UK.

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