CMA updates AI Foundation Model principles amid concerns about how the sector is developing

Last week, the CMA published an update to its initial report on AI Foundation Models published last September. 

The initial report has been widely praised, with stakeholders and practitioners commending the CMA for its work to understand these complex markets and engage in horizon scanning of potential issues, rather than leaping to act too soon.

Since then, the CMA says there has been a “marked increase” in its concerns about the directional trend of developments in the sector. Whereas the initial report was exploratory and open-minded in its tone, in the update paper we see the CMA starting to take a position - its tone remains collaborative, but it also provides a gentle but firm reminder that it is watching closely and will not hesitate to act if and when the time comes.

In particular, while recognising that today's largest tech firms have an important role to play in these markets, the CMA considers that the benefits from Foundation Models (FMs) for businesses and consumers are more likely to be realised if these firms are subject to fair, open and effective competition, rather than simply able to leverage FMs to further entrench existing positions of power. The CMA is particularly concerned about the growing presence of such firms across the FM value chain (including in the upstream supply of critical inputs such as data, compute and technical expertise and the downstream provision of products and services to businesses and consumers). 

Such interconnectedness results from increased vertical integration, an increasing number of partnerships, investments and strategic agreements between firms operating at different levels, as well as strategic hires of key talent. Importantly, the CMA recognises that such partnerships may be an "essential ingredient" of the development and investment ecosystem in this space; nevertheless, it notes that such partnerships do not always fall within merger control rules, and it is therefore vigilant towards the possibility that incumbent firms may use such partnerships and investments to quash competitive threats.

In particular, the CMA is concerned that: (i) firms that control critical inputs for developing FMs may restrict access to those inputs; (ii) incumbents could exploit their positions in consumer- or business-facing markets to distort choice in FM services and restrict competition in FM deployment; and (iii) partnerships involving key players could reinforce or extend positions of market power through the value chain. 

The CMA has therefore proposed an updated set of principles, which reflect the evolution it has seen in the FM sector since its initial report as well as stakeholder feedback. The updated principles largely mirror those in its initial report, but with greater emphasis on the need to prevent powerful partnerships and integrated firms reducing the ability of others to compete and being used to insulate the firms in question from competition. The principles also spell out more clearly that it is the responsibility of all firms to help foster the development of a competitive market.  

The CMA plans to provide another update on its work this autumn. In addition, the UK government's recent response to the AI White Paper called on regulators, including the CMA, to outline their strategic approach to AI by 30 April 2024 - we will therefore be seeing the CMA's response on this very soon.

The CMA's update paper will be analysed in more detail in the next edition of our Competition & Regulatory Newsletter.