From: allin
The U.S. Department of Justice (DOJ) and the Federal Trade Commission (FTC) have reportedly struck a deal to investigate AI incumbents [00:18:08]. This move is seen in the broader context of federal regulation concerning AI advancements [00:17:58].
Allocation of Oversight
The agreement outlines specific areas of focus for each agency:
- DOJ’s Role: The DOJ is tasked with investigating whether Nvidia has violated antitrust laws [00:18:17]. Potential areas of inquiry include Nvidia’s use of CUDA software to lock customers into its GPUs or how it distributes GPUs [00:18:24]. At the time of this discussion, Nvidia had briefly surpassed Apple as one of the largest market cap companies in tech [00:19:34].
- FTC’s Role: The FTC will lead investigations into OpenAI’s conduct and Microsoft’s AI-related deals [00:18:35].
FTC Probe into Microsoft’s Inflection AI Deal
The Wall Street Journal reported that the FTC has already opened a probe into Microsoft’s deal with Inflection AI [00:18:43]. This deal involved Microsoft acquiring Inflection AI’s staff (an “Aqua hire”) and a significant “Commerce deal” to assist investors [00:18:50]. The deal, which included a $650 million licensing fee, was structured by Microsoft in a way that aimed to avoid regulatory scrutiny [00:19:03]. The concept of a “shadow Aqua hire” was previously discussed on the podcast [00:19:08].
Expert Opinions on the Investigations
Premature and Innovation-Hostile
Critics argue that these investigations are premature for a nascent industry like AI [00:19:54]. The market is only 18 months to two years old, with limited end-user use cases and a vast imbalance between collective spending (1 trillion) and generated revenue (less than $10 billion) [00:20:00]. The idea of launching an antitrust investigation before the market has even seen a full boom-and-bust cycle is questioned [00:20:29].
“I think the DOJ and the FTC are totally way out of their ski tips on this… I don’t see what they’re exactly investigating in an immature market where we haven’t yet seen one cycle of boom and bust.” [00:19:51]
The administration’s approach is viewed as part of an “innovation-hostile agenda,” encompassing attacks on crypto and restrictive M&A policies [00:25:54]. This contrasts with the government’s historical role as a critical supporter of private industry in bleeding-edge fields like space, defense, and the internet [00:27:19].
Clever Deal-Making and Regulatory Gaps
While the investigations might be premature, there’s acknowledgment of “clever forms of deal-making” by hyperscalers that circumvent traditional business constraints [00:20:44]. These include complex “Tac 2.0” or credit-oriented deals, such as financing companies to buy their own chips [00:21:26]. This sophistication has evolved from past regulatory challenges faced by companies like AOL (revenue round-tripping) and Microsoft (DOJ inquiry during Steve Ballmer’s tenure) [00:20:54].
! warning | Regulatory Blind Spot The real inquiry should potentially come from the SEC regarding whether these are “real revenue” deals, rather than antitrust investigations into future competition [00:21:48].
Legislative Challenges
California’s Governor Newsom has warned against over-regulating AI, recognizing the potential for stifling the burgeoning sector [00:22:50]. The rapidly changing nature of AI models (e.g., significant reductions in model size improving performance) makes it difficult for current statutes, which often define regulation based on model size, to remain relevant [00:23:07]. Laws written based on expert opinions can quickly become outdated [00:23:44].
Conclusion
The current administration’s stance on AI regulation, along with its approaches to crypto and M&A, is seen by some as potentially hindering innovation and economic growth [00:26:37]. The prevailing sentiment among the hosts is that policies should foster acceleration and progress rather than imposing unnecessary regulations that risk stifling emerging technologies [00:27:51].