CMA AI Foundation Models: Update Paper Published

The Competition and Markets Authority (“CMA”), the UK’s competition regulator, has published its much anticipated Update Paper as part of its review of the market for AI Foundation Models (“FMs”). 

This Paper follows on from the Initial Report published by the CMA in September 2023 (see our previous post on the launch of the CMA’s work and our post on the CMA’s Initial Report). It sets out the CMA’s view on how the sector has developed since September and how the CMA intends to deal with threats to competition in FM markets.

What are Foundation Models?

In its Initial Report, the CMA broadly defined FMs as “a type of AI technology that are trained on vast amounts of data that can be adapted to a wide range of tasks and operations”. The type of data that an FM is trained on determines its capabilities or ‘mode’, for instance language models are trained on text data, whereas image generation models are trained on image data (as well as some text data).

This technology has evolved at an astonishing rate since Google first introduced its Transformer algorithm in a white paper in 2017, which paved the way for the release of OpenAI’s GPT – the first publicly available pre-trained language model. 

As this new technology has developed, there has been much debate about how it can and should be regulated. The CMA therefore launched its investigation in May last year to “help create an early understanding of the market for foundation models and how their use could evolve; what opportunities and risks these scenarios could bring for competition and consumer protection; and what competition and consumer protection principles will therefore best guide the development of these markets going forward.” 

Key Developments 

The CMA notes that since it published the Initial Report last year:

• there has been an increasing use of generative AI by both consumers and businesses in personal, education and professional capacities;
• there are more FMs available for public use than there were previously, with over 120 FMs having been released since September 2023, making a total of over 330 FMs globally that are known to the CMA; and
• there is a trend towards use of FMs on a wider range of platforms and integration into more digital products and services, and particularly into search engines, productivity software, social media and mobile ecosystems (such as Google’s integration of Gemini into Google Workspace and Microsoft’s Integration of Copilot into Microsoft 365 and Windows).

However, the CMA notes that large technology companies have greater access to the computational power, data sets and expertise that are key to development of FMs. The value chain is also more interconnected, as the largest FM firms become active at multiple levels, e.g. one FM firm can be involved in the supply of data, development of models and provision of products and services or work in partnership with others to gain access to these different levels. 

The CMA also notes that the market is becoming increasingly interconnected as a result of partnership and investment arrangements between large FM firms. The Update Paper refers to an “interconnected web” consisting of over 90 partnerships and investments between companies such as Google, Amazon, Microsoft, Meta, Apple and Nvidia in relation to the development or deployment of FMs by way of example. The types of partnership and investment arrangements are varied, and may involve direct financial investment, provision of access to key inputs, or distribution agreements (in some cases, on an exclusive or priority basis).

Updated Principles

Following on from its assessment of key developments, the CMA reviews and restates the key principles originally set out in its Initial Report:

1. Access

Ensuring that market players have access to key resources without undue restrictions, ensuring that challenges by market entrants are possible and ensuring that early movers, entrenched developers and powerful partnerships do not reduce others’ ability to compete.

2. Diversity          

Ensuring that a variety of models remain available for businesses and customers to choose from, and that both open and closed source models push the frontier of new capabilities.

3. Choice             

Ensuring that consumers and businesses can switch or use multiple services and are not locked into one provider or ecosystem, interoperability, and a range of deployment options, including in-house FM development, partnerships, APIs or plug-ins.

4. Fair Dealing     

Providing confidence that the best products and services will win out, and that firms are playing by the rules by tackling anti-competitive conduct (including self-preferencing, tying and bundling) and ensuring that vertical integration is not used to insulate firms from competition.

5. Transparency   

Ensuring that consumers and businesses are adequately informed about FMs, their uses and limitations, and ensuring that developers and deployers provide the right information to allow all concerned to manage their responsibilities and make suitably informed decisions.

6. Accountability 

Ensuring that developers and deployers take responsibility for fostering the development of a competitive market and take positive action to ensure that consumers are adequately protected.          

The Initial Report also included ‘Flexibility’ as one of the proposed principles, but this now appears to have been included within the remit of ‘Choice’.  

Threats to Competition

The CMA identifies three key threats to open, fair and effective competition:

1. Firms that control critical inputs for developing FMs restricting access to those inputs to shield themselves from competition;
2. Powerful incumbents exploiting their positions in consumer or business facing markets to distort choice in FM services and restrict competition in FM deployment; and
3. Partnerships involving key market players reinforcing or extending existing positions of market power through the value chain.

Additional work

In assessing these risks, the CMA intends to:

• conduct further investigations into the conditions of competition in critical markets, such as the impact of FMs on the provision of public cloud infrastructure services (as part of its ongoing public cloud infrastructure services investigation), and also into the market for AI accelerator chips and their impact on the FM value chain;
• make use of its enhanced powers under the Digital Markets, Competition and Consumers Bill which is expected to come into force later this year to prioritise investigations into digital activities where choice in FM services and competition could be restricted;
• monitor partnerships between large technology companies closely and ‘step up’ its use of merger control to examine whether arrangements are caught by the regime, citing its current investigation into the partnership between Microsoft and OpenAI as evidence that it has already begun to scrutinise such arrangements closely.  

As is clear from the CMA’s Update Paper, FMs are a fast-moving phenomenon, and regulators are striving to keep on top of developments just as many businesses and consumers are. If you would like to discuss how regulation of artificial intelligence and other digital activities could impact on your business, please contact our specialist team.

“...the growing presence across the FM value chain of a small number of incumbent technology firms, which already hold positions of market power in many of today’s most important digital markets, could profoundly shape FM-related markets to the detriment of fair, open and effective competition, ultimately harming businesses and consumers, for example by reducing choice and quality, and by raising prices.”

https://assets.publishing.service.gov.uk/media/661941a6c1d297c6ad1dfeed/Update_Paper__1_.pdf