U.S. Senator denounces new tactics used by big tech companies to steal talent and products from AI startups

In the race to stay ahead in artificial intelligence, big tech companies are gobbling up the talent and products of innovative AI startups without formally acquiring them.

Now three U.S. senators are calling for an investigation.

San Francisco-based Adept sent its CEO and key employees to Amazon late last month to announce a deal to license Adept's AI systems and datasets to the e-commerce giant.

Some call it reverse buyout hiring. Others call it poaching. Whatever you call it, some in Washington are wary of it as an attempt to circumvent antitrust laws.

“I'm very concerned about the massive consolidation that's happening in AI,” Sen. Ron Wyden, D-Ore., told The Associated Press. “The tech terms are up and down the stack, but in plain English, a few companies control most of the market and they're focused not on innovating but on trying to buy up everyone else's talent.”

Michael A. Kusmano, a business professor at the Massachusetts Institute of Technology, said that “hiring by acquisition,” where one company buys another and absorbs its talent, has been common in the tech industry for decades, but what's happening in AI is a little different.

Buying out only some or most of the employees (but not all) and licensing technology while keeping the company functional but not actually a competitor is a new development, Kusmano said.

A similar move occurred with AI company Inflexion in March, when Microsoft hired Inflexion co-founder and CEO Mustafa Suleyman to head the company's consumer AI business, along with Inflexion's chief scientist and several top engineers and researchers. The deal has already drawn some scrutiny from regulators, especially in Europe.

Wyden also wants U.S. regulators to investigate the Amazon-Adept deal. Wyden, along with Sens. Elizabeth Warren of Massachusetts and Peter Welch of Vermont, wrote antitrust enforcement officials at the Justice Department and the Federal Trade Commission on Friday urging sustained, targeted action to combat unfair consolidation across the industry.

Amazon did not immediately respond to a request for comment Friday.

“What's happening here is that instead of buying startups, big tech companies are trying a new strategy,” Wyden said in an interview before sending the letter. “They don't want to formally acquire companies to avoid antitrust scrutiny. I think this will be the strategy until the FTC starts to seriously investigate these transactions.”

Officials from the Justice Department and FTC did not immediately respond to requests for comment on the senators' letter.

President Joe Biden's administration and lawmakers from both parties have in recent years pushed for increased scrutiny of the tech industry, appearing to block major acquisitions that might have previously gone through easily. For example, U.S. antitrust enforcement agencies plan to investigate Microsoft, Nvidia and OpenAI for their roles in the artificial intelligence boom, while the Department of Justice is investigating chipmaker Nvidia and the Federal Trade Commission is scrutinizing business partners Microsoft and OpenAI.

Tech giants such as Microsoft, Amazon and Google are becoming more conservative and making fewer acquisitions in the AI ​​space, Kusmano said.

“It's a clever way to do it, but I don't think it's fooling anyone,” he said.

The problem for small AI startups is that building AI systems is expensive, requiring expensive computer chips, power-hungry data centers, vast amounts of data for training, and highly skilled computer scientists.

Adept, which aims to develop AI software agents to help with workplace tasks, said it was trying to do two things at once: develop foundational AI technology and build end-user products. But continuing on that path required paying significant attention to funding the underlying model, rather than delivering on its vision for the agents, it said in a statement explaining the Amazon deal.

“Maybe they decided they didn't have a real future and weren't financially strong enough to compete in this space, so maybe they want to be acquired outright,” Kusmano said. “But if Amazon isn't willing or able to do that, this is the next best thing for them.”

Wyden, a longtime technology enthusiast who helped write the 1996 law that laid out the ground rules for free speech on the Internet, said he generally supports a straightforward approach that encourages innovation while putting in guardrails where necessary.

But in the AI ​​industry, companies like Microsoft, Amazon and Google either own major parts of the AI ​​ecosystem or are dominant thanks to their vast resources, he said.

John F. Coyle, a law professor at the University of North Carolina, said he thinks Amazon's hiring of Adept employees without buying the company is clearly a move to avoid antitrust issues, but he said this type of hiring is not a reverse acquisition hire.

Coyle said hiring through acquisitions is typically a face-saving move that can be touted as a success story and an alternative to liquidation: Smaller companies can say they got sold to Amazon or Facebook parent Meta Platforms and tout that as a positive thing, even if it wasn't the founders' original plan.

“This isn't a talent acquisition. This is talent poaching,” Coyle said of Amazon and Adept.

This isn't unique to the tech industry, Coyle said, and this move is one of those very old stories: He said he teaches his students the case of a New York City ad agency in the 1950s, where some employees left to start a new business, then poached about 100 other employees and hired them into their own company.

“There are countless examples of one company raiding another and taking all of the employees,” Coyle said. “This happened before buy-and-hire and it will happen after buy-and-hire.”

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