The Justice Department is probing whether Alphabet Inc.’s Google violated antitrust law with an agreement to use the artificial intelligence technology of a popular chatbot maker, according to people with knowledge of the matter.
Antitrust enforcers have recently told Google they’re examining whether it structured an agreement with the company known as Character.AI to avoid formal government merger scrutiny, said the people, who asked not to be identified discussing the confidential probe. In a deal with Google last year, the founders of the chatbot maker joined the search firm, which also got a non-exclusive license to use their venture’s technology.
Deals like the one Google struck have been hailed in Silicon Valley as an efficient way for companies to bring in expertise for new projects. However, they’ve also caught the attention of regulators wary of mature technology companies using their clout to head off competition from new innovators.
Google is “always happy to answer any questions from regulators,” Peter Schottenfels, a company spokesperson, said in an e-mailed statement. “We’re excited that talent from Character.Ai has joined the company but we have no ownership stake and they remain a separate company.”
The Justice Department can scrutinize whether the transaction itself is anticompetitive even if didn’t require a formal review. Google hasn’t been accused of wrongdoing as part of the antitrust probe, which is in early stages and may not lead to an enforcement action.
A spokesperson for the Justice Department declined to comment. A representative for Character.AI didn’t respond to requests for comment.
Starting under the Biden administration, enforcers began scrutinizing competition throughout the rapidly evolving AI ecosystem, including specialized chips and the supply of computing power. As part of that focus, the government is looking at whether partnerships with AI startups give the largest tech companies an unfair advantage as the technology develops.
Character.AI is known for chatbots that can virtually mimic anyone or anything. Its founders previously worked at Google before leaving several years ago to start the new company. Following the deal, they rejoined Google last year, along with some members of its research team.
Bloomberg reported in August that under its deal with Google, existing Character.AI investors were to see shares bought out at a price that would translate to a $2.5 billion valuation for the company. As part of the deal, the startup entered into a non-exclusive licensing deal with Google for its large language model technology. Character.AI meanwhile continues to exist.
The Justice Department civil investigation ramps up antitrust scrutiny on Google following federal court rulings that the company had illegal monopolies in the online search and advertising technology markets.
In the online search case, the Justice Department has proposed forcing Google to spin off its Chrome browser as a way to restore competition in search market.
As part of the case, the government has also urged a judge to ban Google from paying for search engine defaults, including with AI products, and allow enforcers to examine any AI-related acquisition by the company, regardless of whether it triggers the threshold for a formal review. A ruling is expected in the summer.
