The U.S. Department of Justice has opened a civil antitrust investigation into Google's 2024 licensing agreement with Character.AI, adding to the tech giant's mounting regulatory challenges.
At the heart of the investigation is whether Google deliberately structured its arrangement with Character.AI to circumvent formal government merger review processes. The DOJ is probing whether Alphabet's Google violated antitrust law in its agreement that allows the tech giant to use the AI startup's technology. Antitrust enforcers have recently informed Google they are examining the structure of the agreement.
Under the deal signed in August 2024, Google received a non-exclusive license to Character.AI's large language model technology. The agreement also saw Character.AI co-founders Noam Shazeer and Daniel De Freitas, both former Google employees, rejoin the company along with several members of the startup's research team. This arrangement has drawn regulatory attention, reflecting growing concerns about how AI deals are structured by tech giants who are investing billions in AI infrastructure and hiring top researchers from startups.
While Silicon Valley has embraced such arrangements as efficient ways for companies to acquire expertise for new projects, regulators worry that dominant firms like Google may be using their market position to potentially stifle competition from emerging innovators. The DOJ can scrutinize whether the deal itself is anti-competitive even if it did not require a formal review. The investigation is in its early stages and may not lead to enforcement action. Similar deals have been struck by other tech giants in their push for growth in the generative AI race, including Microsoft's $650 million deal with Inflection AI in March 2024 and Amazon's hiring of AI firm Adept's co-founders and team last June. Both arrangements also drew regulatory scrutiny.
Google has responded to the inquiry by emphasizing its arm's-length relationship with Character.AI. In a statement, spokesperson Peter Schottenfels said, "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 company added that it is "always happy to answer any questions from regulators."
This investigation comes as Google already faces significant regulatory pressure. The DOJ is seeking to break up the company's dominance in both the online search market and digital advertising technology in two separate cases. Earlier this month, the U.S. Federal Trade Commission backed the DOJ's proposal to make Google share search data with competitors.