Introduction
The evolving regulatory landscape for artificial intelligence (AI) is becoming increasingly complex, with significant implications for companies operating in this sector. As jurisdictions worldwide implement new AI regulations, businesses must navigate these changes to ensure compliance and maintain competitive advantage.
Description
The European Union’s AI Act [1] [2], effective August 1, 2024 [1] [2], and fully enforceable by August 2, 2027 [1] [2], exemplifies the expanding regulatory landscape for AI [2], which companies must navigate as jurisdictions increasingly adopt AI regulations. In the US [1] [2], a new executive order issued on January 23, 2025 [1], directs federal agencies to develop a coordinated action plan to enhance the country’s AI leadership [1], following the revocation of a previous order [1]. Regulatory bodies are paying closer attention to M&A activities in the AI sector [2], recognizing its strategic significance and the competitive implications of consolidation [2]. Several states [1], including Utah [1], Colorado [1], and Texas [1], have enacted laws specifically regulating AI development and deployment [1], while existing data privacy laws add complexity to compliance [1].
M&A transactions involving AI companies are increasingly scrutinized by regulators due to antitrust and national security concerns [1]. Regulators are particularly attentive to acquisitions by Big Tech firms [1], which may preempt competition by absorbing potential challengers [1]. While such acquisitions may not be inherently anticompetitive [2], they often attract regulatory scrutiny aimed at preventing market entrenchment by established players [2]. In response, some companies have turned to “acquihires” to mitigate regulatory risks [1], but these transactions are also under investigation [1], as seen in the ongoing FTC inquiry into Microsoft’s acquihire of Inflection AI [1].
Strategic partnerships that involve equity investments and technical collaborations without full acquisitions are becoming more common [2], but they may still attract regulatory scrutiny [1], especially if they include governance rights or exclusivity arrangements [1]. Recent investigations into partnerships involving major cloud providers and AI developers [1], such as those involving Microsoft and OpenAI [2], highlight the regulatory sensitivity surrounding these nontraditional deal structures [1] [2].
National security concerns have led to increased scrutiny of cross-border transactions in the AI sector [1] [2]. New regulatory measures [1], such as the Department of the Treasury’s “reverse CFIUS” outbound investment security program [1] [2], effective January 2, 2025 [2], impose due diligence and notification requirements for investments involving AI technologies in countries deemed a risk [1], particularly China [1] [2]. The DOJ has also implemented rules restricting certain investments involving sensitive data with foreign entities in designated jurisdictions [1].
Parties considering cross-border transactions must navigate a complex landscape of regulatory regimes that may trigger filing requirements based on AI technology involvement [1]. To mitigate regulatory risks [1], strategies such as minority investments without control rights [1], contractual limitations on data access [1] [2], and carve-outs of sensitive technologies may be employed. As compliance obligations and regulatory review timelines are expected to increase [1], engaging legal counsel with expertise in antitrust and national security is essential for parties to assess risks [2], optimize deal structures [2], and secure regulatory approval [2].
Conclusion
The increasing complexity of AI regulations presents both challenges and opportunities for companies in the sector. Navigating this intricate landscape requires strategic planning and expert legal guidance to ensure compliance and capitalize on emerging opportunities. As regulatory scrutiny intensifies [2], businesses must remain vigilant and proactive in adapting to new requirements to maintain their competitive edge and foster innovation in the AI industry.
References
[1] https://www.jdsupra.com/legalnews/m-a-in-the-ai-era-key-antitrust-and-2487367/
[2] https://www.lexology.com/library/detail.aspx?g=bf9ffb4e-ecbd-40d0-b7e1-2741349e3a02
