Microsoft is considering legal action against Amazon and OpenAI over a $50 billion cloud deal the two companies struck. Microsoft believes that the Amazon-OpenAI deal may violate its exclusive cloud service cooperation agreement with OpenAI. The move will spark a conflict among tech giants.

The core of this dispute lies in Frontier, a new commercial product launched by OpenAI for enterprises. The product is at the center of a partnership between Amazon and OpenAI last month, which also saw OpenAI commit to buying $138 billion in cloud services from Amazon Web Services (AWS).

According to a long-term agreement that Microsoft previously reached with OpenAI, all access to OpenAI models must be conducted through the Microsoft Azure cloud platform. Microsoft believes that routing API requests around Azure is not contractually feasible.

Even though Amazon and OpenAI said they were building a system to bypass the above-mentioned contract, people familiar with the matter told the media that Microsoft executives denied this, saying that this approach was not feasible and would violate the spirit of the contract even if it did not violate the terms of the contract.

Disputes over breach of contract

Microsoft invested US$1 billion in OpenAI in 2019 and has since served as its exclusive cloud service provider for a long time. This exclusive agreement is a high-return deal for Microsoft, as OpenAI's products have helped Microsoft's Azure business revenue hit a record high.

But in recent years, OpenAI has been trying to relax the restrictions on its early contracts and expand its cloud service partnerships, and its relationship with its biggest backer Microsoft has become increasingly difficult.

It is worth mentioning that in October last year, Microsoft approved OpenAI to complete the company's reorganization and gave up the privilege of exclusive cloud service status. However, Microsoft still retained a key clause at that time: all calls to the OpenAI model through the application programming interface (API) must be routed through the Microsoft Azure platform.

Now, Amazon and OpenAI have jointly developed a system called "Stateful Runtime Environment" (SRE), which runs on Amazon's Bedrock AI platform. The system gives the AI ​​agent memory and contextual capabilities by accessing enterprise data stored on AWS, and it belongs to the "stateful" layer. The two companies argue that this does not constitute a direct API call to OpenAI's "stateless" basic model, thereby bypassing Microsoft's exclusive terms.

In response, a person familiar with Microsoft's position said, "If they (Amazon and OpenAI) default on their contract, we will sue them." This legal threat highlights the broader differences between Microsoft and OpenAI. A person familiar with OpenAI's position said the company views its plans with Amazon as compatible with its previous agreement with Microsoft.

Amazon, for its part, takes a cautious stance. The company has issued strict guidelines to employees limiting the language they use when describing SRE products to avoid angering Microsoft, according to an internal memo. It writes that AWS employees can tell customers that SRE is "powered by OpenAI," "empowered by OpenAI," or "integrated with OpenAI," but the use of expressions such as "access" or "call" is expressly prohibited, nor is it allowed to imply that OpenAI's most advanced cutting-edge models can be called on AWS.

Or affect the listing plan?

Some analysts pointed out that if this dispute ends up in court, OpenAI's plan to go public this year may come to nothing. Even with the $110 billion in funding it just completed last month, it still needs to raise more money to pay for the huge computing resources required to train and run its large language models.

OpenAI CEO Sam Altman is already embroiled in lawsuits as the startup plans to go public.

Elon Musk previously filed a lawsuit against him, accusing Altman of abandoning the company's non-profit mission to benefit himself and other executives. The case is scheduled to go to trial in Oakland next month.

A person familiar with the matter said, "The most inappropriate thing at the moment is that OpenAI needs to fight another lawsuit."