Report: Microsoft Could Sue OpenAI for Contract Breach

The Financial Times reports that Microsoft is considering suing OpenAI, one of its biggest partners, for breaching the terms of their contract. At issue is Amazon’s $50 billion strategic partnership with OpenAI, a key component of the latter company’s recent $110 billion funding round.

According to the report, which is based on multiple sources, Microsoft has told OpenAI that its agreement to bring OpenAI’s Frontier agentic AI offering and other advanced workloads to AWS violates their contract, which requires OpenAI to give Microsoft the right of first refusal.

In this case, Amazon and OpenAI are developing a Stateful Runtime Environment that will run on Amazon Bedrock AI on AWS, but because Microsoft has exclusive rights to stateful use of OpenAI APIs, this is not allowed under the terms of their contract.

Amazon and OpenAI are allegedly trying to build a system through which they can “work around” the Microsoft/OpenAI contract, the report claims. But Microsoft feels this effort is “not feasible” and “would violate the spirit, if not the letter, of their agreement.” Internal Amazon communications about this topic, cited by the FT, seem to confirm this view, with Amazon being careful to describe its work as being “powered by” OpenAI, not “calling on” OpenAI APIs.

“We know our contract,” one source told the publication. “We will sue them if they breach it. If Amazon and OpenAI want to take a bet on the creativity of their contractual lawyers, would back us, not them.”

The stakes here are obvious high: Microsoft relies on OpenAI’s models to power its Copilot and AI infrastructure, though it is working to lessen that requirement. And OpenAI workloads are helping to drive revenues in Azure, which competes with Amazon AWS.

But it’s been clear since late 2023 that the Microsoft/OpenAI partnership will end badly and parallel the rift between Microsoft and IBM in the late 1980s and early 1990s when the two were partnering but also fighting over control of the PC operating system market.

“We are confident that OpenAI understands and respects the importance of living up to [its] legal obligations,” a Microsoft statement notes hopefully.