OpenAI ends Microsoft’s legal risks over $50 billion Amazon deal

Microsoft and OpenAI announced on Monday that they have once again renegotiated the binding deal between the two companies. Despite some reviews of X portraying it as a victory for the maker of ChatGPT over the Windows giant, both sides are walking away with winners.

More importantly, the new terms solve an issue that has been hanging over OpenAI’s head since it signed a deal worth up to $50 billion with Amazon.

With this new deal, instead of Microsoft getting exclusive access to all OpenAI products and intellectual property until the magical day that OpenAI produces AGI, its partnership has a set timeline. This contract gives Microsoft a non-exclusive license to the OpenAI IP for models and products through 2032.

The two companies still call Microsoft OpenAI’s “primary cloud partner,” meaning the bulk of OpenAI’s cloud will likely be served by Azure for the six years covered by this deal, even as OpenAI rushes to build out its own data centers with other partners. In October, OpenAI agreed to buy an additional $250 billion worth of Microsoft Cloud. This line is a message to Microsoft shareholders that OpenAI will remain a huge customer for Azure.

The companies say OpenAI products will ship “first on Azure, unless Microsoft can and chooses not to support the necessary capabilities.” But more importantly, “OpenAI can now deliver all of its products to customers via any cloud provider.”

Again, “first” isn’t clearly defined in this announcement, whether that means exclusive to Azure for only a certain period of time or that Microsoft will also be among the vendors carrying the latest OpenAI products.

But the most important part of this term: It resolves the possibility of Microsoft suing OpenAI over its AI lab deal with Amazon.

To sum up the mess: In February, OpenAI announced that Amazon was investing up to $50 billion in the modeler, consisting of an initial investment of $15 billion and another $35 billion “in the coming months when certain conditions are met,” the companies said, without specifying those conditions.

In return, OpenAI agreed to co-develop “runtime technology” on AWS Bedrock (an AWS service that serves various AI models and services). Formal runtime is the technology that supports AI agents, allowing them to remember tasks and contexts for long periods of time.

OpenAI also promised that AWS will have exclusive rights to OpenAI’s new agent-making tool Frontier service. And there is a rub.

OpenAI’s initial agreement with Microsoft prevented OpenAI from selling Frontier exclusively on AWS, and may have prevented AWS from selling it at all.

While Microsoft had previously agreed to let OpenAI run certain products, such as consumer ChatGPT, on other cloud providers, it retained exclusive rights to any OpenAI product accessed through an application programming interface (API), such as Frontier.

In fact, on the same day that OpenAI announced the AWS deal, Microsoft publicly refuted AWS’s exclusivity terms, writing (emphasis Microsoft):

“Microsoft retains exclusive licensing and access to intellectual property across OpenAI models and products. … Azure remains the exclusive cloud provider for OpenAI’s stateless APIs. …Any stateless API calls to OpenAI models resulting from collaboration between OpenAI and any third party – including Amazon – will be hosted on Azure. … OpenAI’s first-party products, including Frontier, will continue to be hosted on Azure.“

Microsoft also confirmed that its terms were in place until OpenAI achieved Artificial General Intelligence (AGI). The Financial Times reported that Microsoft considered taking legal action if it had to implement these contract terms.

So, the new agreement eliminates Microsoft’s exclusive rights and resolves the legal risks facing AWS. In a post on X, Amazon CEO Andy Jassy celebrated the deal, adding that it means OpenAI models will become available to customers on AWS Bedrock.

While this deal is good for OpenAI, Microsoft has made some gains as well. The new deal now allows Microsoft to stop paying the revenue share to OpenAI, while OpenAI will continue to pay the revenue share to Microsoft until 2030, although this is now subject to a cap.

It’s difficult to say exactly how much money will flow to Microsoft, but it’s likely in the billions. Last quarter, Microsoft announced that it made $7.5 billion in one quarter from its investment in OpenAI.

What’s interesting is that Microsoft remains a major shareholder in OpenAI, owning about 27 percent of the for-profit entity, it said in October. It benefits financially from OpenAI’s growth, and even the sales it makes on AWS.

The downside, of course, is that Microsoft loses out on any additional cloud services it could sell as a result of its exclusivity deal with OpenAI.

This may not matter much. Just as OpenAI has been courting Microsoft’s biggest rival, Microsoft has a new and cozy relationship with OpenAI competitor Anthropic, where the cloud giant uses Claude AI to power proxy products.

The biggest winners here are the companies, which can pick and choose their models as the giants compete with each other to serve them.

Here’s a timeline of recent changes in Microsoft’s relationship with OpenAI.

IIn October, Microsoft and OpenAI announced a new agreement To help OpenAI fight Elon Musk’s lawsuit over its corporate structure that gives OpenAI the ability to run products that can’t be accessed via an API on other clouds.

In November, OpenAI and Amazon signed their first multi-year agreement, OpenAI contracts for the AWS cloud worth $38 billion.

In February, Amazon announced Up to $50 billion investment in OpenAI, pending “certain conditions” including exclusive technology development and hosting deal for Frontier and government technology. On the same day, Microsoft denied that AWS would own the technology exclusively.

In MarchFT publishes that Microsoft is considering legal action.

In April, OpenAI and Microsoft announced a new deal, The calendar includes an end date for their exclusive partnership and allowing OpenAI to run all of their products on other clouds. Microsoft no longer has to pay OpenAI’s revenue share. Microsoft remains a major shareholder in OpenAI.