German Federal Cartel Office: Transfer of Employees May Already Be Subject to Merger Control

The German Federal Cartel Office (Bundeskartellamt) recently investigated a significant case involving so-called "Acqui-Hires." The Case concerned the transfer of almost all employees of Inflection AI, Inc. to Microsoft Corporation. Although the specific transaction ultimately did not require notification in Germany, the case illustrates that the transfer of highly qualified employees may, under certain conditions, be subject to merger control.

What Are “Acqui-Hires”?

“Acqui-Hires” refer to transactions where the primary focus is not on traditional assets such as production facilities or real estate but on employees with specialised know-how. These types of transactions are common in the digital economy and the pharmaceutical sector, particularly with start-ups and companies involved in innovative technologies such as artificial intelligence. In such cases, the competitive potential of a target company is transferred to the acquiring company through the transfer of its talents.

The Microsoft/Inflection Case

In March 2024, Microsoft took over almost all employees of Inflection, a company founded in 2022 that developed the Pi chatbot. This was not a straightforward transfer of employees but rather involved the termination of existing employment contracts with Inflection and the signing of new contracts with Microsoft. In addition, agreements were reached on funding and the use of key intellectual property rights.

The Bundeskartellamt classified this agreement as a concentration potentially subject to German merger control. It argued that the transfer of highly qualified employees with specialised know-how constituted a transfer of relevant assets, effectively shifting the target company's competitive potential to Microsoft. However, in the end there was no obligation to notify in Germany because the requirements for jurisdiction under the so-called transaction value threshold pursuant to Section 35(1a) of the German Competition Act (GWB) were not met. Although the transaction value exceeded €400 million, Inflection did not have the requisite significant domestic activities.

The European Commission and the UK Competition and Markets Authority (CMA) had also classified the transition of employees to Microsoft as a notifiable act. While the CMA cleared the transaction, the European Commission was unable to intervene as the transaction did not meet the turnover thresholds for EU merger control, and therefore did not fall within its jurisdiction.

Implications for practice

This case demonstrates that German and European competition law can cover new and innovative acquisition structures such as “Acqui-Hires”. This is particularly relevant for the digital economy and the pharmaceutical sector, where a company's competitive potential often lies in the know-how of its highly qualified employees. If such potential is transferred at the instigation of an acquirer, this may well constitute a notifiable "takeover", even without a traditional transfer of business.

Companies should, therefore, keep merger control regulations in mind, when using innovative acquisition structures like “Acqui-Hires”. Competition authorities worldwide will continue to monitor such cases closely.

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