BRUSSELS, July 10 (Reuters) - Microsoft ( MSFT ) has

ditched its board observer seat at OpenAI that has drawn

regulatory scrutiny on both sides of the Atlantic, saying it was

not necessary after the AI start-up's governance had improved

significantly in the past eight months.

The U.S. tech giant took a non-voting, observer position on

OpenAI's board in November last year after OpenAI CEO Sam Altman

took back the reins of the company which operates the viral

generative AI chatbot ChatGPT.

The seat meant it could attend OpenAI's board meetings and

access confidential information but had no voting rights on

matters including electing or choosing directors.

The observer seat and Microsoft's ( MSFT ) more than $10 billion

investment in OpenAI have triggered unease among antitrust

watchdogs in Europe, Britain and the U.S. over how much control

it exerts over OpenAI.

Microsoft ( MSFT ) cited OpenAI's new partnerships, innovation and

growing customer base since Altman's return to the startup for

giving up its observer seat.

"Over the past eight months we have witnessed significant

progress by the newly formed board and are confident in the

company's direction. Given all of this we no longer believe our

limited role as an observer is necessary," it said in a letter

to OpenAI dated July 9.

EU antitrust regulators last month said the partnership

would not be subjected to the bloc's merger rules because

Microsoft ( MSFT ) does not control OpenAI, but they would instead seek

third-party views on the exclusivity clauses in the agreement.

In contrast, the UK and U.S. antitrust watchdogs continue to

have concerns as well as questions about Microsoft's ( MSFT ) influence

over OpenAI and the latter's independence.

Microsoft ( MSFT ) and OpenAI are increasingly competing to sell AI

technology to enterprise customers, aiming to generate revenue

and demonstrate their independence to regulators to address

antitrust concerns.

Additionally, Microsoft ( MSFT ) is expanding its AI offerings on the

Azure platform and has hired Inflection's CEO to head its

consumer AI division, a move widely interpreted as an effort to

diversify beyond OpenAI.