By Yadarisa Shabong and Martin Coulter

July 16 (Reuters) - Britain's competition regulator has

started a formal investigation into Microsoft's ( MSFT ) hiring

of some former staff of Inflection AI and its partnership with

the startup, it said on Tuesday.

Over the past 18 months, regulators around the world have

increasingly focused on potentially anti-competitive behaviour

in the AI industry, with Microsoft's ( MSFT ) various deals with smaller

startups facing mounting scrutiny.

In March, the tech giant hired Mustafa Suleyman, co-founder

of Google DeepMind, as head of its newly-created AI

unit. It also hired a number of employees from Inflection, which

he set up in 2022.

Reuters reported that Microsoft ( MSFT ) had agreed to pay Inflection

about $650 million as part of the deal. This allowed it access

to Inflection's AI models, and enabled the startup to reimburse

its investors, who include former Google CEO Eric Schmidt and

Bill Gates.

Responding to the UK Competition and Markets Authority's

(CMA) investigation, a Microsoft ( MSFT ) spokesperson said in an emailed

statement to Reuters: "We are confident that the hiring of

talent promotes competition and should  not be treated as a

merger.

"We will provide the UK Competition and Markets Authority

with the information it needs to complete its enquiries

expeditiously."

The CMA has until Sept. 11 to decide whether or not it would

refer the deal for a more in-depth investigation.

Microsoft ( MSFT ) was already facing questions over its partnerships

with leading AI startups such as OpenAI and France's Mistral AI.

Last week, it gave up its board observer seat at OpenAI in a

move aimed at easing U.S. and British antitrust regulators'

concerns about the extent of its control over the AI startup.

The CMA has also sought views on partnerships between Amazon ( AMZN )

and Anthropic.