BRUSSELS, Sept 18 (Reuters) - Microsoft's ( MSFT )

hiring of artificial intelligence startup Inflection's staff

including its co-founders will not be scrutinised under European

Union merger rules, EU antitrust regulators said on Wednesday.

The European Commission said seven EU countries had dropped

their requests asking it to examine the deal. The move followed

a ruling from Europe's top court earlier this month prohibiting

the EU enforcer from examining merger cases which fall below the

EU's merger revenue threshold.

Judges said the EU antitrust watchdog was also not allowed

to encourage its national peers to ask it to take up such cases.

Critics said these merger powers were regulatory over-reach

while the Commission said such deals could be killer

acquisitions in which big companies acquire startups to shut

them down.

"All seven member states that submitted an initial referral

have decided to withdraw their requests. Therefore, the

Commission will take no decision in this matter," the EU

executive said.

Still it said the deal amounted to a merger as it means the

'new Inflection' would shift its focus to a different activity,

namely its AI studio business.

"The Commission regards the agreements entered into between

Microsoft ( MSFT ) and Inflection as a structural change in the market

that amounts to a concentration as defined under Article 3 of

the EUMR," it said, referring to the bloc's merger rules.

Microsoft ( MSFT ) welcomed the announcement.

"We continue to be confident that the hiring of talent

promotes competition and should  not be treated as a merger," a

Microsoft ( MSFT ) spokesperson said.

The company hired in March co-founders Mustafa Suleyman and

Karen Simonyan and most of Inflection's 70-strong team for a

newly created unit called Microsoft AI to consolidate and expand

its AI offerings for consumer products.

(Reporting by Foo Yun Chee; Editing by Emelia Sithole-Matarise)