Microsoft and OpenAI start a new phase of their partnership; Microsoft now has 27% ownership of OpenAI

Microsoft and OpenAI companies have signed a definitive agreement recently and entered the next phase of their partnership. OpenAI has restructured itself into a public benefit corporation (PBC). Following the recapitalization, Microsoft holds an investment in OpenAI Group PBC, valued at approximately $135 billion, representing roughly 27% on an as-converted diluted basis inclusive of all owners, employees, investors and OpenAI Foundation.

According to the new agreement:

• Once Artificial General Intelligence (AGI) is declared by OpenAI, that declaration will now be verified by an independent expert panel.
• Microsoft’s IP rights for both models and products are extended through 2032 and now include models post-AGI, with appropriate safety guardrails.
• Microsoft’s IP rights to research, defined as the confidential methods used in the development of models and systems, will remain until either the expert panel verifies AGI or through 2030, whichever is first. Research IP includes, for example, models intended for internal deployment or research only. Beyond that, research IP does not include model architecture, model weights, inference code, finetuning code, and any IP related to data center hardware and software; and Microsoft retains these non-Research IP rights.
• Microsoft’s IP rights now exclude OpenAI’s consumer hardware.
• OpenAI can now jointly develop some products with third parties. API products developed with third parties will be exclusive to Azure. Non-API products may be served on any cloud provider.
• Microsoft can now independently pursue AGI alone or in partnership with third parties.
• If Microsoft uses OpenAI’s IP to develop AGI, prior to AGI being declared, the models will be subject to compute thresholds; those thresholds are significantly larger than the size of systems used to train leading models today.
• The revenue share agreement remains until the expert panel verifies AGI, though payments will be made over a longer period of time.
• OpenAI has contracted to purchase an incremental $250B of Azure services, and Microsoft will no longer have the right of first refusal to be OpenAI’s compute provider.
• OpenAI can now provide API access to US government national security customers, regardless of the cloud provider.
• OpenAI is now able to release open weight models that meet the requisite capability criteria.

This deal removes a major constraint on raising capital for OpenAI, and the company will also get more freedom to work with other third parties.