OpenAI ends Microsoft legal peril over its $50B Amazon deal

On Monday, Microsoft and OpenAI announced that they have relaunched a renegotiated the deal connect the two companies. Despite some opinions on

Most importantly, the new terms resolve an issue that has been hanging over OpenAI since it signed its deal worth up to $50 billion with Amazon.

With this new deal, instead of having exclusive access to all of OpenAI’s products and IP until the magical day when OpenAI produces AGI, Microsoft has a definitive timeline. This contract gives Microsoft a non-exclusive license to OpenAI IP for models and products through 2032.

The two companies still call Microsoft OpenAI the “primary cloud partner,” meaning most of OpenAI’s cloud will likely be served by Azure over the six years covered by this deal, even as OpenAI races to build its own data centers with other partners. In OctoberOpenAI agreed to buy another $250 billion worth of Microsoft cloud. This line is a message to Microsoft shareholders that OpenAI will still be a huge Azure customer.

OpenAI products will “deliver on Azure first, unless Microsoft cannot and will not support the necessary capabilities,” the companies say. But crucially, “OpenAI can now deliver all of its products to customers of any cloud provider.”

Again, “first” isn’t clearly defined in this announcement, whether that means it will only be exclusive to Azure for a certain period of time, or just that Microsoft will also be one of the vendors bringing OpenAI’s latest products to market.

But the most important part of this term: it resolves the possibility that Microsoft could sue OpenAI over its AI labs dealing with Amazon.

To summarize that messiness, in February OpenAI announced that Amazon was investing up to $50 billion in the model maker, consisting of an initial investment of $15 billion and an additional $35 billion “over the coming months if certain conditions are met,” the companies said, without specifying what those conditions were.

In return, OpenAI agreed to co-develop a “stateful runtime technology” on AWS Bedrock (the AWS service that serves various AI models and services). Stateful runtime is the technology that powers AI agents, allowing them to remember tasks and contexts for longer periods of time.

OpenAI also promised that AWS would have exclusive rights to offer OpenAI’s new agent creation tool Frontier. And therein lies the problem.

OpenAI’s original agreement with Microsoft prevented OpenAI from selling Frontier exclusively on AWS, and possibly prevented AWS from selling it in the first place.

Although Microsoft had previously agreed to let OpenAI run certain select products, such as ChatGPT for consumers, on other cloud providers, it retained exclusive rights to any OpenAI product accessed through an API, such as Frontier.

On the same day OpenAI announced its AWS deal, Microsoft publicly refuted AWS’s exclusive terms, to write (emphasis mine):

“Microsoft retains its exclusive license and access to intellectual property for all OpenAI models and products. … Azure remains the exclusive cloud provider of stateless OpenAI APIs. … All stateless API calls to OpenAI models resulting from a collaboration between OpenAI and a third party – including Amazon – would be hosted on Azure. … OpenAI’s own products, including Frontier, will continue to be hosted on Azure.“

Microsoft also emphasized that the terms were in effect until OpenAI reached AGI. The The Financial Times reports this that Microsoft was even considering legal action if it had to enforce these contract terms.

The new agreement thus eliminates Microsoft’s exclusive rights and resolves AWS’s legal threat. In a post on X, Amazon CEO Andy Jassy says celebrated the agreementadding that this meant OpenAI’s models would become available to customers on AWS Bedrock.

While this deal is good for OpenAI, Microsoft has also scored some wins. The new deal now allows Microsoft to stop paying a revenue share to OpenAI, while OpenAI will continue to pay a revenue share to Microsoft until 2030, although this is now capped.

It is difficult to say exactly how much money will flow to Microsoft, but it will probably be in the billions. Last quarter, Microsoft reported that it earned $7.5 billion in a single quarter from its investment in OpenAI.

The good thing is that Microsoft remains a major shareholder in OpenAI, owning about 27 percent of the profitable entity, the company said in October. It benefits financially from OpenAI’s growth, even from the sales it makes on AWS.

The downside, of course, is that Microsoft will miss out on all the additional cloud services it could sell as a result of an exclusive deal with OpenAI.

That may not matter much. Just as OpenAI is courting Microsoft’s biggest competitors, Microsoft has a cozy new relationship with OpenAI rival Anthropic so cloud giant can use its Claude AI to power agentic products.

The biggest winners here are enterprises, which get to choose their models and clouds as the giants compete to serve them.

Here’s a timeline of the recent changes in Microsoft’s relationship with OpenAI.

IIn October, Microsoft and OpenAI announced a new agreement to help OpenAI fend off Elon Musk’s lawsuit over its corporate structure giving OpenAI the ability to run non-API accessible products on other clouds.

In November OpenAI and Amazon sign their first multi-year agreement, in which OpenAI contracts for $38 billion in AWS cloud.

Amazon will announce this in February an investment of up to $50 billion in OpenAIpending “certain conditions,” including the exclusive technology development and hosting agreement for Frontier and stateful tech. On the same day, Microsoft refutes that AWS will have exclusive access to that technology.

In MarchFt publishes that Microsoft is considering legal action.

OpenAI and Microsoft arrived in April announce a new deal, including a calendar end date for their exclusive partnership and allowing OpenAI to run all of its products on other clouds. Microsoft no longer has to pay a revenue share to OpenAI. Microsoft remains a major shareholder in OpenAI.