Google’s $2.7B AI deal with Noam Shazeer's Character.AI draws DOJ attention | CTech

The U.S. Department of Justice is investigating whether Google’s $2.7 billion agreement with Character.AI, founded by Israeli entrepreneur Noam Shazeer, was structured in a way that circumvented regulatory oversight, potentially violating antitrust laws, according to a report by Bloomberg.

Character.AI, launched in 2022 by Shazeer and Daniel De Freitas, both former Google employees, allows users to chat with virtual versions of celebrities like Billie Eilish or anime characters, as well as create their own AI-powered chatbots and assistants. In November 2023, reports emerged that Google was in talks to invest hundreds of millions of dollars in the company at a $5 billion valuation. That investment, however, never materialized.

Instead, in August 2024, Google signed a $2.7 billion agreement with Character.AI. Officially, the deal granted Google a non-exclusive license to use the startup’s generative AI technology. But it also included provisions for Shazeer and De Freitas to return to Google, along with several Character.AI employees. According to The Wall Street Journal, Shazeer’s return was considered by Google to be the primary rationale for the deal’s hefty price tag, more than half of the valuation Character.AI had previously sought from investors.

Character.AI continues to operate under new leadership.

Now, the DOJ is examining whether the agreement functioned in effect as a merger or acquisition, structured to avoid regulatory scrutiny, and whether the deal itself harms competition. According to Bloomberg, the investigation is still in its early stages, and Google has not been formally accused of any wrongdoing.

In response, Google said: "We're always happy to answer any questions from regulators," a Google spokesperson said. "We're excited that talent from Character.AI joined the company but we have no ownership stake and they remain a separate company."

Shazeer first joined Google in 2000, two years after its inception, and was a co-author of a seminal 2017 research paper which catalyzed the current AI boom.

Other tech giants have struck similar deals in the past year in their push for growth in the heated generative AI race. Microsoft struck a $650 million deal with Inflection AI in March 2024, to use the AI startup's models and hire its staff, while Amazon hired AI firm Adept's co-founders and some of its team last June. Both deals had drawn regulatory scrutiny. Google is already under pressure from regulators, with the DOJ seeking to break up the company's dominance in the online search market and in digital advertising technology in two separate cases. Earlier this month, the U.S. Federal Trade Commission backed the DOJ's proposal to make Google share search data with competitors.

Reuters contributed to this report