Microsoft's 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 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 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 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)