UK Regulator Defends Microsoft Activision Decision, After Angry Response

A war of words has erupted after the Competition and Markets Authority (CMA) blocked Microsoft’s Activision Blizzard acquisition due to cloud gaming concerns.

The heads of both Microsoft and Activision have reacted angrily to the development, with Microsoft president Brad Smith saying the EU was now a better place than the UK to start a business.

This prompted CMA chief executive Sarah Cardell to say the decision was right for the UK, and the role of the CMA was to safeguard British users and ensure the UK was a competitive environment.

Darkest day

After the CMA’s decision to block the deal was taken, Microsoft president Brad Smith initially tweeted Microsoft’s response and he said Microsoft and Activision would appeal the decision.

Smith added Microsoft was “especially disappointed that after lengthy deliberations, this decision appears to reflect a flawed understanding of this market and the way the relevant cloud technology actually works.”

Now Brad Smith told the BBC that the CMA move was “bad for Britain” and marked Microsoft’s “darkest day” in its four decades of working in the UK.

In an interview with the BBC’s Wake up to Money programme, Microsoft’s Smith said the company was “very disappointed” about the CMA’s decision, “but more than that, unfortunately, I think it’s bad for Britain.”

“There’s a clear message here – the European Union is a more attractive place to start a business than the United Kingdom,” he reportedly said.

Smith added that “English Channel has never seemed wider” in terms of the contrast between the UK and the EU.

Smith told the BBC the CMA’s decision marked “probably the darkest day in our four decades in Britain.”

“It does more than shake our confidence in the future of the opportunity to grow a technology business in Britain than we’ve ever confronted before,” Smith was quoted as saying.

Smith reportedly said that if the UK wants to bring in investment and make Britain a place “where technology is not only going to flourish, but be created,” then “it needs to look hard at the role of the CMA and the regulatory structure.”

He added that “people are shocked, people are disappointed, and people’s confidence in technology in the UK has been severely shaken” by the CMA decision.

CMA response

But CMA chief executive Sarah Cardell told the BBC that the regulator’s role was to make sure Britain was a competitive environment for businesses to be able to grow and thrive.

“That’s important for UK consumers and UK business and it’s those UK consumers and UK businesses that the CMA is here to protect,” she told BBC radio.

Cardell was asked if the British government could override the block if it thinks it is damaging to the country. She replied that the CMA acted independently and it was accountable for its decision.

“The decision that the CMA takes is an independent decision that we reached looking at an overall assessment of the impact of the deal on competition, and we think that is the right decision for the UK,” she said.

She said Britain had not acted alone, noting that the US Federal Trade Commission was also suing to block the deal.

Legal insights

The UK’s CMA and the US Federal Trade Commission are not the only major regulator examining the deal.

In March, EU regulators delayed their decision after Microsoft proposed concessions to get the deal approved.

But the UK’s blocking of the deal means the multi-billion dollar deal cannot go ahead globally. For the deal to be completed, it has to be approved by regulators in the UK, the US and the EU, the BBC noted.

And this has prompted a reaction from legal experts on the matter.

“The decision comes as no great surprise, as the CMA had already made adverse findings about the deal in February of this year; yet it is potentially a major development for the fast-growing cloud gaming market, forecast to be worth a cool £1 billion in the UK by 2026, and a milestone ruling by the CMA,” said Jonathan Cornthwaite, consultant at London-based law firm Wedlake Bell.

“The CMA had given Microsoft every opportunity to propose remedies for its competition law concerns about the deal, but at the end of the day it considered that they contained simply too many shortcomings, and would in any event require substantial ongoing regulatory oversight in order to police them,” said Cornthwaite.

“If its conclusion is correct (and this reviewer thinks that it is) that the deal was likely to stifle competition in the market, and reduce innovation and choice for UK gamers, then it is hard to see what remedies would have been sufficient to counterbalance those defects,” said Wedlake Bell’s Cornthwaite. “In summary, the cloud gaming industry may be new and sexy, yet it is subject to the same old tried-and-tested merger and acquisition rules as apply to everyone else.”

Cornthwaite said Microsoft may of course appeal the decision, and in any event the European Commission is still cogitating over the deal’s impact on EU anti-trust rules.

“Competition law is notoriously difficult, and even the CMA gets it wrong sometimes; so, even though the decision is on any view a major setback for the deal, it is too early to announce ‘Game Over,” Cornthwaite concluded.

Important precedent

Another legal expert, Alex Haffner, competition partner at law firm Fladgate, noted that the CMA decision has set an important precedent.

“The CMA’s investigation of this merger has had as many twists and turns as one of Activision’s computer games,” said Haffner. “In prohibiting the deal, the CMA has not only put itself in the firing line of the merging parties, but also set an important precedent for the EU Commission and US FTC whose deliberations are ongoing.”

“Interestingly, the CMA confirmed in its release that its competition concerns with the tie-up focussed on the relatively nascent cloud gaming market and not the games console market in which the parties had waged an aggressive and very public campaign to persuade regulators that it would not harm post-merger competition by making it more difficult for rivals (e.g. Sony) to access Activision’s core titles,” said Haffner.

“Nonetheless, the CMA’s release also reveals that the merging parties proposed remedies to address the CMA’s concerns but those remedies did not go far enough,” said Haffner.

“Whether the CMA’s decision causes the entire deal now to fall apart must be open to question, but no doubt the parties’ advisers will be thinking very carefully about how they might be able to salvage it,” Haffner concluded.