Microsoft Blow As FTC Files Activision Appeal

Microsoft continues to face significant opposition to its proposed $68.7 billion acquisition of Activision Blizzard, first announced in January 2022.

Last December the US Federal Trade Commission (FTC) had sued to block the acquisition, then last month it filed for an emergency injunction ahead of the deal’s July 18 closing date. If Microsoft fails to complete the acquisition by that deadline, it could end up owing Activision Blizzard a termination fee of up to $3bn.

The FTC had argued that the deal was anticompetitive because Microsoft might make some of its games exclusive to its own game console, or diminish the experience of Activision games on rival platforms should the deal close.

Will or May

But on Tuesday a federal judge in San Francisco denied the Federal Trade Commission’s motion for a preliminary injunction to stop Microsoft closing the deal before the 18 July deadline – paving the way for Microsoft to potentially close the acquisition.

Judge Jacqueline Scott Corley, at the US District Court for the Northern District of California, said it was not enough for the FTC to argue “a merger might lessen competition – the FTC must show the merger will probably substantially lessen competition.”

Judge Corley also gave the FTC until Friday to file an appeal against her ruling.

Reuters reported that on Wednesday the FTC confirmed it will appeal the ruling, which will go before the Ninth Circuit Court of Appeals on the West Coast.

According to Reuters, legal scholars have questioned Judge Corley’s ruling that the FTC must show the merger will lessen competition. The legal scholars reportedly say the US antitrust law required the FTC to prove the proposed deal “may” harm competition, not that it “will.”

Microsoft had sought to allay regulatory concerns by agreeing to license the “Call of Duty” game franchise to rivals, including a 10-year contract with Japan’s Nintendo Co, contingent on the merger closing.

However Sony, the main gaming console rival to Microsoft, continues to object and has not accepted that compromise.

Microsoft response

Microsoft said it would fight the FTC appeal.

“The District Court’s ruling makes crystal clear that this acquisition is good for both competition and consumers,” tweeted Microsoft President Brad Smith.

“We’re disappointed that the FTC is continuing to pursue what has become a demonstrably weak case, and we will oppose further efforts to delay the ability to move forward,” he added.

UK objection

Microsoft however also needs to address the UK regulator’s objections, after the Competition and Markets Authority (CMA) in April officially blocked the deal, citing potential harm to the nascent market for cloud gaming.

Microsoft and Activision appealed against the CMA ruling (which was due to be heard on 28 July) and Microsoft President Brad Smith has previously met with the UK’s Chancellor Jeremy Hunt in London for talks on the matter.

Following Judge Corley’s ruling on Tuesday, the CMA said on Wednesday a restructured deal between Microsoft and Activision Blizzard could satisfy its concerns – subject to a new investigation.

In response Brad Smith tweeted that Microsoft and Activision had dropped their UK appeal as they seek a “way that is acceptable to the CMA.”