U.S. Federal Trade Commission decides to sue in order to block Microsoft's purchase of Activision Blizzard: politically motivated, legally meritless

The Federal Trade Commission (FTC) just held a closed-door meeting from 11 AM to 1 PM Eastern time, and has now announced that the Commission voted to file a complaint against Microsoft's $69B acquisition of Activision Blizzard (NASDAQ:ATVI). The FTC website lists the related adjudicative proceeding before an Administrative Law Judge (ALJ)--i.e., this proceeding will take place within the same agency--under matter/file number 2210077, In the Matter of Microsoft Corporation, a corporation, and Activision Blizzard, Inc., a corporation. Those proceedings typically take more than six months, and statistically the FTC wins almost all of the time, but in this case that is not certain.

I predict that this course of action, which is attributable to a political desire to make a "adventurous" anti-Big Tech move irrespectively of the merits of the case, is merely going to delay the consummation of the transaction, but given the absence of any such thing as a credible theory of harm, it will ultimately happen. Even if the ALJ approved the agency's decision, the FTC would lose in the D.C. Circuit.

For the avoidance of doubt, this lawsuit does not mean that the FTC is taking action against any wrongdoing that has occurred. Microsoft and Activision Blizzard are within their rights to seek approval of the transaction. In some other jurisdictions such as the EU, regulatory authorities make decisions that can then be appealed. In the U.S., the FTC and the Antitrust Division of the Department of Justice (DOJ) can only elect to sue, but it is then up to the judges to hand down a ruling.

As I write this, Activision Blizzard's stock price is down by more than 2%, trading only slightly above $74 while Microsoft's offer is $95 per share. Wall Street analysts largely expected this to happen, but that expectation, too, is based on political rather than legal considerations.

A few days ago, not only Microsoft but also the Communications Workers of America (CWA) labor union made the case against the case against this deal. Temporarily there was hope that one of the three Democrats could side with Republican commissioner Christine Wilson, in which case the FTC could not have brought litigation and the deal would have been cleared. And the fact that Nintendo signed a 10-year agreement with Microsoft concerning Activision's Call of Duty (subject to the consummation of the transaction, of course) would have given the FTC another good reason--if any was needed--to approve the acquisition.

Now it's clear that the FTC is suing for the sake of suing. Here are a few observations on the FTC's press release:

• The first paragraph emphasizes numerical, not legal, issues: "technology giant", "leading video game developer", "blockbuster gaming franchises", "$69 billion deal", "Microsoft's largest [deal] ever and the largest ever in the video gaming industry"--none of that has to do with whether there will be a substantial lessening of competition, which is the legal standard to meet. A relatively small deal can have that effect while a large deal may be neutral or even procompetitive. Size alone is not a substitute for a theory of harm.

• The FTC then expresses its concerns that the acquisition "would enable Microsoft to suppress competitors to its Xbox gaming consoles and its rapidly growing subscription content and cloud-gaming business." The Xbox is the #3 gaming console. Sony is the undisputed leader, and would be even if all Call of Duty (CoD) players switched from PlayStation to Xbox. And Microsoft offered Sony a 10-year deal that Sony just didn't want because it knows it doesn't need it: it would make no economic sense for Microsoft to remove CoD from the PlayStation.

• The second paragraph says that the FTC's complaint "point[s] to Microsoft’s record of acquiring and using valuable gaming content to suppress competition from rival consoles." However, what Microsoft did with Minecraft, arguably the most interesting game it ever acquired, tells a different story. The FTC then mentions Microsoft's acquisition of ZeniMax, the parent company of game development studio Bethesda Softworks: "Microsoft decided to make several of Bethesda's titles including Starfield and Redfall Microsoft exclusives despite assurances it had given to European antitrust authorities that it had no incentive to withhold games from rival consoles." Actually, Microsoft did not make any Bethesda title that existed when the deal was closed (March 9, 2021) an Xbox exclusive as a table I published in a recent post shows. The FTC mentions Starfield, which according to Wikipedia "is scheduled to be released in the first half of 2023," as is Redfall.

  Microsoft published a document (PDF) that shows Microsoft never made promises with respect to future titles, but made--and kept--promises relating to titles that existed when the deal was done. In fact, Microsoft explicitly told the European Commission that decisions on future titles would be another story.

• What I as an app developer who brought his own complaints over Apple's and Google's app distribution monopolies find most disappointing is that the FTC does not seem to recognize the procompetitive benefits of the transaction with a view to mobile app distribution. While the DOJ focuses on Apple's and Google's app store practices, clearance of this acquisition would have been an opportunity for the FTC to make its contribution to the demonopolization of mobile app distribution.

I will read the complaint when it becomes available, but based on everything that is known, which now also includes the FTC's press release, this is just not the kind of deal that merger rules are meant to prevent.

Three jurisdictions have granted unconditional clearance: Saudi Arabia, Brazil (a well-considered and elaborate decision), and Serbia. And the FTC would have had the opportunity to approve the deal on the basis of firm and enforceable commitments. It is a terrible attitude for a competition authority not to try to solve whatever problems it believes to have identified through behavioral remedies. It is not constructive, and it rewards Sony for not being constructive either.

On each page of the FTC's website, the agency's logo appears in the top left corner, with the mission statement of "PROTECTING AMERICA'S CONSUMERS"--not "PROTECTING SONY"...

In summary, the FTC is now litigating against a merger

• with rhetoric that emphasizes size (which is irrelevant when the industry in question is fragmented),

• without a legally defensible theory of harm,

• with a central allegation (concerning ZeniMax/Bethesda's titles) that does not withstand scrutiny as Microsoft can show--just based on official documents--that it has consistently delivered on what it had promised,

• without regard to the procompetitive benefits that app developers like me are interested in (and that would also be in the interest of America's consumers), and

• with the worst complainants imaginable short of Apple (which is not known to have opposed the deal): Sony and Google, two companies who seek to protect their walled gardens in which they want to squeeze developers and milk locked-in consumers.

Those are the ingredients of a case that will presumably fail to convince judges. It is now up to the ALJ to demonstrate independence and rule against the FTC. Alternatively, the FTC could recognize its error and settle before any further harm is done, but I don't know after today's decision how much hope there is for that. Maybe the FTC wants to make a statement and hopes that after losing this case it will be in a better position to push (alongside the DOJ) for new merger laws. I've seen speculation about that potential motivation on social media.

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Nintendo's 10-year Call of Duty deal and NLRB charges against Apple pave the way for FTC approval of the acquisition of Activision Blizzard ahead of Microsoft president's meeting series with commissioners (reportedly today)

Today could be the most important day in the U.S. federal government's review of Microsoft's $69B acquisition of Activision Blizzard King (NASDAQ:ATVI). The New York Post, which reported on Sunday (as I analyzed in a blog post) that there may not be a majority at the United States Federal Trade Commission (FTC) for bringing litigation in an attempt to block the transaction, now claims to have the next scoop in this context: according to an article that appeared late Tuesday afternoon, "Microsoft President Brad Smith is planning to meet with the Federal Trade Commission’s three Democratic members on Wednesday."

The NY Post goes on to say that the executive "and a small group of his attorneys are slated to meet individually with FTC Chair Lina Khan — who is said to be skeptical of the tie-up and who this summer pledged to scrutinize the deal over its impact on workers — as well as Democratic commissioners Rebecca Slaughter and Alvaro Bedoya, according to sources close to the situation." Furthermore, "[t]he FTC’s commissioners are slated for a closed-door meeting on Thursday to discuss the merger and there’s an outside chance they could vote on it, sources said." Otherwise they could also vote later this month, but the NY Post believes things have recently accelerated and the decision won't take until January. The parties declined to comment.

From my perspective, the facts are pretty clear and I can't imagine there is any reason the FTC would have to wait until January. That's why I also don't believe FTC chair Lina Khan's pregnancy (she is expecting to give birth in January) should be considered a factor, and I can see why the FTC rejected any allusions to that.

The NY Post mentions what I, too, discussed yesterday: Mr. Smith's Wall Street Journal op-ed as well as Communications Workers of America (CWA) president Chris Shelton's The Hill contribution, both providing different reasons for approving the deal.

Two pieces of news that broke after those opinion pieces were published suggest to me that clearance is more likely now than before:

• As VentureBeat and other media report, "Microsoft has signed an agreement to take Activision Blizzard’s Call of Duty franchise to Nintendo, [..] pending the closing of its acquisition of the Call of Duty maker." And Microsoft reportedly also made a ten-year commitment to keep Call of Duty's PC version on Steam.

  So, Nintendo has accepted an offer (with respect to the Switch and its upcoming successor) that Sony has so far refused with respect to the PlayStation, obviously just because what Sony really wants is to delay and potentially derail the transaction as it would rather strike exclusive deals with an independent Activision Blizzard. It diminishes Sony's credibility that Nintendo has opted for a constructive solution.

  Another significant implication is that Sony claims Nintendo makes more of a family games platform and isn't really in the same market (for hardcore gamers) as the PlayStation and Microsoft's Xbox. Sony is the undisputed market leader one way or the other, but in one scenario, the Xbox is #3, and in the other (if one ignored Nintendo) it would be #2 and the market would be a two-horse race. In a recent submission to the UK Competition & Markets Authority (CMA), Microsoft gave examples of Nintendo games with a "mature" rating. Now, the fact that Call of Duty will be available on Nintendo's consoles is another example of Nintendo indeed competing for hardcore gamers who savor the action shooter genre. The Microsoft-Nintendo agreement should also bear significant weight with the UK CMA, which has been misled by Sony for too long.

  Microsoft previously said it wanted to make more games (including Call of Duty) available to more gamers, and the agreement with Nintendo is further evidence.

• FTC chair Lina Khan places some emphasis on labor implications of mergers, and in principle it is a laudable goal to consider not only consumers and competitors, but also an industry's employees, in a competition context. While game testers at a game studio Microsoft acquired a few years ago--Bethesda--are now free to unionize as they wish (and Activision Blizzard King employees would get the same benefit post-merger), other large tech companies than Microsoft notoriously push back on unionization in partly rather questionable ways.

  It probably won't go unnoticed by the FTC that a sister agency tasked with enforcing U.S. labor laws, the National Labor Relations Board (NLRB), has just held Apple in violation of those laws by interrogating workers and putting pressure on them in mandatory meetings:

  HUGE NEWS: NLRB has found merit on an unfair practice charge filed by @CWAUnion against Apple for thwarting organizing efforts at the Cumberland mall location by holding mandatory captive audience meetings, unlawfully interrogating employees, and more. https://t.co/yVMv5oXtfy

  — Apple Retail Union (@Apple_Union) December 6, 2022

  The CWA's support for Microsoft's acquisition of Activision Blizzard King contrasts nicely with Apple's conduct, and shows that workers' right to unionize--which is guaranteed under the CWA's agreement with Microsoft--is not to be taken for granted.

Now let's see whether those meetings between Microsoft's president and the three Democratic commissioners (the sole Republican at the moment is in favor of clearance anyway, and rightly so if you ask me) will yield a breakthrough. The fact that this effort is made is another indication that the FTC's hesitance to clear the acquisition has made an impact. But what is even more meaningful is that agreements such as between Microsoft and the CWA labor union as well as between Microsoft and Nintendo have materialized. Sony has a standing offer, and at some point competition enforcers may just tell the PlayStation maker that if it doesn't take the deal, it can't complain if the transaction is cleared anyway. Now, Microsoft would want to remain on the PlayStation in its own interest; removing CoD from that platform would not make sense (as a U.S. tech policy think tank already explained in October). That's why Sony doesn't want it--which in turn proves that there is no vertical foreclosure issue here.

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Microsoft and CWA labor union urge FTC to consider interests of other stakeholders--gamers, developers, workers--before embarking on litigation against acquisition of Activision Blizzard

It just takes a Twitter or Google News keyword search to see that the U.S. merger review process concerning Microsoft's $69B purchase of Activision Blizzard is at a crossroads, not in terms of whether it will ultimately happen, but whether litigation can be avoided. There are multiple overlapping news cycles ranging from "the FTC will sue to block the deal" to "Microsoft is prepared to defend the deal in court" to the New York Post story according to which a split (2-2) vote at the FTC is quite a possibility, in which case the transaction would go through (here's my analysis of the NY Post piece).

Activision Blizzard stock (NASDAQ:ATVI) closed up by 0.75% yesterday, though the intraday high was above 2%. The spread ($76.33 vs. $95) is still substantial, and it has more to do with uncertainty about how long it will take for the deal to close than with doubts about the defensibility of the transaction or Microsoft's determination. From the perspective of risk arbitrageurs, a protracted merger process simply binds funds that could in the meantime be used to bet on multiple other transactions.

A secondary factor is that Wall Street doesn't believe all of the world's antitrust regulators will make their decisions strictly on the merits. The legal standard is not whether the acquirer is "a Big Tech" or the price of the acquisition--it's whether there would be a substantial lessening of competition. If a leader in a highly concentrated market snaps up a contender, there may be a theory of harm. Here, the video games market is fragmented, Microsoft is only #3 in consoles, and it's primarily about mobile games, a market in which Microsoft has a very limited presence while Apple--without even having to make any games--generates more profits from games than anybody by virtue of its app tax.

The question of whether a company the size of Microsoft should be barred from acquiring a company the size of Activision Blizzard regardless of how merger law works is a political one. But even if one ignored the legal dimension and focused on politics, there is no point in attempting to block the merger.

If we want to talk politics, we have to look at how the stakeholders--gamers, developers, and game industry employees--would be impacted by one decision or the other. In that regard, two op-eds published yesterday are instructive. Microsoft president Brad Smith contributed an opinion piece to the Wall Street Journal (paywalled), and Communications Workers of America (CWA) president Chris Shelton took to The Hill.

Mr. Smith's article says in the headline that the transaction "is good for gamers", and then acknowledges that "[t]he Federal Trade Commission reportedly plans to sue Microsoft to stop [its] proposed acquisition of Activision Blizzard." This means that Microsoft has an apprehension that there could be something to those rumors. It doesn't look like the FTC reached out to Microsoft after those articles with a clear denial. That in and of itself is disconcerting.

The one sentence that many readers will most likely remember is that Sony is "as excited about this deal as Blockbuster was about the rise of Netflix." Taken out of context, it could be misinterpreted as a plan to displace the PlayStation, but the opposite is the case: Microsoft reiterates that Sony can have a ten-year contract ensuring the continued availability of Call of Duty on the PlayStation. The disruption that Microsoft has in mind is all about game distribution--about making more games available to more gamers ("offering consumers the option to subscribe to a cloud gaming service that lets them stream a variety of games on multiple devices for one reasonable fee")--not about dethroning the PlayStation maker.

Sony just seeks to perpetuate a business model that appears to come down to a mix of network effects, exclusive first- and third-party titles, and milking their locked-in customers. On a German games website, games-specialized journalist Sanel Rihic vented his frustration over Sony's prices and explained why he might switch to the Xbox just because he's tired of all those price increases, restrictions, and the lack of backward compatibility. Mr. Rihic also finds it outrageous that Sony reserves the right (under its terms of use) to--and actually does--remove media content from customers' libraries even though they purchased it and thought they could keep it forever, apparently because of some license agreement between Sony and a third party having expired.

But Microsoft-ActivisionBlizzard is less about consoles than about the mobile games market. With a view to the importance of mobile games, it makes sense to refer to Activision Blizzard as Activision Blizzard King (King.com is the Candy Crush maker). That is not a tactical choice by Microsoft or just an editorial decision on my part: Epic Games (of which Sony is a minority shareholder) consistently refers to the company as Activision Blizzard King (ABK) in its filings in the antitrust dispute with Google in the Northern District of California.

Game distribution on iOS and Android is a duopolistic "Goopple" tyranny. The app tax, unreasonable app review rules (which I have formally complained about), the inconsistent application of those rules, and restrictions on advertising (Apple's App Tracking Transparency) are its most harmful effects. Competition is the answer, and Microsoft's plans--coupled with legislative, regulatory or judicial intervention that enables third-party app stores to compete on a level playing field--can create opportunities for the developer community at large.

Yesterday's WSJ op-ed doesn't go into much detail (obviously due to space constraints) on those plans, but here's a CNBC interview from earlier this year that focuses on the idea of a universal app store:

I'm a gamer (see my Candy Crash campaign trail--well over level 1,400--toward the end of another blog post) as well as a developer. And while I'm not a games industry employee per se, I was the first person to work for Blizzard entertainment as a consultant and representative outside the United States. As an independent contractor, I obviously couldn't have unionized--but I was working with Blizzard's full-time employees (at the time the headcount was approximately 50) on a daily basis.

The headline of CWA's op-ed describes Microsoft-ABK as "a merger that helps the workers" and urges the FTC to take into consideration that the CWA was able to work out a labor neutrality agreement with Microsoft, which post-merger "would allow workers at Activision to freely and fairly make a choice about union representation."

Today, Quartz (qz.com) published its analysis of the labor aspect of Microsoft-ABK: Going against Big Tech’s anti-union grain, Microsoft is making good on its promise of "neutrality"

Quartz considers it very signifcant that "[n]early 300 quality assurance workers for ZeniMax Online Studios are voting to join the Communication Workers of America (CWA), the largest communications and media union in the country that counts over 700,000 members," which "would create the largest video game industry union in the US, and the first official US union under Microsoft."

CWA's president argues that unionization is a structural solution (as opposed to a behavioral remedy such as a promise to treat a certain group of stakeholders fairly). Similarly, a 10-year enforceable license agreement for the PlayStation version of Call of Duty can be categorized as a structural remedy as I wrote yesterday.

If the FTC seeks to protect the competitive process and achieve a positive outcome for stakeholders, its focus should be on solutions rather than litigation, though the latter may be a boon for lawyers and indirectly benefit the $3B popcorn industry...

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Split FTC may very well clear Microsoft's $69B purchase of Activision Blizzard now: New York Post article on commissioner Slaughter's stance passes plausibility test, appears to have substance

Rumors keep flying over the merger review process in the U.S. relating to Microsoft's $69B acquisition of Activision Blizzard King. Last week, Politico's Josh Sisco reported that the staff of the Federal Trade Commission (FTC) would likely issue a recommendation against the deal, and discussed when and where (in-house court first, or federal court right away) the FTC would sue. There was a lot of speculation in it, and the article made it clear that it was too early to tell.

I totally disagreed with only one part: the notion of a "black mark" on Microsoft's reputation as a Big Tech player who cooperates with regulators. Seeking approval of a merger is not comparable in the slightest to actual misconduct (be it monopoly abuse, as Microsoft knows from about 20 years ago, or cartelization). If I ask a government agency whether I'm allowed to do something, I'm not breaking a law until I do it regardless of a negative answer. And if I believe I have the right to do it and I seek judicial review of a no, I'm still not breaking any law and exercising a fundamental right that is essential for the system to function (and not to descend into arbitrariness). So, I think the "black mark" part was off base, and it surprised me from a reporter with considerable experience covering antitrust matters, but that doesn't mean that Politico's sources weren't right about the staff's inclination.

MLex--Mr. Sisco's previous employer--reported at around the same time that the FTC was not interested in whether Microsoft and Sony would reach an agreement. It is now widely known that Microsoft offered a ten-year deal for Call of Duty to be available on the PlayStation. And there were rumors of Microsoft and Sony having met about a week ago to negotiate.

Just before the weekend, Bloomberg then cited an unidentified source saying that Microsoft was "gearing up to contest" a blocking decision in court.

There was information in the Politico article on how the commissioners are inclined to vote. On Sunday, however, the New York Post claimed to have sources indicating a spit among the presently four commissioners. In order to sue, the FTC needs a majority; a split means the deal is approved, and the article speculates that FTC chair Lina Khan may want to avoid a situation like that as it could undermine her authority if one of her fellow Democrats declines to follow her.

Does the New York Post know more--and does it know something more important (as the commissioners vote while the staff merely recommends)--than Politico and possibly even MLex? It may seem counterintuitive, but in this case the New York Post may just have scooped on other media, even including specialized media.

To be honest, my initial reaction was not to attach too much importance to the NY Post story, but it changed when I read it and reflected on its content. Let me start with why I had some initial reservations before explaining why I overcame them and now believe there is a decent chance that the article correctly describes the situation:

• It is fair to say that the Wall Street Journal and the New York Times are far more influential and less controversial than their neighbor NY Post.

• The NY Post is not on the best terms with Democrats, which is a limiting factor when trying to find out about the Biden Administration's inclinations.

• The NY Post doesn't have antitrust-specialized reporters. Josh Kosman, who wrote the article I just linked to, reports on business topics, but is not an expert on regulation.

• It's been less than a month since two other NY Post reporters published an article on the same regulatory matter that didn't seem credible at all. They said that people inside Activision Blizzard were concerned about Microsoft not having offered remedies at that stage and that the deal could fall apart. First, why would Activision Blizzard insiders--almost all of whom are on the West Coast--talk to the NY Post and not the L.A. Times? Second, why would an acquirer who knows that there is no legally defensible theory of harm with which any regulator could block the deal offer remedies at an early stage of proceeding (as opposed to a little later when it's really about just getting the deal done without complications)? Third, it looked to me like someone on Wall Street was using the NY Post for an agenda (a shortseller trying to drive the stock price further down to cash in on that movement, or someone who placed a "long" bet on ATVI and wanted to up the pressure on Microsoft to offer concessions).

So when this new article appeared bullish on the deal, I wanted to be sure I wasn't being misled by a confirmation bias. My stance on the deal is clear, and I've been very forthright about not only my Microsoft and Blizzard connections (which do not change anything about my desire to provide correct analysis and maximize my prediction hit rate) but, above all, my interest as an app developer in Microsoft creating a cross-platform mobile app store that competes with Apple's App Store and the Google Play Store (provided that legislative measures or regulatory or judicial decisions enable third-party app stores to compete with the incumbents on a level playing field).

The NY Post article is not too good to be true. It has too much substance to be discounted--more specific and potentially relevant information than the previous NY Post article on the deal, but also more than what I've seen from others reporting on the FTC approval process--and this time around it is possible that the NY Post had access to a great source about things that happen between New York City and Washington DC.

The FTC is currently one commissioner short (four members instead of five). The Biden Administration has not been very efficient at running its nominations through Congress, and in this case, the next commissioner would have to be a Republican anyway. So there presently are three Democrats (Lina Khan, Rebecca Kelly Slaughter, Avaro Bedoya) and one Republican (Christine Wilson).

Mrs. Wilson is clearly not on the same page as Chair Khan, and she's made it clear in various contexts. She was also a vocal dissenter from the FTC's pursuit of the case against Qualcomm (and in the end the Ninth Circuit supported her opposition to that one). The NY Post says Mrs. Wilson "has signaled support of the deal," and there is no particular reason to doubt that. So all it takes is one of the Democrats to vote in favor of clearance.

The NY Post says "the identity of the dissenting Democrat couldn’t immediately be confirmed, DC sources following the situation pointed to [Mrs.] Slaughter."

Clearly, Mrs. Slaughter would have had reasons to resign from the FTC when President Biden appointed 33-year-old Lina Khan--based only on her academic work--not just as a commissioner (which would already have been a bold move) but as chair. At the time, Mrs. Slaughter was the Acting Chair. Frankly, many others in her place would have resigned (and become a partner at a Big Law firm), not because Mrs. Khan couldn't have been a great FTC chair further down the road, but because it would have made more sense to let her serve a first term as just another commissioner. The obvious Democratic choice for the top job would have been Mrs. Slaughter.

Mrs. Khan's appointment was criticized by Senator Mike Lee (R-Utah). I found it inconsistent that someone who wanted to serve on the Supreme Court without a judicial career warned against an FTC commissioner "learning on the job." But at the time it wasn't clear Mrs. Khan was going to become chair right away, and in the same post I also said that Sen. Lee's reference to Mrs. Khan "being less than four years out of law school" would be valid "[i]f the average number of years of professional experience of all FTC commissioners was brought down to four years, or even to eight years." I would compare this to the sitaution at Google, where long-time non-founder CEO Eric Schmidt quipped that "adult supervision" was no longer needed when he stepped down and founder Larry Page took over.

At the current FTC, it is Mrs. Slaughter who can help with "adult supervision" in the sense of preventing the agency from making mistakes for the relative lack of the (otherwise probably brilliant) chair's professional experience. She can play that role not only through persuasion (or, in this case, dissuasion), but if all else fails, she can cast the decisive vote.

To be clear, Mrs. Slaughter is not "the anti-Khan." There is every reason to believe that--despite having been passed over for the promotion--she is loyal and, above all, she appears principled. For example, in May I commented on a submission that Mrs. Khan and Mrs. Slaughter jointly made to the U.S. International Trade Commission in connection with standard-essential patent enforcement. There was a potential procedural issue because the two submitted that letter without following standard FTC practice of seeking internal approval (which they could have obtained shortly thereafter anyway once Mr. Bedoya was confirmed). What matters in the Microsoft-ActivisionBlizzard context is that when Mrs. Slaughter agrees with Mrs. Khan, they will work together, and in that SEP context they even did it in a way that drew harsh criticism from Mrs. Wilson for having broken with FTC tradition.

The Microsoft-ActivisionBlizzard merger review process is not about anyone wanting to make Mrs. Khan look bad. If anything, the NY Post leak gives the FTC an opportunity to build a consensus rather than risk a split vote.

The NY Post quotes former FTC chair William Kovacic:

"The way out is to say, ‘We got a great deal and only got it because we’ve been badasses.'"

A ten-year commitment to Call of Duty on the PlayStation would be an exit strategy for sure. It would be only a question of semantics whether that is a structural remedy (as the FTC has recognized, licensing can be structural, like a divestment) or a behavioral one. I would argue that a short-term license deal that still requires good-faith compliance because the desired effect cannot be achieved through justiciable commitments is probably more of a behavioral remedy, but a long-term license deal with a very clear standard (here, requiring that CoD be just as good and playable on the PlayStation as on the Xbox) is indeed a structural remedy, or at minimum tantamount to one. Ten years is really an eternity in this business, though I recognize CoD has been around for quite long. Ten years gives Sony every opportunity to improve its products and to acquire further exclusive content that Microsoft will have no reason to reduce its commitment to the PlayStation even thereafter.

The NY Post also plausibly says the Biden Administration may take it consideration "that Microsoft can be trusted to keep its promises because of its past history of responsible behavior."

The former FTC chair gave the NY Post a lot more information than the quote on the "great deal." With a source like that being disclosed, while other sources are not named, it is not just wishful thinking to believe that the NY Post really had some first-rate sources this time.

In my opinion, it is not clear why Mrs. Khan would be opposed to the deal at all, given that the mobile app store element of it actually has the potential to further her own agenda of limiting Big Tech's power. She could look at this like England's "balance of power" doctrine from the 16th century on: they didn't want a single continental European power to pose a threat. A Microsoft-ActivisionBlizzard mobile app store will make a key contribution in that regard.

What I can understand is that neither the FTC nor other competition enforcers (particularly the European Commission and the UK Competition & Markets Authority) want to embolden Big Tech companies to make aggressive acquisitions that cement monopolies. That is totally understood. I wouldn't want a Netflix-Disney merger (or Apple to buy both of them), Google to buy Toyota, Apple to buy Spotify, or Amazon to buy Wal-mart. But almost a year has passed since Microsoft and Activision announced their agreement, which still hasn't been consummated. That timeline tells something. The legal framework for merger control just doesn't support a blocking decision here, and it's hard to think of a Big Tech acquisition that can credibly help to open up a market (here, mobile app distribution).

There has been almost a year of uncertainty as evidenced by the spread between the price offered by Microsoft and the price at which ATVI stock is currently trading. That alone should serve as a lesson for Big Tech. Would it be an even stronger and clearer message if the FTC elected to sue? Not really, because it would likely be counterproductive. A lawsuit would further delay the process, and the stock market might get nervous about it if it happened. But losing such a high-profile merger case would be a disaster for the FTC and her chair. It would weaken the agency; it would make it harder to build majorities to bring cases; and at the end of the day, a defeat by the FTC could really encourage Big Tech players to make bold moves on the acquisition front, factoring in substantial delay but assuming that the FTC (and the DOJ) will lose in all likelihood.

The FTC should indeed take a tough stance on major Big Tech acquisitions, but it should also preserve its credibility as a competent competition authority.

All things considered, the scenario outlined in the NY Post makes more sense than any other that is on the table right now. That's why I wouldn't rule out that the NY Post got something right, and found out about something, that others didn't. Quite often, Politico and MLex have scoops, and I respect many of their reporters. But they are not games industry experts, and I believe none of them would claim to be.

As someone whose name once appeared in the credits of three of Blizzard's four most important franchises, I have my own perspective on this (as does Richard Hoeg, a lawyer who owns the Virtual Legality YouTube channel, where he comments on the intersection of games and the law). In this case the NY Post's take convinces me a lot more than what I've seen from, and heard about, the specialized publications' commentary, where I never got the impression that they ever understood how clear a case this one is for clearance if one considers all the publicly available facts and applies the legal standard to them. The Emperor has no clothes, and if it takes a court of law to tell that to the world, it will only get worse.

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Rumors about Microsoft-ActivisionBlizzard approval processes in U.S. (FTC lawsuit?) and EU (clearance conditioned upon ten-year commitment to PlayStation?)

Since my detailed analysis on Wednesday of documents released by the UK Competition & Markets Authority (CMA) related to the merger approval Microsoft and Activision Blizzard King, there have been some interesting rumors about what may happen next in the United States and the European Union:

• Politico wrote that the staff of the United States Federal Trade Commission (FTC) is taking a position that makes a lawsuit by the agency against the transaction somewhat likely, though far from a given as it will be up to the commissioners to decide.

  In the U.S., antitrust enforcers have to go to court, unlike in jurisdictions like the EU where they can hand down a decision that the other party may then appeal in a court of law. Merger cases are adjudicated relatively swiftly, and the FTC as well as the Antitrust Division of the DOJ have lost some of them, especially in recent history. The question is--in the simplest terms--whether the FTC will at some point get tired of losing, and whether it really wants to bring a case when only Apple (which is not known to be against this acquisition) could be a worse complainant in a gaming platform context than Sony (an enemy of cross-platform play) and Google--two companies that want ABK to remain independent only so they can enter into exclusive (and anticompetitive) deals with it.

  Politico speculates that the FTC might decide to bring a case in its in-house court instead of federal court. That practice is controversial as the recent Supreme Court hearing in the Axon case showed. And it's absurd that the FTC has won every single case in front of its in-house judges over the last 25 years, but maybe this case would be an opportunity for the FTC's in-house judiciary to show some independence. I, personally, believe that if they wanted to sue, they should go straight to federal court, and I'm unconvinced (for more than one reason) of the argument that they shouldn't file in an Article III court because they (allegedly) couldn't seek a preliminary injunction while other jurisdictions haven't cleared the deal. It would look like an excuse to me, but that's my personal opinion and subject to the exact circumstances at the relevant time.

• The Politico article says that Google is worried about Microsoft using ABK's games to make Chrome OS less competitive with Windows. I doubt very strongly that hardcore gamers are the primary target audience for Chrome OS. Google just wants to do another "Project Hug" type of deal with Activision Blizzard King--for Android, not Chrome OS.

• The latest news just comes from Brussels, and was reported by Foo Yun Chee of Reuters. She has learned from "people familiar with the matter" that Microsoft "is likely to offer remedies to EU antitrust regulators in the coming weeks to stave off formal objections." A ten-year commitment to make ABK's titles available on Sony's PlayStation could apparently go a long way toward resolving any concerns and obviating a Statement of Objections (SO) that might otherwise come down in January.

  Due to the specific circumstances of the proceedings on both sides of Atlantic I'd be more inclined to bet on the EU story than the U.S. one (to be fair, Politico's article makes it clear that the FTC may not sue in the end). When I saw the Commission announce an extension of the merger review deadline by ten working days, I already suspected that it had to do with a potential agreement. While I personally believe that this deal is a case for unconditional approval, a behavioral remedy--especially if merely consistent with what Microsoft has publicly said all along--may be the outcome. If the EU--whose competition chief Margrethe Vestager is world-famous for vigorously enforcing competition rules--cleared the transaction, an FTC lawsuit would be less likely to be brought in the first place or, in any event, be even more of an uphill battle.

As an app developer (previously two games, and now a productivity app) who brought his own complaints against Apple and Google, I'd like competition authorities to see the benefits to the digital economy at large from enabling Microsoft to compete with the mobile app store incumbents. I'm not worried about the PlayStation because the numbers make it clear it will remain the market-leading gaming console at any rate...

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Confusion over U.S. government agencies' positions on antitrust aspects of standard-essential patents: 2019, 2021 DOJ-USPTO-NIST statements tossed; Commissioner Wilson distances herself from Chair Khan's submission to ITC

Almost mid-way into President Joe Biden's term, his Administration is unable to take clear and official positions on the antitrust aspects of standard-essential patent (SEP) licensing and enforcement. Two things happened yesterday that involve a total of four agencies--the Antitrust Division of the Department of Justice (DOJ-ATR), the United States Patent and Trademark Office (USPTO), the National Institute of Standards and Technology (NIST), and the Federal Trade Commission (FTC):

• At a Concurrences webinar, IP & Antitrust: Hot Issues 2nd Edition (in which I participated as a panelist, which I rarely do), FTC Commissioner Christine Wilson (a Republican) delivered a keynote, the #1 priority of which was to distance herself from a recent submission to the United States International Trade Commission (ITC) by FTC Chair Lina Khan and Commissioner Rebecca Kelly Slaughter (both Democrats) in the investigation of a patent infringement complaint by Philips against Thales and others.

  Mrs. Wilson, who publicly dissented in no uncertain terms from her agency's action against Qualcomm in years past, sharply disagrees with the content of the aforementioned recent filing with the ITC and expressed outrage at the absence of an explicit clarification that her colleagues were only speaking for themselves and not for the FTC. According to Mrs. Wilson, it is an FTC tradition that commissioners clearly distinguish their personal views from those of the Commission, and the public-interest statement in question had not been adopted by the FTC as an agency position.

  To me it was always clear that two commissioners--even if one of them is the FTC Chair--can't speak for the Commission as a whole: it's not a majority. The ITC itself has a similar decision-making setup as the FTC, so presumably no one there got confused. However, the official headline of the filing was "written submission on the public interest of Federal Trade Commission Chair Lina M. Khan and Commissioner Rebecca Kelly Slaughter" and may have confused some people--even more so when a letter on FTC stationery was sent to the ITC requesting leave to file a corrected statement (signatures were missing from the original document) out of time (which was granted).

  There was a timing problem: public-interest statements in that investigation were due on May 16, 2022, and the fifth member of the current FTC, Commissioner Alvaro Bedoya (a Democrat), was sworn in just that day. The Biden White House has not really excelled at getting its appointments confirmed (it also took an unusually long time until Kathi Vidal was finally appointed USPTO Director). There was a 2-2 Democratic-Republican stalemate at the FTC for a long time, only because the Biden White House wasn't effective. It's fairly possible that an earlier confirmation of Mr. Bedoya would have enabled the FTC as an agency to adopt a formal position with a 3-2 vote. But under the circumstances, Chair Khan and Commissioner Slaughter decided to just go ahead in their own names, and they arguably could have made it clearer that the FTC itself was unable to agree on a position on U.S. import bans over SEPs, even if apparently just for timing reasons. Commissioner Wilson may be right to criticize her colleagues, but the FTC can actually cure any formal defect by adopting a formal agency position now that there is a Democratic majority in office.

  It is, by the way, far from certain that the question of U.S. import bans over SEPs will ever play a role in that Philips case. If the ITC affirms the final initial determination by an Administrative Law Judge, there is no infringement of a valid patent. The ITC has extended until June 16 (one week from today) the deadline for deciding whether to review the ALJ's decision. Should it decide not to review, then Philips needs to appeal the rejection of its complaint to the Federal Circuit--which on Tuesday heard a related case originating from a district court (MP3 recording; and I provided an overview of the various Philips-Thales cases back in March).

• Also yesterday, the DOJ issued a press release together with the USPTO and NIST, announcing the withdrawal of the Trump Administration's 2019 SEP Policy Statement. The official document (PDF) withdrawing the three agencies' prior statement not only declares the 2019 statement (which was very much driven by then-Antitrust Assistant Attorney General Makan Delrahim) withdrawn but also abandons any "potential revisions to that statement" (i.e., the controversial 2021 draft statement) as "the Agencies have concluded that withdrawal best serves the interests of innovation and competition."

  Footnote 1 is key:

  "In withdrawing the 2019 Policy Statement, the agencies do not reinstate the January 8, 2013, Policy Statement on Remedies for Standards-Essential Patents Subject to Voluntary F/RAND Commitments issued by the DOJ and the USPTO.

  The 2019 (Trump Administration) statement replaced the 2013 (Obama Admistration) statement. The 2021 Biden Administration draft statement, if adopted in that or any similar form, would have been much closer to the 2013 than the 2019 statement. But now there's a vacuum: there simply is no formal statement. All we have is the aforementioned press release, which makes it a possibility that the three agencies couldn't reach an agreement: while USPTO Director Kathi Vidal and NIST Director Laurie Locascio stress the importance of U.S. companies' contributions to standard-setting (which sounds like those two agencies wouldn't want to weaken SEP enforcement too much, if at all), the DOJ's antitrust chief Jonathan Kanter warns SEP holders against "opportunistic conduct [...] that threatens to stifle competition" particularly through SEP abuse that would "disproportionately affect small and medium sized businesses or highly concentrated markets." In the end, however, Assistant Attorney General Kanter just promises a "case-by-case approach" as opposed to broad and sweeping rules.

  I hope Mr. Kanter and his staff have not been misled by deceptive lobbying alleging that there are serious issues harming small and medium-sized companies.

  In the end, the consensus is now that it's up to the courts to further develop their SEP case law as the judges see fit. Litigants can still quote the 2019 statement (if they're enforcing their SEPs, particularly if they pursue injunctions) or the 2013 statement (if they're defending against infringement complaints), but both have been withdrawn, so they are just history, not current policy.

  So who has won this battle and who has lost? SEP holders like Qualcomm lost the 2019 statement, which favored those seeking SEP injunctions. But companies like Apple, which are trying to devalue SEPs, lost the opportunity to have the U.S. federal government adopt a position in their favor now that Democrats are in power: neither will the Biden Administration adopt a statement along the lines of the 2021 draft policy nor has it reinstated the 2013 statement. Implementers are better off today than they were under the Trump Administration, but net licensors are in a way better position now than they were in the Obama years.

  Looking at it from a global perspective, the picture looks even better for net licensors. Apple and its allies were very much hoping to make some headway on SEPs after Donald Trump was voted out of office. They wanted the U.S. to send out a strong signal, to serve as a beacon (from their perspective) for other jurisdictions, and they were looking for something that would help them persuade judges in the U.S. and abroad to take implementer-friendlier positions. What implementers achieved falls far short of what they needed. The glass is, very clearly, more than half-full for net licensors. Even the Biden Administration wasn't going to advance the cause of devaluing SEPs--so why should the EU?

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FTC chair Lina Khan tells ITC 'exclusionary relief is [...] against the public interest where a court has been asked to resolve FRAND terms and can make the SEP holder whole': Philips v. Thales et al.

It's hard to think of a standard-essential patent (SEP) holder I trust less to be fair than Philips. Before Philips settled with Xiaomi, there were clear signs of Philips just seeking leverage from injunctions and trying to prevent Xiaomi's licensing negotiators from knowing the terms of comparable license agreements. There also appear to be interesting issues in the multijurisdictional dispute between Philips and French industrial giant Thales, and this week the Chair of the Federal Trade Commission, Lina Khan, filed a public-interest statement in the investigation of Philips's complaint against Thales and several other defendants. She was joined by Commissioner Rebecca Kelly Slaughter (like her, a Democrat--and that party now has a 3-2 majority of the votes as the Senate confirmed Álvaro Bedoya).

SEPs have so far not really been a priority topic for Ms. Khan (nor for Jonathan Kanter's Antitrust Division of the DOJ). Also, it's important to note that the statement in ITC investigation no. 337-TA-1240 is not based in antitrust law per se: the two commissioners make it clear that they are not claiming to have identified a violation of the federal antitrust laws (Sherman Act, FTC Act). There's also a disclaimer regarding the specific issues in the case. But the bottom line is that they urge the ITC, a U.S. trade agency with the quasijudicial power to order import bans against infringing products, to seriously consider whether monetary relief would be sufficient to make SEP holders (in this case, Philips) whole. Administrative Law Judge David P. Shaw recommended an import ban, though he also recommended that it "be delayed by 12 months" in order to "mitigate its effects on third parties" by giving the respondents sufficient time not only to develop workaround products but also to have them (re-)certified. A 12-month workaround period is unusually ong by ITC standards, but if any truly essential patent was at issue, it couldn't be worked around even in 12 months.

All of this is, of course, subject to whether the decision made by the Commission, the ITC's top-decision making body, results in a finding of a violation at all.

Assuming that the ITC's final determination comes down to an infringement finding and an import ban is ordered (with or without a grace period), there'll be a Presidential review. And at that stage the FTC's input could make a decisive impact. U.S. presidents typically delegate the authority to veto ITC import bans to the U.S. Trade Representative.

Just yesterday, IPWatchdog published an opinion piece by former two-term ITC chair Deanna Tanner Okun warning against weakening the ITC's Sec. 337 remedy (import bans) with respect to SEPs. That article expresses concern over the new SEP policy statement that is in the making. But I'm sure Mrs. Tanner Okun isn't happy about the two FTC commissioners' public-interest statement in the Philips case either.

Finally, let me show you the document (for the first time I'm using DocumentCloud to publish a document here, as I continue to have issues with Scribd):

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Senator Mike Lee, of all United States Senators, opposes Lina Khan's nomination to Federal Trade Commission: but he wanted to serve on SCOTUS

For many years, Senators Ted Cruz (R-Tex.) and Mike Lee (R-Utah) were my favorite United States Senators. Maybe one or two of them will be again, after a while, but recently I've been very disappointed in them (particularly, those pictures of Senator Lee hugging people at Justice Barrett's Rose Garden presentation, and obviously Senator Cruz's Cancún trip; his 1/6 speech is reasonably debatable but I don't think he can be blamed for the Capitol riots in any way).

Late on Tuesday, Senator Lee issued a statement according to which presumptive FTC nominee Lina Khan, "being less than four years out of law school, [...] lacks the experience necessary for such an important role as FTC Commissioner."

No one in the United States Senate is less credible when raising such concern over a lack of experience. He was interviewed by then-President Trump for a potential Supreme Court nomination and known to be interested in a job on the highest court in the land with zero judicial experience. I nevertheless wrote in 2018 that the tech industry should lobby Trump to nominate Sen. Lee because of his positions on standard-essential patents. So I'm not being inconsistent. But he shouldn't apply such obvious dual standards. According to Politico, he would "of course" have been interested in becoming an Associated Justice of the United States, and he was still on the list in September.

Sen. Cruz called Sen. Lee the best candidate. I hope Sen. Cruz disagrees with his friend from Utah on this nomination.

A SCOTUS decision is not appealable anymore. By contrast, if the FTC has a unilateral-conduct issue with a company, it can't even issue an appealable decision (unlike the European Commission's DG COMP), but has to sue, and then there's room for appeals.

Sen. Lee was 39 years old when he took his Senate seat. The average of United States Senators is above 60, and even the average age of new senators elected in 2018 was well over 50. There's nothing wrong with his own career path, but there's everything wrong with his criticism of Lina Khan's forthcoming nomination.

It doesn't make Sen. Lee's statement any better that on top of warning against an FTC commissioner "learning on the job" he also attacks her positions ("ideology and politics", "wildly out of step with a prudent approach to the law"). Far from being an extremist, the American Economic Liberties Project notes that "Professor Khan is the intellectual architect of the bipartisan suits against Facebook and Google" (emphasis added). Those suits were brought not just by the federal government but joined by state AGs from red and blue states alike.

If Sen. Lee is serious about reining in Big Tech, he should welcome this nomination.

If the average number of years of professional experience of all FTC commissioners was brought down to four years, or even to eight years, one might be concerned about whether they still have to learn on the job as Sen. Lee puts it (same thing if the average Associated Justice of the United States had zero judicial experience prior to nomination). One brilliant scholar, however, may very well prove to be a huge asset to the Commission, and I hope at least some Republicans concerned about Big Tech will vote to confirm her.

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