FTC Urges Appeals Court To Reject Microsoft-Activision Merger

The Federal Trade Commission (FTC) has tried again to block the already-closed $69 billion purchase of Activision Blizzard by Microsoft.

CNN reported that the FTC on Wednesday had urged a federal appeals court to block Microsoft’s purchase of Activision because a lower-court judge was too deferential to Microsoft’s promises about the future of “Call of Duty,” when she allowed the deal to close this year.

The acquisition however already closed in October, after the UK’s Competition and Markets Authority (CMA) gave its final clearance.

Appeal court

The CMA however heavily criticised Microsoft’s conduct during its antitrust probe, and the CMA approval was only delivered after Microsoft made a notable concession.

Now CNN has reported that the FTC is arguing that District Judge Jacqueline Scott Corley went too far when she ruled in July that 11th-hour contracts Microsoft signed with Nintendo, Nvidia and other gaming companies concerning “Call of Duty” would resolve anticompetitive concerns about the deal.

The FTC’s argument before a three-judge panel of the Ninth Circuit US Court of Appeals reflects the antitrust regulator’s lone continued push to thwart a merger, CNN noted.

The FTC had initially asked an administrative judge to block the transaction in December 2022, and the case had been due to begin on 2 August 2023.

And then in June a US judge had allowed the FTC to apply for a temporary restraining order and preliminary injunction against the deal, ahead of a 18 July deadline agreed by the two firms to close the acquisition.

But in July Judge Jacqueline Scott Corley in San Francisco denied the FTC’s preliminary injunction, sending the US regulator back to drawing board and leaving the UK’s CMA as the sole regulator that (at the time) was still blocking the deal.

Microsoft concessions

Microsoft made a number of concessions to get the deal approved.

In order to win the UK approval, Microsoft pledged it would not acquire cloud rights for existing Activision PC and console games, or for new games released by Activision during the next 15 years.

Microsoft had earlier in the year agreed to a 10-year deal to keep Call of Duty on rival platforms such as Sony’s PlayStation and Nintendo.

But the FTC argued on Wednesday that even if those deals might help some subset of gamers, it would still give Microsoft a monopoly over Activision’s content in other domains, such as in the market for video game subscription services.

“I fail to understand how giving somebody a monopoly of something would be pro-competitive,” Imad Dean Abyad, an FTC attorney was quoted by CNN as saying in the argument before the appeals court. “It may be a benefit to some class of consumers, but that is very different than saying it is pro-competitive.”

Rakesh Kilaru, an attorney representing Microsoft, reportedly said Wednesday that Corley’s July ruling made “clear factual findings … that the world will be better with the merger” than without.

“It is not a violation of the antitrust laws to give consumers something new, that’s beneficial,” Kilaru said, “unless they present some evidence of it, which they didn’t do.”

But the FTC’s Abyad said that Microsoft’s flurry of licensing agreements in response to regulator scrutiny altered the economic picture in ways the FTC did not have an opportunity to fully review but that courts are now forcing it to accept.

“What the district court relied on, mostly, are contracts that were entered into after the [FTC] complaint was filed,” Abyad said. “The facts were changing all along. Even after the district court decided the case, Microsoft went ahead and entered into yet another contract [to restructure the cloud licensing rights].”

The FTC case continues.