A federal judge Tuesday challenged the Federal Trade Commission’s attempt to delay Microsoft’s $70 billion acquisition of Activision Blizzard, setting the tech giant and video game publisher to merge as soon as this month.
in 53 pages In the ruling, Jacqueline Scott Corey, U.S. District Court for the Northern District of California, said the FTC failed to demonstrate that the merger could lead to a significant reduction in competition that would harm consumers.
He rejected the FTC’s request for a preliminary injunction that would delay the completion of the transaction until the FTC could challenge it in an internal court.
The ruling is a major blow to the FTC’s efforts to crack down more aggressively on blockbuster technology mergers. The strategy is led by the agency’s chairman, Rina Khan, who argues that big tech’s enormous influence over commerce and telecommunications has led to anti-competitive behavior. The FTC has sued Microsoft, Meta, and Amazon, but has pulled back on one case against Meta, and has shown little success so far in its efforts.
Microsoft and Activision welcomed the ruling. “We thank the San Francisco Court for making this swift and thorough decision,” Microsoft President Brad Smith said on Twitter. Activision CEO Bobby Kotick said in a statement that the merger “allows for competition, rather than allowing established market leaders to continue to dominate.”
FTC spokesman Douglas Farrar said in a statement that the FTC is “disappointed by this outcome, given the clear threat this merger poses to free competition in cloud gaming, subscription services and consoles.” said. “We will be announcing next steps in the coming days as we continue our fight to stay competitive and protect consumers,” Farrar added.
The ruling lifts a moratorium on completing transactions just before midnight Friday unless the FTC obtains an extension from the Court of Appeals.
There were also signs on Tuesday that the tide might be turning in Microsoft’s favor in the UK, which posed another major hurdle to a takeover. Local regulators had blocked the deal, saying it would hamper competition in online game streaming. But Microsoft said Tuesday it was suspending its formal appeal of the ruling to negotiate a settlement.
The regulator, the Competition and Markets Authority, said in a statement that it was open to proposals to address the concerns, giving Microsoft a significant impetus to complete the acquisition as soon as next week.
From the beginning, the FTC appeared to be struggling against Microsoft, but Microsoft restructured its video game business early last year, bringing big names like ‘Call of Duty’ and ‘World of Warcraft’ to the Xbox. announced that it would acquire Activision to platform.
Courts are concerned that mergers involving direct competitors will stifle competition, but Microsoft and Activision are generally not considered direct competitors.
The FTC sued Microsoft in administrative court last year, but the court has no legal authority to block the deal from closing. In June, the FTC, concerned that Microsoft was trying to complete the deal despite government concerns, asked Judge Corey to take action.
Last month, the FTC subpoenaed high-profile witnesses, including Kotik and Microsoft CEO Satya Nadella, in five days of testimony, arguing that the merger was bad for gamers and competition.
The FTC said Microsoft had a big incentive to make Activision’s Call of Duty (a franchise with over $30 billion in lifetime revenue) an Xbox exclusive, withholding it from Sony’s PlayStation or degrading the PlayStation version of the game. claimed to have been.
But Microsoft said it has struck deals with companies such as Nintendo to bring Call of Duty on other platforms, and has approached Sony with a deal. Microsoft has no incentive to risk angering gamers by breaking its promise to continue Call of Duty on PlayStation, arguing that it would lose a lot of money if PlayStation players were removed.
Sony did not immediately respond to a request for comment on Tuesday.
Judge Corey has at times appeared skeptical of the FTC’s case. During closing arguments, she repeatedly pressured the agency to back up the company’s claim that if Call of Duty was banned from the PlayStation, enough players would ditch the PlayStation and buy an Xbox, making it a big deal for Microsoft. The move will be worth it.
“The FTC believes that the combined company will probably pull Call of Duty out of Sony PlayStation, or that Activision’s ownership of content will substantively reduce competition in the video game library subscription market and the cloud gaming market. It does not show that the claim that it would weaken the statute is likely to succeed.” Judge Corey wrote in his ruling:
“On the contrary, the documentary evidence shows that consumer access to Call of Duty and other Activision content is increasing,” she later added.
She said despite “extensive disclosures” involving nearly a million documents and 30 depositions, the FTC “will make Call of Duty available on the PlayStation (and Nintendo Switch).” We have not identified a single document that contradicts our pledges.”
Her denial of the preliminary injunction means Microsoft could complete its merger with Activision in the United States as soon as this month. The two companies have set a July 18 deadline for the deal, by which time Microsoft will have to pay Activision $3 billion in penalties if the deal doesn’t go through. The two companies may agree to postpone the date or merge while UK appeals are pending.
It was the FTC’s latest loss in a lawsuit involving one of the tech giants. Legal challenges under Khan caused companies such as Lockheed Martin and semiconductor maker Nvidia to withdraw their bids early in her term, but this year Khan has challenged Meta’s acquisition of the virtual reality startup. The appeal was unsuccessful.
Mr Khan said he was not daunted by the court defeat. The chairman and his supporters believe that years of too much risk aversion by regulators led to a runaway consolidation. They said the FTC and other government agencies should aggressively pursue new lawsuits, even if a victory is not guaranteed.
In his ruling, Judge Corey argued that Microsoft expected scrutiny and that consumers benefited from their written and sworn agreements to share Activision games across various consoles and streaming services. . “That scrutiny paid off,” she wrote.