A federal court has given Microsoft a big win by rejecting to stop its $69 billion merger of Activision Blizzard. Regulators attempted to kill the merger, claiming it would harm competition.
U.S. In a judgment, District Judge Jacqueline Scott Corley stated that the merger needed close study, adding that it may be the largest in the history of the technology sector. However, federal officials were unable to demonstrate how it would cause severe injury and would not likely succeed if the case went to trial, she wrote.
According to Ms. Corley, the Federal Trade Commission (FTC), which enforces antitrust laws, "has not raised serious questions regarding whether the proposed merger is likely to substantially lessen competition" between video game consoles or in the growing markets for monthly game subscriptions or cloud-based gaming.
A positive verdict for Microsoft came as no surprise after the company's attorneys won a 5-day court hearing in San Francisco late last month. The hearing featured testimony from Microsoft CEO Satya Nadella and longtime Activision Blizzard CEO Bobby Kotick, who both pledged to keep Activision's blockbuster game Call of Duty available to people who play it on consoles that compete with Microsoft's Xbox, particularly Sony's PlayStation.
“Our merger will benefit consumers and workers. It will enable competition rather than allow entrenched market leaders to continue to dominate our rapidly growing industry,” Kotick said in a written statement after Tuesday’s ruling.
The FTC had requested that Corley grant an injunction preventing Microsoft and Activision from finalizing the agreement until the FTC's in-house judge reviewed it in an August trial.
Both firms said that a delay of this length would basically compel them to cancel the takeover deal they inked about 18 months ago. If the acquisition does not conclude by July 18, Microsoft has committed to pay Activision a $3 billion breakup fee.
The FTC has not indicated whether it would appeal Corley's decision.
“We are disappointed in this outcome given the clear threat this merger poses to open competition in cloud gaming, subscription services, and consoles,” FTC spokesperson Douglas Farrar said in a prepared statement. “In the coming days we’ll be announcing our next step to continue our fight to preserve competition and protect consumers.”
The judgment is a blow for the FTC's increased investigation of the technology sector under Chairperson Lina Khan, who was appointed by President Joe Biden in 2021 because to her stern stance on what she perceives as monopolistic conduct by internet behemoths like Amazon, Google, and Facebook parent Meta.
Another judge earlier this year rejected the FTC's effort to prevent Meta from acquiring the virtual reality fitness business Within Unlimited. Ms. Khan is also set to face stern questions from Republicans in Congress on Thursday, who have asked her to appear at a House hearing concerning the commission's record of enforcement actions as well as her management of the agency's personnel.
During the proceedings, Ms. Corley, a Biden nominee, voiced doubt about the FTC's argument, notably concerning the potential losses inflicted if Microsoft removed Call of Duty from competitor platforms or provided a substandard experience on competing consoles.
“The gist of the FTC’s complaint is Call of Duty is so popular, and such an important supply for any video game platform, that the combined firm is probably going to foreclose it from its rivals for its own economic benefit to consumers’ detriment,” Ms. Corley wrote in her ruling.
However, she stated that the FTC had not made a compelling case that Microsoft would likely take Call of Duty from competitor Sony's PlayStation—in fact, Microsoft executives have repeatedly stated that they will not do so.
As antitrust investigations and legal challenges grew in the United States and throughout the world, Microsoft vowed that Call of Duty would be available for at least a decade on Nintendo's Switch system, Nvidia's cloud gaming service, and other platforms.
Ms. Corley concluded in her conclusion that "scrutiny has paid off," echoing a message she delivered to regulators in court last month.
“In many ways you won,” Ms. Corley had told the FTC’s lead trial attorney on the case, James Weingarten.
“I don’t think we won,” Mr. Weingarten responded, saying there was no evidence that the “hastily agreed to” contracts would sufficiently protect the market.
Activision Blizzard Inc. shares rose more than 11% on the judgment, setting a new high for the year.
The verdict eliminates the most significant, but not the sole, impediment to the merger.
The Activision Blizzard purchase has been allowed by a number of other nations including the European Union, although it is still opposed by the UK's Competition and Markets Authority (CMA). The corporation had planned to contest that judgment at a tribunal hearing later this month, but the FTC's order seems to have caused a change of heart.
Both the British regulator and Microsoft said on Tuesday that they have jointly requested to put the hearing on hold, claiming that a "stay of litigation" would be in the public interest while they worked out a solution to address their differences so that the acquisition could proceed.
“We stand ready to consider any proposals from Microsoft to restructure the transaction in a way that would address the concerns” outlined in the merger decision, the CMA said in a prepared statement.
Microsoft President Brad Smith stated in a statement that the firm is working to amend the transaction "in a way that is acceptable to the CMA," despite the fact that the company disagrees with the agency's concerns.
According to a letter to Microsoft filed late last month in the U.S. case that echoed the FTC's concerns, Canadian regulators are also investigating the transaction and have concluded it is "likely to result" in preventing or lessening competition on gaming consoles, subscription services, and cloud-based gaming.
