February 21, 2024

A federal judge on Tuesday rejected the Federal Trade Commission’s attempt to delay Microsoft’s $70 billion acquisition of Activision Blizzard, setting the stage for the tech giant and video game publisher to merge as soon as this month.

in page 53 U.S. District Judge Jacqueline Scott Corley for the Northern District of California said the FTC failed to demonstrate that the merger would harm consumers by substantially reducing competition.

She rejected the FTC’s request for a preliminary injunction that would have delayed the closing of the deal until the agency could contest it in internal court.

The ruling is a major blow to the FTC’s efforts to more aggressively regulate major tech mergers. The strategy was spearheaded by the agency’s chair, Lina Khan, who argues that Big Tech’s outsized influence over commerce and communications has led to anticompetitive behaviour. The US Federal Trade Commission (FTC) has sued Microsoft, Meta and Amazon, but it dropped a case against Meta and has so far yielded little results.

Microsoft and Activision Blizzard welcomed the ruling. “We appreciate the swift and thorough decision of the San Francisco court,” Microsoft President Brad Smith tweeted. Activision Blizzard CEO Bobby Kotick said in a statement that the merger would “promote competition rather than allow entrenched market leaders to continue to dominate.”

FTC spokesman Douglas Farrar said in a statement that the agency is “disappointed by this outcome because of the clear competition this merger poses for cloud gaming, subscription services, and consoles.” threats.” Mr Farrar added, “In the coming days, we will announce our next steps in continuing our efforts to preserve competition and protect consumers.”

The ruling lifted a temporary ban on closing the deal by midnight Friday, unless the FTC gets an appeals court extension.

There were also signs on Tuesday that the tide in the U.K. may be turning in Microsoft’s favor, raising another major hurdle for a takeover. Regulators there blocked the deal, saying it would stifle competition for streaming games online. But on Tuesday, Microsoft said it would suspend a formal appeal of the ruling pending a negotiated settlement.

The regulator, the Competition and Markets Authority, said in a statement that it was open to a proposal that would address its concerns, providing strong impetus for Microsoft to complete the acquisition as soon as next week.

From the start, the FTC appeared to be fighting an uphill battle with Microsoft, which said early last year it would buy Activision Blizzard in a bid to reshape its video game business and bring hits like Call of Duty and World of Warcraft into the fold. Xbox. platform.

Courts have long worried that mergers involving direct competitors would harm competition, but Microsoft and Activision Blizzard are not generally considered direct competitors.

The FTC sued Microsoft in its administrative court last year, but that court has no legal authority to block the deal from closing. In June, the FTC asked Judge Corley to take that step, saying it was concerned that Microsoft was close to closing the deal, despite the government’s concerns.

Last month, the FTC called high-profile witnesses such as Kotick and Microsoft CEO Satya Nadella in more than five days of testimony that the merger would be bad for gamers and competition.

The FTC believes that Microsoft has significant incentives to make Activision Blizzard’s Call of Duty — a franchise that has grossed more than $30 billion — an Xbox exclusive, prevent its use on Sony’s PlayStation, or lower the game’s price tag. PlayStation version.

But Microsoft said it already has deals with companies like Nintendo to offer Call of Duty on other platforms, and it has a deal with Sony as well. Microsoft argues that it won’t risk the anger of gamers by backing away from its promise to keep Call of Duty on PlayStation, and lose a lot of revenue by cutting off access to PlayStation players.

Sony did not immediately respond to a request for comment on Tuesday.

At times, Judge Corley seemed skeptical of the FTC case. In her closing arguments, she repeatedly urged the agency to back up its claim that if Call of Duty were pulled from PlayStation, enough gamers would ditch PlayStation for Xbox to make Microsoft’s move worthwhile.

“The FTC has given no indication that its assertion is likely to succeed, that the combined company could remove Call of Duty from Sony’s PlayStation, or that its ownership of Activision content would significantly reduce video game library subscriptions and the cloud gaming market. competition,” Judge Corley wrote in her judgment.

“Instead,” she later added, “there is documented evidence that greater consumer exposure to Call of Duty and other Activision Blizzard content.”

She wrote that despite a “massive discovery,” including nearly 1 million documents and 30 testimonies, the FTC “has yet to find a single document that matches Microsoft’s public commitment to deliver Call of Duty on PlayStation (and Nintendo Switch).” contradiction.”

Her rejection of the preliminary injunction means Microsoft could complete its merger with Activision Blizzard in the United States as early as this month. The two companies set a deal deadline of July 18, and if the deal doesn’t close by then, Microsoft will need to pay Activision Blizzard a $3 billion breakup fee. The companies could agree to delay that date, or pursue a merger while the UK appeal is pending.

It’s the latest FTC loss in a case involving one of the tech giants. While legal challenges under Ms. Khan led companies including Lockheed Martin and chipmaker Nvidia to abandon proposed acquisitions early in her tenure, the agency was unsuccessful this year in challenging Meta’s deal to buy the virtual reality startup.

Ms Khan said she would not be deterred by the court’s failure. The chairperson and her allies believe regulators have been too risk-averse for years, leading to runaway corporate consolidation. The FTC and other government agencies must be willing to pursue new cases, even if victory is not guaranteed, they said.

In his ruling, Judge Corley argued that consumers benefited from Microsoft’s anticipation of intense scrutiny and a written agreement under oath to share Activision games with different consoles and streaming services. “This scrutiny has paid off,” she wrote.

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