Microsoft CEO Satya Nadella arrives at the Phillip Burton Federal Building and U.S. Courthouse in San Francisco, on Wednesday, June 28, 2023. Microsoft is defending the company's proposed $69 billion takeover of video game maker Activision Blizzard as federal regulators seek to block the deal. (AP Photo/Noah Berger)
A federal judge has handed Microsoft a major victory by declining to block its looming $69 billion takeover of video game company Activision Blizzard. Regulators are seeking to ax the deal because they say it will hurt competition.
U.S. District Judge Jacqueline Scott Corley said in a ruling that the “FTC has not shown a likelihood it will prevail on its claim this particular vertical merger in this specific industry may substantially lessen competition. To the contrary, the record evidence points to more consumer access to Call of Duty and other Activision content.”
Microsoft appeared to have the upper hand in a 5-day San Francisco court hearing that ended late last month. The proceeding showcased testimony by Microsoft Chief Executive Officer 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 – particularly Sony’s PlayStation – that compete with Microsoft’s Xbox.
“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,” said Activision CEO Bobby Kotick in a written statement.
The Federal Trade Commission, which enforces antitrust laws, had asked Corley to issue an injunction temporarily blocking Microsoft and Activision from closing the deal before the FTC’s in-house judge can review it in an August trial.
Both companies suggested that such a delay would effectively force them to abandon the takeover agreement they signed nearly 18 months ago. Microsoft has promised to pay Activision a $3 billion breakup fee if the deal doesn’t close by July 18.
The case is an important test for the FTC’s heightened scrutiny of the technology industry under Chairperson Lina Khan, who was installed by President Joe Biden in 2021 because of her tough stance on what she sees as monopolistic behavior by tech giants such as Amazon, Google and Facebook parent Meta.
Another judge rebuffed the FTC’s attempt earlier this year to stop Meta from taking over the virtual reality fitness company Within Unlimited.
Corley, herself a Biden nominee, expressed skepticism about the FTC’s case during the proceedings, particularly about the hypothetical harms caused if Microsoft were to remove Call of Duty from rival platforms or offer a subpar experience on competing consoles.
“It all comes down again to Call of Duty,” she said. “We’re here because of Call of Duty.”
Near the close of the hearing, Corley said the FTC had already achieved a victory for consumers because of promises Microsoft made to some rivals as it sought to clear a path for the Activision Blizzard deal to go through.
As antitrust investigations and legal challenges mounted in the U.S. and around the world, Microsoft pledged that Call of Duty would appear on Nintendo’s Switch console, Nvidia’s cloud gaming service and other platforms for at least a decade.
“In many ways you won,” Corley told the FTC’s lead trial attorney on the case, James Weingarten.
“I don’t think we won,” Weingarten responded, saying there was no evidence that the “hastily agreed to” contracts would sufficiently protect the market.
A number of other countries and the European Union have approved the Activision Blizzard takeover, but it still faces opposition from the U.K.’s Competition and Markets Authority. Microsoft is appealing the British regulator’s move to block the deal and a tribunal hearing on that is set to begin later this month.
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, according to a letter to Microsoft filed in the U.S. case late last month.
