Tag: Game consoles

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 sought to ax the deal saying it will hurt competition.

U.S. District Judge Jacqueline Scott Corley said in a ruling that the merger deserved scrutiny, noting it could be the largest in the history of the tech industry. But federal regulators were unable to show how it would cause serious harm and wouldn’t likely prevail if they took it to a full trial, she wrote.

The Federal Trade Commission, 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, Corley said.

A ruling favorable to Microsoft was not a surprise after the company’s lawyers had 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,” Kotick said in a written statement after Tuesday’s ruling.

The FTC 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 promised to pay Activision a $3 billion breakup fee if the deal doesn’t close by July 18.

The FTC hasn’t said whether it will appeal Corley’s ruling.

“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 decision is a setback 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. And on Thursday, Khan is expected to face tough questioning from Republicans in Congress who have called her to testify at a House hearing about the commission’s record of enforcement actions as well as her management of the agency staff.

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.

“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,” Corley wrote in her ruling.

But she said the FTC hadn’t make a strong case that Microsoft would likely pull Call of Duty from rival Sony’s PlayStation. 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 that way, the “scrutiny has paid off,” Corley concluded in her ruling, repeating a message she relayed to regulators in the courtroom last month.

“In many ways you won,” Corley had 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.

Microsoft valued the deal at $68.7 billion when it announced the acquisition in early 2022, “inclusive of Activision Blizzard’s net cash,” though Microsoft agreed to pay $95 in cash for each share of the gamemaker, closer to $75 billion.

Shares of Activision Blizzard Inc. jumped more than 11% Tuesday on the ruling, a high for the year.

The ruling removes the biggest, but not the only obstacle, to the merger.

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. The company was set to challenge that decision at a tribunal hearing scheduled for later this month but the FTC’s ruling appeared to have forced a rethink.

The British regulator and Microsoft both said Tuesday they have jointly applied to put the hearing on hold while they work out a way to resolve their differences so that the deal can go ahead.

“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 said in a statement that the company is looking to modify its transaction “in a way that is acceptable to the CMA,” though it disagrees with the agency’s concerns.

Canadian regulators are also investigating the transaction and have concluded it is “likely to result” in preventing or lessening competition, according to a letter to Microsoft filed in the U.S. case late last month that echoed the FTC’s concerns.

In the U.S., advocates for tougher antitrust enforcement are urging the FTC to ask an appeals court to pursue an emergency stay of Corley’s decision so that a trial can proceed. Some are calling attention to a perceived conflict of interest involving the judge’s son, who works for Microsoft. Corley disclosed the relationship in court.

“The fact that Judge Corley’s son works for Microsoft taints the outcome at a time when judicial ethics are top of mind for many,” said a prepared statement from Lee Hepner, legal counsel at the American Economic Liberties Project.

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AP Business Writer Kelvin Chan contributed to this report from London.

The Federal Trade Commission has sued to block Microsoft from completing its deal to buy video game company Activision Blizzard, the latest antitrust challenge to the proposed merger but one that could hasten a conclusion to the drawn-out dispute.

The FTC’s Monday filing in a San Francisco federal court seeks a temporary restraining order and injunction to stop Microsoft’s $69 billion purchase of the California company behind hit games such as Call of Duty, World of Warcraft and Candy Crush.

Microsoft, maker of the Xbox game system, has been struggling to win worldwide approval for the deal with just over a month before the deadline to close it, according to the contract it signed with Activision. While a number of countries have approved the acquisition, regulators for two important economies — the U.S. and the United Kingdom — have argued it could suppress competition in the video game market.

“We welcome the opportunity to present our case in federal court,” said a statement Monday from Brad Smith, Microsoft’s vice chair and president. “We believe accelerating the legal process in the U.S will ultimately bring more choice and competition to the market.”

Activision CEO Bobby Kotick in a letter to employees also characterized Monday’s FTC filing as a ”positive development” because the companies would be able to more quickly present their arguments to a federal judge.

The FTC already took Microsoft to court last year to block the merger, but that case was brought to the U.S. agency’s in-house judge in a trial set to start on Aug. 2. That administrative process didn’t preclude the parties from closing the deal.

The contract between Microsoft and Activision says the deal is supposed to close by July 18, but the FTC’s latest action seeks to stop that from happening. If Microsoft closes the deal now, and an FTC judge later finds that it was unlawful, it “would be difficult, if not impossible” to reverse course, the FTC said in asking a judge for a preliminary injunction halting the acquisition.

For example, the FTC said, the combined companies could begin altering Activision’s operations and game development, access sensitive information and eliminate key personnel.

“Microsoft and Activision Blizzard have represented in the past that they cannot close their deal due to antitrust reviews of the transaction in other jurisdictions,” the FTC said in a statement Monday. “But Microsoft and Activision have not provided assurances that they will maintain that position. In light of that, and public reporting that Microsoft and Activision Blizzard are considering closing their deal imminently, we have filed a request for a temporary restraining order to prevent them from closing while review continues.”

One of Microsoft’s thorniest obstacles is in the U.K., where antitrust regulators made a surprise decision this spring to block the acquisition.

The all-cash deal announced in January 2022 has been scrutinized by regulators around the world over fears that it would give Microsoft and its Xbox console control of Activision’s hit franchises and give it an unfair boost in the emerging business of cloud-based game subscriptions. It could be the priciest tech industry merger in history.

Fierce opposition has been driven by rival Sony, which makes the PlayStation gaming system.

Microsoft sought to counter the resistance by striking a deal with Nintendo to license Activision titles like Call of Duty for 10 years and offering the same to Sony if the deal went ahead.

European regulators representing the 27-nation bloc approved the deal last month on condition that Microsoft make some promises meant to boost competition in the cloud-based gaming market. A number of other countries, including China, Japan, Brazil and South Korea, have also approved it.

But the blockbuster deal has remained in jeopardy because of the decision by the U.K.’s Competition and Markets Authority and the ongoing case in the U.S.

Microsoft in late May filed an appeal of the British regulator’s decision and has voiced strong public opposition directed at top government officials. If Microsoft were to close the deal without Britain’s approval, it could face new legal challenges there or possibly decide to suspend its broader game business in the country.

U.S.-based consumer advocacy group Public Citizen, an opponent of the deal, welcomed the FTC’s move Monday.

“Microsoft is pushing to culminate the purchase of Activision before the agency can finish its process,” said a statement from Public Citizen’s competition policy advocate Matt Kent. “”By filing in federal court to enjoin the transaction, the FTC is showing that it won’t back down in the face of Microsoft’s escalatory tactics.”