Feds begin week of presenting evidence, in bid to block Microsoft's $69 billion Activision acquisition

SAN FRANCISCO (CN) — The Federal Trade Commission has begun a showdown in federal court with Microsoft, attempting to prove why the company’s proposed $69-billion acquisition of “Call of Duty” maker Activision Blizzard should be blocked.

The feds sued to halt the 17-month-old deal in December 2022, saying it could hurt Microsoft’s competitors in the gaming-console business as well as in its rapidly growing subscription content and cloud-gaming business.

The FTC says the merger would give Microsoft control of some of the most iconic video game titles on the market. That includes the “Call of Duty” franchise, which has brought in $27 billion in revenue since it launched in 2003.

Microsoft is already one of the world’s richest companies, thanks to a personal computer software empire that the U.S. Justice Department tried to break up more than two decades ago. The deal could enable the tech giant to harness the power to manipulate Activision’s pricing and game quality on rival consoles, or entirely withhold content from competitors.

Microsoft has also faced opposition to the acquisition outside of the U.S. as United Kingdom antitrust regulators blocked the deal in April. But the European Commission and China’s State Administration for Market Regulation have recently approved the acquisition, as have regulators in Japan, South Korea and Brazil.

The feds sued June 12 to ask for a preliminary injunction and temporary restraining order, to block the deal’s closing July 18. U.S. District Judge Jacqueline Scott Corley already dismissed a lawsuit brought by a group of gamers who sued to stop the acquisition, and denied their request for an injunction in May.

Both Microsoft CEO Satya Nadella and Activision Blizzard CEO Bobby Kotick are expected to testify during the next week of hearings in San Francisco before Judge Corley. Experts and a top executive for Sony, which owns the PlayStation console, are asked to explain Microsoft’s strategy with the Xbox franchise and if it can legally blend in Activision’s titles.

“The deal does not automatically terminate after July,” the FTC’s deputy chief trial counsel James Weingarten told the court in his opening statement Thursday.

“Even if the defendants would abandon the deal, that is legally irrelevant. This case is about whether the FTC should have its chance in the administrative proceeding Congress set up to evaluate the antitrust merits.”

Weingarten said evidence will show that Microsoft leadership seeks to own content that would exclude other gaming consoles, and may not follow contracts to allow game access on cloud streaming services.

“There is a substantial cushion between what Activision is worth to Microsoft, and what they’re paying,” he said. “The law is that any proposed remedy needs to dispel any and all doubts about the transaction’s legality.”

Matt Booty, the head of Xbox Game Studios, was first to testify. He described the amount of work required whenever Microsoft decides to allow certain games to be played on other consoles, like Nintendo’s Switch.

Pete Hines, head of publishing for Bethesda Softworks, said he empathizes with customers upset by limitations to access to some game titles, such as the company’s game “Starfield,” after Microsoft acquired Bethesda’s owner ZeniMax Media Inc.

He admitted that although Microsoft had a contract to allow a Disney “Indiana Jones” game to be available on multiple consoles, it later altered the contract to make it exclusive to Xbox due to time-sensitive constraints.

“We are not someone that can afford misses or failures,” he said.

Sarah Bond, who handles brand experience for Xbox, next testified. She explained to Judge Corley why many consumers want the ability to play across different platforms, be they mobile devices or personal computers.

To access certain products, however, Bond noted that gamers may need to subscribe to the Game Pass bonus service.

“We know that people have so many preferences, you can’t put anyone into any one bucket,” she said. “Having that diversity is critical to being able to meet players’ needs.”

After the FTC filed, claiming that Microsoft might withhold games like “Call of Duty” from competitors like Playstation once it acquires Activision, Bond said the company signed contracts with cloud streaming services to show its willingness to open access to the game.

“We wanted to make it absolutely clear that we would do it, and we wanted to make a legally binding statement to document that,” she said.

Bond added that Microsoft’s CEO is ultimately in charge of whether Microsoft follows its legal commitments.

Court hearings in this case will continue through June 29. Corley will decide whether to order a hold on the deal while an administrative trial begins Aug. 2 in Washington.

If Corley declines to issue an injunction, Microsoft could close ahead of July 18 to avoid a $3 billion fee.

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