SAN FRANCISCO (CN) — The Federal Trade Commission lost an unusually elaborate attempt to block Microsoft’s $69 billion plan to purchase Activision Blizzard, in what could be a game-changing merger within the gaming industry.
U.S. District Judge Jacqueline Scott Corley, a Joe Biden appointee, ruled Tuesday rejecting the FTC’s request for a preliminary injunction, following a weeklong evidentiary hearing in San Francisco. The feds argued Microsoft's bid to acquire Activision Blizzard’s future games — including the Call of Duty franchise — would give it the power to manipulate pricing or withhold games from competitors in violation of antitrust law.
The purchase plan has also drawn controversy and pushback among gamers who fear that Microsoft — which hit $198 million in revenue in 2022 — could exploit exclusivity and dramatically impact the spirit of innovation among indie game developers. But top Microsoft executives testified that the company intends to move Activision games onto as many platforms as possible. CEO Satya Nadella testified Microsoft has no interest in shutting out rival Sony’s PlayStation by keeping popular Activision games exclusive to Xbox, and would commit to shipping Call of Duty on future consoles.
Corley raised concerns about impartiality when she acknowledged in court in June that her son works for Microsoft. Watchdog group Revolving Door Project asked Corley to recuse herself, saying her link to Microsoft could give the appearance of impropriety or violate the code of conduct for federal judges.
Corley said in her 53-page partially redacted opinion Tuesday that the FTC did not prove it likely that it will prevail on its claim that the vertical merger may substantially lessen competition in the console, library subscription services or cloud gaming markets.
While Corley acknowledged the merger "deserves scrutiny," she found the evidence presented showed no incentive for Microsoft to foreclose Call of Duty from Sony PlayStation. She pointed to the example of Minecraft, and that while Microsoft had the ability to make Minecraft exclusive it continued to ship the game on all platforms and made subsequent games in the franchise available for Nintendo consoles and Sony’s subscription service, PlayStation Plus.
“After the merger, consumers can utilize the cloud to play on the device of choice, including, it is intended, on the Nintendo Switch,” she said. “Perhaps bad for Sony. But good for Call of Duty gamers and future gamers.”
To the FTC’s claim that the merger will decrease innovation because game developers and publishers will not want to work with Microsoft, Corley said Sony’s reluctance to share its intellectual property with Microsoft is not merger-specific and can’t account for other developers who now might collaborate with Xbox.
The FTC argued that Xbox will include Call of Duty in its Game Pass library subscription service but refuse to include it on rival services, which could lessen competition in that market and make it likely Xbox will increase the Game Pass price.
“Will some people subscribe to Game Pass because of Call of Duty? Yes,” Corley said. “But there is no analysis of how many, or how it will affect competition with Game Pass competitors such as Amazon, Electronic Arts, Ubisoft and Sony.”
She added: “What exactly about the merger would make it difficult to order an effective divestiture? The FTC does not say. Its argument, at bottom, is the equities always weigh in favor of a preliminary injunction. But that argument ignores the law. So, the balance of equities is a separate, independent reason the FTC’s motion must be denied.”
Microsoft has faced opposition to the acquisition outside of the U.S. as the United Kingdom's Competition and Markets Authority blocked the deal this past April.
“After today’s court decision in the U.S., our focus now turns back to the U.K.," Brad Smith, Microsoft vice chair and president, said in a statement.
"While we ultimately disagree with the CMA’s concerns, we are considering how the transaction might be modified in order to address those concerns in a way that is acceptable to the CMA. In order to prioritize work on these proposals, Microsoft and Activision have agreed with the CMA that a stay of the litigation in the U.K. would be in the public interest and the parties have made a joint submission to the Competition Appeal Tribunal to this effect.”
"We are disappointed in this outcome given the clear threat this merger poses to open competition in cloud gaming, subscription services, and consoles," Douglas Farrar, FTC spokesperson, said. "In the coming days we'll be announcing our next step to continue our fight to preserve competition and protect consumers."
Corley dismissed the case and modified the temporary restraining order so that it will dissolve on July 14 unless the FTC obtains a stay pending appeal from the Ninth Circuit.
Microsoft must also face other claims, as Corley cleared claims by a group of gamers to proceed against Microsoft this past month.
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