Microsoft Wins FTC: Activision Merger May Go Forward after Court Rule

A federal judge in San Francisco have denied Federal Trade Commission (FTC) request for a preliminary order to halt Microsoft’s proposed $68.7 billion acquisition of Activision Blizzard. The decision allows Microsoft to continue with the deal in the United States, despite the July 18 termination date. If the deal is not finalized by this date, Microsoft will be liable to pay Activision Blizzard’s $3 billion termination fee.

Judge: Consumers Can Benefit

The FTC contends that the merger has the potential to hurt competition in the video game industry. The FTC also accused Microsoft of withholding information amid the Activision Blizzard investigation.

However, Judge Jacqueline Scott Corley found that the FTC showed no likelihood of winning on its claim that a merger would significantly reduce competition. Instead, he points to evidence suggesting that the merger can increase consumer access to Activision content, including the popular game Call of Duty.

Microsoft Gaming CEO Phil Spencer and Microsoft president Brad Smith thanked the court for the swift decision, stating that the evidence shows the Activision Blizzard deal is beneficial to the industry. Spencer also argued that the FTC’s claims about console switching, multi-game subscription services, and cloud gaming did not reflect the reality of the gaming market.

1/ We thank the court for quickly ruling in our favor. Evidence suggests the Activision Blizzard deal was good for the industry and the FTC’s claims of console switching, multi-game subscription services, and the cloud don’t reflect the realities of the gaming market.

—Phil Spencer (@XboxP3) July 11, 2023

Our statement on our joint request with the CMA for a pause in our UK appeal: pic.twitter.com/8Aky2IJjxS

— Brad Smith (@BradSmi) July 11, 2023

Regardless of the court’s decision, the FTC still has the option to appeal. However, it remains unclear whether the commission plans to do so. Meanwhile, Microsoft still faces an ongoing antitrust case by the FTC, as well as opposition from the Competition and Markets Authority in the United Kingdom, which blocked its acquisition in April.

In response to the court’s decision, Microsoft and Activision Blizzard have expressed their commitment to address regulatory issues and increase competition in the gaming industry. Activision Blizzard CEO Bobby Kotick stated that the merger “will enable competition rather than allowing established market leaders to continue to dominate our fast-growing industry.”

British Regulatory Barriers

The jury’s decision now allows Microsoft to close the Activision Blizzard deal before the July 18 deadline, but only if the company is willing to close around the UK or if the Competition and Markets Authority (CMA) is willing to negotiate some form of UK regulators moving to block Microsoft’s proposed acquisition in December. April, and Microsoft is currently appealing the decision with a hearing set to begin on July 28. Minutes after Judge Corley’s decision, both CMA and Microsoft have agreed to halt their legal battle in the United Kingdom to negotiate how the Activision Blizzard deal could be modified to address CMA’s cloud gaming concerns. CAT needs to agree to this break but it seems that all parties are increasingly willing to have a recovery in the UK.

Regulatory Approvals in Other Countries

Microsoft’s proposed Activision Blizzard acquisition recently received major approval from the South African Competition Court, adding to the string of regulatory approvals Microsoft has already received for deals. In May, the European Commission and China’s competition regulator both finalized the deal. However, the UK Competition and Markets Authority (CMA) rejected the deal, leading Microsoft to consider bypassing the UK order and moving on with the deal, or alternatively, pulling Activision from the UK market.

In the midst of the acquisition process, Activision Blizzard faced its own legal challenges. The company recently settled a lawsuit with the Department of Justice alleging it financially penalized Call of Duty and Overwatch esports teams through a “Competitive Balance Tax.” The settlement requires Activision Blizzard to refrain from limiting or limiting the salaries of esports players or teams.

Despite ongoing antitrust scrutiny, Microsoft has received “unconditional approval” from China for its plans to acquire Activision Blizzard. These permits add to the complexity given the requirement in mainland China for game makers to work with Chinese publishers to release titles in the country. Popular Activision Blizzard franchises such as World of Warcraft, the StarCraft series, Overwatch and Diablo were suspended earlier this year due to a dispute between Activision subsidiary Blizzard Entertainment and its Chinese partner NetEase.