FTC Court Ruling Clears Path for Microsoft to Buy Activision
A federal judge on Tuesday ruled against the Federal Trade Commission’s attempt to delay Microsoft’s $70 billion acquisition of Activision Blizzard, setting the stage for the tech giant and the video game publisher to merge as soon as this month.
In a 53-page decision, Judge Jacqueline Scott Corley of U.S. District Court for the Northern District of California said the F.T.C. had failed to show it was likely to prove the merger would result in a substantial reduction in competition that would harm consumers.
She denied the F.T.C.’s request for a preliminary injunction, which would have delayed the deal’s closing until after the agency could fight it in an internal court.
The ruling is a significant blow to the F.T.C.’s efforts to police blockbuster tech mergers more aggressively. That strategy is spearheaded by the agency’s chair, Lina Khan, who has argued that Big Tech’s vast influence over commerce and communications has led to anticompetitive behavior. The F.T.C. has sued Microsoft, Meta and Amazon, but it walked away from one of its cases against Meta and has had little to show for its efforts so far.
Microsoft and Activision cheered the ruling. “We’re grateful to the Court in San Francisco for this quick and thorough decision,” Brad Smith, the president of Microsoft, wrote on Twitter. Bobby Kotick, the chief executive of Activision, said in a statement that the merger would “enable competition rather than allow entrenched market leaders to continue to dominate.”
Douglas Farrar, a spokesman for the F.T.C., said in a statement that the agency was “disappointed in this outcome given the clear threat this merger poses to open competition in cloud gaming, subscription services and consoles.” Mr. Farrar added that “in the coming days we’ll be announcing our next step to continue our fight to preserve competition and protect consumers.”
The ruling lifts the temporary ban on closing the deal just before midnight on Friday, unless the F.T.C. obtains an extension from an appeals court.
There were also indications on Tuesday that the tide may be shifting in favor of Microsoft in Britain, which presented the other major hurdle to the acquisition. Regulators there had blocked the deal, saying it would stifle competition in streaming games online. But on Tuesday, Microsoft said it was pausing its formal appeal of that ruling to negotiate a settlement.
The regulator, the Competition and Markets Authority, said in a statement that it was open to a proposal that would address its concerns, giving Microsoft significant momentum to complete its acquisition as soon as next week.
From the start, the F.T.C. appeared to be fighting an uphill battle against Microsoft, which said early last year that it would buy Activision in an effort to reshape its video game business and bring marquee games like Call of Duty and World of Warcraft to its Xbox platform.
Courts have been concerned that mergers involving direct competitors will harm competition, but Microsoft and Activision are generally not considered direct competitors.
The F.T.C. sued Microsoft in its administrative court last year, but that court does not have the legal authority to stop the deal from closing. In June, the F.T.C. asked Judge Corley to take that step, saying it feared Microsoft was on the verge of completing the transaction despite the government’s concerns.
Over five days of testimony last month, the F.T.C. called high-profile witnesses like Mr. Kotick and Satya Nadella, the chief executive of Microsoft, as it made the case that the merger would be bad for gamers and for competition.
The F.T.C. argued that Microsoft had significant incentives to make Activision’s Call of Duty — a franchise with more than $30 billion in lifetime revenue — exclusive to the Xbox, withholding it from Sony’s PlayStation or degrading PlayStation versions of the game.
But Microsoft said it had signed deals with companies like Nintendo to offer Call of Duty on other platforms, and had offered Sony a deal as well. Microsoft argued that it would have no incentive to risk angering gamers by reneging on its commitments to keep Call of Duty on PlayStation, and that it would lose out on a significant amount of revenue by cutting off PlayStation players.
Sony did not immediately respond to a request for comment on Tuesday.
At times, Judge Corley seemed skeptical of the F.T.C.’s case. During closing arguments, she pressed the agency repeatedly to back up its claim that if Call of Duty was withheld from PlayStation, enough players would abandon PlayStation for Xbox to make the move worthwhile for Microsoft.
“The F.T.C. has not shown it is likely to succeed on its assertion the combined firm will probably pull Call of Duty from Sony PlayStation, or that its ownership of Activision content will substantially lessen competition in the video game library subscription and cloud gaming markets,” Judge Corley wrote in her decision.
“To the contrary,” she added later, “the record evidence points to more consumer access to Call of Duty and other Activision content.”
She wrote that despite “extensive discovery,” including close to one million documents and 30 depositions, the F.T.C. “has not identified a single document which contradicts Microsoft’s publicly stated commitment to make Call of Duty available on PlayStation (and Nintendo Switch).”
Her denial of a preliminary injunction means Microsoft could complete its merger with Activision as soon as this month in the United States. The companies set a July 18 deadline for the deal, with Microsoft required to pay Activision a $3 billion breakup fee if the deal does not go through by then. The companies could agree to delay that date, or they could merge while their appeal in Britain is pending.
It was the F.T.C.’s latest loss in a case involving one of the tech giants. While legal challenges under Ms. Khan caused companies like Lockheed Martin and the chip maker Nvidia to drop proposed acquisitions early in her tenure, the agency was unsuccessful this year in challenging Meta’s purchase of a virtual reality start-up.
Ms. Khan has said she won’t be deterred by courtroom losses. The chair and her allies believe that regulators were too risk-averse for years, leading to runaway corporate consolidation. They have said the F.T.C. and other government agencies must be willing to pursue novel cases even if they are not guaranteed wins.
In her ruling, Judge Corley argued that consumers benefited from Microsoft’s expectation of a tough review, making agreements in writing and under oath to share Activision games with different consoles and streaming services. “That scrutiny has paid off,” she wrote.
