A federal judge on Tuesday ruled against the Federal Trade Commission’s attempt to delay Microsoft’s $70 billion acquisition of Activision Blizzard.
In a 53-page decision, Judge Jacqueline Scott Corley of the U.S. District Court for the Northern District of California said the FTC had failed to demonstrate that the merger was likely to result in a substantial reduction in competition that would harm consumers.
She denied the FTC’s request for a preliminary injunction, which would have delayed closing the deal until after the agency could challenge it in an internal court.
The ruling is a major blow to the FTC’s efforts to more aggressively scrutinize blockbuster technology mergers. That strategy is spearheaded by the agency’s president, Lina Khan, who has argued that Big Tech’s massive influence on trade and communications has led to anti-competitive behavior. The FTC has sued Microsoft, Meta, and Amazon, but it walked away from one of its cases against Meta and so far has had little result.
Microsoft and Activision applauded the ruling. “We are grateful to the San Francisco court for this prompt and thorough decision,” Microsoft president Brad Smith wrote on Twitter. Activision CEO Bobby Kotick said in a statement that the merger would “enable competition rather than allow entrenched industry leaders to continue to dominate.”
Douglas Farrar, a spokesperson for the FTC, said in a statement that the agency was “disappointed with 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 will announce our next move to continue our fight to maintain competition and protect consumers.”
The ruling lifts the temporary ban on closing the deal just before midnight on Friday unless the FTC is granted a stay by an appeals court.
There were also indications on Tuesday that the tide could turn in Microsoft’s favor in Britain, which was the other major hurdle to the takeover. Regulators there had blocked the deal, saying it would stifle competition in online game streaming. But on Tuesday, Microsoft said it was pausing its formal appeal against that ruling to negotiate a settlement.
The regulator, the Competition and Markets Authority, said in a statement it was open to a proposal that would address its concerns, giving Microsoft significant momentum to complete the acquisition as early as next week.
From the get-go, the FTC seemed to have an uphill battle against Microsoft, which said early last year it would buy Activision in an effort to reshape its video game business and bring big games like Call of Duty and World of Warcraft to its Xbox platform. .
Courts were concerned that mergers with direct competitors would harm competition, but Microsoft and Activision are generally not considered direct competitors.
The FTC sued Microsoft in administrative court last year, but that court does not have the legal authority to block the closing of the deal. In June, the FTC asked Judge Corley to make that move, fearing Microsoft was close to closing the transaction despite government concerns.
During five days of testimony last month, the FTC called high-profile witnesses, such as Mr. Kotick and Microsoft CEO Satya Nadella, alleging that the merger would be bad for gamers and for competition.
The FTC 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, by withholding Sony’s PlayStation or degrading PlayStation versions of the game .
But Microsoft said it had made deals with companies like Nintendo to offer Call of Duty on other platforms, and had also offered Sony a deal. Microsoft argued that it would have no reason to risk angering gamers by failing to honor its commitments to keep Call of Duty on PlayStation, and that it would miss out on a significant amount of revenue by ripping off PlayStation players. to close.
Sony did not immediately respond to a request for comment on Tuesday.
Judge Corley seemed skeptical of the FTC’s case at times. During the closing arguments, she repeatedly urged the agency to substantiate the claim that if Call of Duty were withheld from PlayStation, enough players would leave PlayStation for Xbox to make the switch worthwhile for Microsoft.
“The FTC has not shown that it is likely to succeed in its claim that the combined company is likely to pull Call of Duty from Sony PlayStation, or that ownership of Actvision content will significantly reduce competition in the subscription and cloud gaming markets for video game libraries, Judge Corley wrote in her decision.
“On the contrary,” she later added, “the record evidence points to increased consumer access to Call of Duty and other Activision content.”
She wrote that despite “extensive discoveries,” including nearly a million documents and 30 statements, the FTC “has not identified a single document that contradicts Microsoft’s publicly stated commitment to make Call of Duty available on PlayStation (and Nintendo Switch). ).”
Her denial of a preliminary injunction means that Microsoft could complete its merger with Activision in the United States as early as this month. The companies set a July 18 deadline for the deal, with Microsoft paying Activision a $3 billion severance fee if the deal falls through by then. The companies could agree to postpone that date, or they could merge while their appeals are pending in Britain.
It was the FTC’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 chipmaker Nvidia to drop proposed acquisitions early in her tenure, the agency failed this year to challenge Meta’s purchase of a virtual reality start-up. .
Ms Khan has said she will not be deterred by losses in court. The chairman and her allies believe regulators were too risk-averse for years, leading to runaway corporate consolidation. They have said that the FTC and other government agencies should be willing to pursue new cases, even if they are not guaranteed to win.
In her ruling, Judge Corley argued that consumers benefited from Microsoft’s expectation of a harsh review by making agreements in writing and under oath to share Activision games across various consoles and streaming services. “That research paid off,” she wrote.
