Microsoft can close its Activision merger, federal judge rules

Microsoft can close its Activision merger, federal judge rules

CNN

Microsoft's $69 billion acquisition of video game giant Activision Blizzard will not be blocked by a federal judge. This is a blow to US regulators, who asked for an injunction to block the deal while legal challenges were being fought.

Microsoft can now close a deal to become the third largest publisher of video games in the world. It will control popular franchises like 'Call of Duty', 'World of Warcraft,' and Diablo.

District Judge Jacqueline Scott Corley's opinion, which was partially redacted, stated that the US government has not demonstrated its ability to prove its claim that the combined firm would likely pull Call of Duty away from Sony PlayStation or its ownership of Activision's content will significantly lessen the competition in video game subscription markets and cloud gaming.

Microsoft and Activision could finalize their deal in just a few days, before the 18th of July deadline. Or, the parties may agree to extend the timeframe.

Federal Trade Commission officials argued for an injunction to temporarily block the merger because it would have been detrimental to consumers and video game players to allow the merger to be completed while litigation was ongoing.

The FTC challenged the acquisition in two different courts, the first being its own administrative court. It then went to the US federal court to challenge the deal, claiming that it would harm video gamers because Microsoft would gain control of a number popular franchises.

Regulators were concerned that Microsoft could withhold these titles from competitors such as Sony’s PlayStation, or from cloud-based streaming services in their infancy. They asked Corley to issue an injunction stopping the deal until the in-house court of the agency had made a decision.

Microsoft executives, including Satya Naddella, testified during a five-day federal court hearing last month that competitors would not be prohibited from using properties like 'Call of Duty.' Microsoft, in response to the scrutiny of regulators, has signed multi-year license agreements with Nvidia (NVDA), Nintendo and other companies to ensure that content is available for their platforms if this merger is approved.

Microsoft admitted in court filings that the FTC would 'effectively block' the deal if it won at this point, due to the time and cost associated with its internal merger challenge.

The FTC did not prove that the combined company had an incentive to restrict 'Call of Duty,' to Microsoft platforms, such as Xbox. Corley listed eight factors to support Microsoft's case, including the fact that Microsoft would make more money if 'Call of Duty was available on as many platforms possible.

The opinion stated that despite the agency's lawyers having access to more than one million documents from Microsoft and 30 depositions, they had not found a document which contradicted Microsoft's public commitment to release Call of Duty on PlayStation (and Nintendo Switch).

Corley said that Microsoft's licensing agreements showed that the public's scrutiny of the deal had 'paid off', further reducing the necessity for court intervention.

Brad Smith, Microsoft's vice-chair and president, said Tuesday that he was grateful for the Court's quick and thorough ruling. He hoped other jurisdictions would continue to work towards a prompt resolution. As we have shown consistently during this process, Microsoft is committed to working collaboratively and creatively to address regulatory issues.

Activision Blizzard's CEO Bobby Kotick stated in a separate press release that the merger would 'enable competition' and not allow entrenched leaders to continue dominating our rapidly growing industry.

Microsoft's win in federal court may lead to the FTC dropping its internal merger challenge, and eventually abandoning its opposition to Microsoft's deal in general. In February, in a similar case, the FTC dropped their internal case against Meta's proposed purchase of Within Unlimited, an early virtual reality startup after another judge declined to grant a preliminarily injunction.

Douglas Farrar said that the FTC was disappointed with the outcome, given the threat the merger poses to the open competition of cloud gaming, subscription service, and consoles. In the next few days, we will announce our next move to protect consumers and preserve competition.

The FTC may escalate the case by asking the US Court of Appeals of the Ninth Circuit to stay Corley's Order pending an appeal.