A federal judge has sided with Microsoft and Activision Blizzard as they fought off the Federal Trade Commission’s attempt to block a deal between the two companies that would create a video gaming giant.
Tuesday’s ruling is a stinging rebuke for the FTC in the biggest test yet of its ability to police competition in fast-moving technology markets, a key priority for agency Chair Lina Khan, an antitrust hawk appointed by President Joe Biden in 2021. The FTC initially challenged the deal in its in-house court in December.
Still, the companies are not yet in the clear. The U.K.’s Competition and Markets Authority blocked the deal in April, saying it would harm competition in the burgeoning cloud gaming market. The companies have an appeal of that decision scheduled for late July.
Tuesday’s ruling follows a five-day hearing before U.S. District Judge Jacqueline Scott Corley in late June, in which the FTC sought to temporarily delay the deal pending a full trial in its administrative court. Only a federal court can block a deal.
“The FTC 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,” Corley wrote in the 53-page, heavily redacted ruling.
Corley telegraphed her decision during the hearing. “In substance, you won and you got what you wanted and you forced them to go out and enter into these agreements,” Corley told FTC attorneys in court. She was referring to the settlements Microsoft entered into with a number of video game companies, including Nintendo and Nvidia, in which it promised equal access to Activision’s blockbuster game Call of Duty.
Microsoft’s chief video game rival and primary opponent of the deal, Sony, has so far refused to take that deal, saying it is concerned Microsoft will either restrict or degrade access to that game and others both on consoles and in the emerging sector of cloud gaming.
“And maybe it also helped that they at least seemed to be less bullish on cloud,” Corley said in court, referring to Microsoft executive testimony during the hearing. “[B]ut they went out and they signed these agreements now with Nvidia to give them Activision’s content. How is that not good for consumers?”
Activision CEO Bobby Kotick on Tuesday said “Our merger will benefit consumers and workers. It will enable competition rather than allow entrenched market leaders to continue to dominate our rapidly growing industry.”
“We are grateful today for this quick and thorough decision and hope other jurisdictions will continue working toward a timely resolution,” said Microsoft President Brad Smith. “As we have demonstrated consistently throughout this process, we are committed to working creatively and collaboratively to address regulatory concerns.”
The FTC did not immediately respond to requests for comment
The FTC can appeal to the U.S. Court of Appeals for the Ninth Circuit. The companies currently have a July 18 contractual deadline to close their deal, prior to their U.K. appeal.
The FTC has until the end of Friday to obtain a hold on the ruling from the Ninth Circuit. Before the hearing, Corley blocked the companies from closing pending the release of her ruling.
The companies have discussed whether they could close the deal “around” the U.K., according to a person with knowledge of their thought process, which was first reported by Bloomberg. While it’s unclear what exactly that entails, it could involve keeping the U.K. operations of the two companies separate while integrating the rest of their businesses around the world.
The American Economic Liberties Project, a progressive advocate of aggressive antitrust enforcement, urged the FTC to appeal. “When Microsoft’s own emails say they are building a ‘moat’ and trying to ‘spend’ their competitors ‘out of business,’ that should be enough for the court to hit pause,” said Lee Hepner the group’s legal director. “The fact that Judge Corley’s son works for Microsoft taints the outcome at a time when judicial ethics are top of mind for many.”
But the Communications Workers of America, which supports the deal, applauded the ruling. “As it relates to the impact on workers, the actions Microsoft have taken will not only prevent harm, they represent a true shift in the power workers will have in the video game industry.”
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