Report: FTC 'likely' to file lawsuit to block Microsoft/Activision merger

Report: FTC ‘likely’ to file lawsuit to block Microsoft/Activision merger

Some of the Activision franchises that will become Microsoft properties if and when the acquisition is finalized.
Enlarge / Some of the Activision franchises that will become Microsoft properties if and when the acquisition is finalized.

Microsoft / Activision

The Federal Trade Commission will “likely” file an antitrust lawsuit against Microsoft and Activision Blizzard to block the companies’ planned $69 billion merger deal. That’s according to a new Politico report citing “three [unnamed] people familiar with the subject. ยป

While Politico writes that a trial is still “not guaranteed,” it adds that FTC employees “are skeptical of the companies’ arguments” that the deal won’t be anti-competitive. The sources also confirmed that “much of the heavy lifting is complete” in the commission’s investigation, and that a complaint could be filed as early as next month.

Sony, the main opponent of the plan to buy Microsoft, has publicly argued that an existing three-year contractual guarantee to keep Activision’s best-selling Call of Duty The franchise on PlayStation is “inadequate on many levels”. In response, Microsoft Xbox manager Phil Spencer publicly promised to continue shipping Call of Duty games on PlayStation “as long as there’s a PlayStation to ship”. However, it is unclear whether the companies have recorded this offer as a legal agreement; The New York Times reported this week that Microsoft had offered a “10-year deal to keep Call of Duty on Playstation.”

Numerous statements from Microsoft executives, including Spencer, have suggested that the company is less interested in strengthening its position in the “console wars” and more interested in bolstering its mobile subscription, cloud gaming and Game Pass offerings. Beyond Call of DutyPolitico reports that the FTC is concerned about how Microsoft “could leverage future unannounced titles to boost its gaming business.”

Microsoft “stands ready to address concerns from regulators, including the FTC, and Sony to ensure the deal closes with confidence,” spokesman David Cuddy told Politico. “We will continue to follow Sony and Tencent in the market after the deal closes, and together Activision and Xbox will benefit gamers and developers and make the industry more competitive.”

There are many speed bumps left

Reports of a potential FTC lawsuit add to a growing list of troubling signals regarding the proposed purchase from various international governments. Earlier this month, the European Commission announced it was carrying out a “thorough investigation” into the deal. In the UK, a similar “Phase 2” investigation by the country’s Competition and Markets Authority has scheduled a hearing next month.

Those international investigations are expected to wrap up in March, ensuring the proposed deal won’t close before then and giving the FTC some time before it needs to file a lawsuit. Any such lawsuit would need to be approved by a majority of the FTC’s current four commissioners and would likely begin in the FTC Administrative Court. And regardless of the outcome, legal maneuverings in the case could easily delay the planned merger past the contractual deadline of July 2023, when the two companies would have to renegotiate or drop the deal.

Legal action by the FTC in the case would also be the strongest sign yet of a robust antitrust enforcement regime under FTC Chairman Lina Kahn, a top tech skeptic who was appointed to this position in June. In July, Kahn announced an antitrust lawsuit against Meta (formerly Facebook) and its proposed $400 million purchase of Within, the makers of the VR fitness app. Supernatural.

Three months after the plan to buy Microsoft was announced in January, a group of four US senators wrote an open letter urging the FTC to take a close look at the deal. Last month, mergers news site Dealreporter said FTC staff had expressed “significant concerns” about the deal. And this week, The New York Times quoted “two people” in reporting that the FTC had reached out to other companies for affidavits outlining their concerns about the deal, a possible sign of legal preparations.

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