Setback For FTC Chairperson Lina Khan As US Judge Greenlights $69 Billion Microsoft-Activision Deal

Microsoft has received a significant victory as a US federal judge has declined to block its planned $69 billion acquisition of video game company Activision Blizzard.

Regulators had attempted to stop the deal, claiming that it would harm competition.

US District Judge Jacqueline Scott Corley stated in a ruling that the merger deserved scrutiny, as it could potentially be the largest in the history of the tech industry.

However, federal regulators were unable to demonstrate how it would cause significant harm, and it is unlikely they would succeed if they pursued a full trial, according to the Judge.

Judge Corley stated that the Federal Trade Commission, responsible for enforcing antitrust laws, did not raise serious questions regarding whether the proposed merger would significantly reduce competition in the markets for video game consoles, monthly game subscriptions, or cloud-based gaming.

The ruling in favor of Microsoft was not unexpected, given that the company's lawyers had the advantage during a five-day court hearing in San Francisco last month.

The hearing featured testimony from Microsoft CEO Satya Nadella and long-time Activision Blizzard CEO Bobby Kotick, both of whom pledged to ensure that Activision's popular game Call of Duty remains accessible to players on consoles, including Sony's PlayStation, which competes with Microsoft's Xbox.

In a written statement following Tuesday's ruling, Kotick expressed his belief that the merger would bring benefits to both consumers and workers.

He stated that it would foster competition and prevent established market leaders from maintaining their dominance in the rapidly growing industry.

The FTC requested an injunction from Corley to temporarily halt the closure of the deal between Microsoft and Activision. The purpose of this injunction was to allow the FTC's in-house judge to review the deal during an August trial.

Both Microsoft and Activision voiced concerns that a delay caused by the injunction would effectively result in the abandonment of the takeover agreement they had signed almost 18 months ago.

To address this, Microsoft agreed to pay Activision a $3 billion breakup fee if the deal fails to close by 18 July.

The FTC has not yet indicated whether it will appeal Corley's ruling.

“We are disappointed in this outcome given the clear threat this merger poses to open competition in cloud gaming, subscription services, and consoles," FTC spokesperson Douglas Farrar said in a prepared statement, reports The Hindu.

"In the coming days we’ll be announcing our next step to continue our fight to preserve competition and protect consumers," Farrar added.

This decision is a setback for the FTC's increased scrutiny of the technology industry under Chairperson Lina Khan, who was appointed by President Joe Biden in 2021 due to her firm stance against what she perceives as monopolistic behavior by tech giants like Amazon, Google, and Facebook parent company Meta.

Earlier this year, the FTC's attempt to halt Meta's acquisition of virtual reality fitness company Within Unlimited was rejected by another judge.

The hearing will cover the commission's enforcement actions record as well as her management of the agency staff.

During the proceedings, Corley, a Biden nominee, expressed doubt regarding the FTC's case.

She specifically questioned the hypothetical harm that could occur if Microsoft were to remove Call of Duty from rival platforms or provide a subpar experience on competing consoles.

In her ruling, Corley summarized the FTC's complaint, stating that it revolves around the popularity and significance of Call of Duty as a video game. The concern is that the merged firm might restrict access to the game for rivals, benefiting themselves economically but harming consumers.

However, Corley noted that the FTC did not present a strong case suggesting that Microsoft would likely remove Call of Duty from Sony's PlayStation.

Amid increasing anti-trust probes and legal challenges in US and around the world, Microsoft had made commitments to ensure Call of Duty's availability on various platforms, including Nintendo's Switch console and Nvidia's cloud gaming service, for at least ten years.

In her ruling, Corley concluded that the scrutiny applied to the case has been worthwhile. This echoes a message she conveyed to regulators during the courtroom proceedings last month.

Corley informed James Weingarten, the lead trial attorney for the FTC's case, that he believed they had emerged victorious.

Weingarten disagreed with Corley's assertion, stating that he did not consider it a win due to the lack of evidence supporting the effectiveness of the hastily agreed-upon contracts in safeguarding the market.

When Microsoft announced its acquisition of Activision Blizzard in early 2022, it estimated the deal's value at $68.7 billion, including Activision Blizzard's net cash.

However, Microsoft ultimately agreed to pay $95 in cash for each share of the game-maker, bringing the total closer to $75 billion.

Following the ruling, the shares of Activision Blizzard witnessed a significant surge of over 11 per cent on Tuesday, marking the highest point reached so far this year.

The merger still faces obstacles despite the ruling, although the biggest one has been removed.

While the Activision Blizzard takeover has been approved by several countries and the European Union, it is still being opposed by the UK's Competition and Markets Authority.

Originally, the company planned to challenge this decision at a tribunal hearing later this month. However, the ruling from the FTC has prompted a reassessment of their strategy.

In light of the FTC's ruling, both the British regulator and Microsoft have jointly applied to postpone the hearing. Their aim is to find a resolution to their differences and allow the deal to proceed.

The CMA stated that they are open to considering any proposals from Microsoft that would address the concerns outlined in the merger decision.