The Federal Trade Commission wants to make sure that Microsoft doesn’t complete its massive $69 billion acquisition of video game giant Activision Blizzard before the agency has the chance to block it in court.
The FTC requested a temporary restraining order and preliminary injunction from a federal court on Monday to stop the companies from merging before the deal’s July 18 deadline. The agency sued the companies to block the merger last December, saying that the merger would harm competition in the gaming market, but that trial won’t begin until August. The FTC believes that Microsoft and Activision will go ahead with the merger despite the pending legal action unless a court forbids them to do so and that there will be competitive harm if that happens. This latest filing shows that the FTC is still very serious about stopping the merger.
The federal judge’s decision may play a pivotal role in the case going forward. If a judge does not rule in the FTC’s favor, the FTC is more likely to drop its entire case. If the judge allows the temporary restraining order, the FTC may see this as a good sign for its chances in its later trial.
Microsoft seems quite cognizant of these stakes, with company vice chair and president Brad Smith saying in a statement that the company “welcome[s] the opportunity to present our case in federal court. We believe accelerating the legal process in the US will ultimately bring more choice and competition to the market.”
The initial lawsuit to block the merger was FTC chair Lina Khan’s biggest yet against a Big Tech company in her tenure. Since Khan’s surprise appointment to chair the consumer protection and competition agency in June 2021, many waited to see which Big Tech merger Khan would go after, believing it was not a matter of if she would block a merger but when and which one.
Microsoft managed to avoid most of the scrutiny and criticism that its Big Tech peers endured over the last several years, and there was a sense that it already had its big reckoning and learned its lesson back in the late ’90s and early 2000s, when an antitrust lawsuit from the Department of Justice nearly broke up the company. Then Microsoft decided to make the biggest acquisition in its history as well as the history of gaming in general and became impossible to ignore.
The FTC’s suit noted that Microsoft has a track record of buying gaming companies and making some of their titles exclusive to Microsoft’s platforms, including the Xbox console and Game Pass, its game subscription streaming service. It argued that Activision makes some of the world’s most popular games and that Microsoft could make them more expensive or harder — if not impossible — to play on competitors’ platforms.
“Microsoft has already shown that it can and will withhold content from its gaming rivals,” Holly Vedova, director of the agency’s bureau of competition, said in a statement last December. “Today we seek to stop Microsoft from gaining control over a leading independent game studio and using it to harm competition in multiple dynamic and fast-growing gaming markets.”
Microsoft is also facing opposition to the merger abroad. The United Kingdom rejected the acquisition, saying it would harm the nascent cloud gaming market. That was an unexpected blow to the company, which is appealing the decision. The European Union, on the other hand, approved the deal after Microsoft agreed to certain conditions that the EU said would be enough to reduce potential competitive harm.
For its part, Microsoft says the acquisition will make competition better and be great for consumers.
Microsoft has been increasingly vocal about various peace offerings they have floated to placate Washington, most of them centered around Call of Duty, Activision’s blockbuster game franchise. The company has repeatedly said it would continue to license Call of Duty to other platforms — notably Sony, which also has a game console with exclusive game licenses. Just before the FTC’s lawsuit last December, Microsoft announced a plan to bring Call of Duty to Nintendo’s Switch consoles for at least the next 10 years.
Microsoft has some basic logic in its favor when it comes to Call of Duty: It would be enormously costly if it cut off a huge part of the game’s user base after buying it. Which is the same reason that AT&T didn’t prevent other distributors from selling HBO subscriptions when the telecom company owned what used to be called WarnerMedia.
But in its December press release announcing the move, the FTC focused on Microsoft’s track record with Bethesda, a game developer it bought for $7.5 billion in 2021. “Microsoft decided to make several of Bethesda’s titles including Starfield and Redfall Microsoft exclusives despite assurances it had given to European antitrust authorities that it had no incentive to withhold games from rival consoles,” the FTC said.
This isn’t the FTC’s only battle with Big Tech. The agency inherited and then re-upped the Trump administration’s antitrust suit against Meta, and then created a new fight with the same company by trying to block Meta’s acquisition of virtual reality game developer Within last July. But after a judge ruled against an injunction preventing Meta and Within from merging until the trial’s conclusion, the two companies completed the merger and the FTC dropped its lawsuit. If a judge rules against the FTC’s latest injunction request, we may see history repeat itself, much to what would surely be Microsoft and Activision’s delight.
Given the agency’s limited resources, Khan has to pick her battles. Microsoft and a $69 billion merger is almost as big a battle as it gets.
Peter Kafka contributed reporting to this article.
Update, June 12, 2023 6 pm ET: This story was originally published on December 8, 2022, and has been updated with news about the FTC’s temporary restraining order request filing.