The US Federal Trade Commission (FTC) announced its intention to appeal a federal judge’s decision allowing Microsoft to proceed with its acquisition of Activision Blizzard, the maker of Call of Duty. Microsoft’s legal victory and the withdrawal of opposition by the UK’s competition authority have brought the tech giant closer to finalizing its largest-ever deal with Activision.
However, the possibility of additional regulatory obstacles increases the likelihood that the agreement between Microsoft and Activision will expire on July 18 without being completed. In the absence of a negotiated extension, either party will have the freedom to abandon the deal.
The appeal filed by the FTC provides no specific details but will be presented before the Ninth Circuit Court of Appeals on the West Coast. Microsoft has pledged to fight against the appeal, expressing disappointment in the FTC’s pursuit of what they believe to be a weak case.
While Tuesday’s court ruling removed an injunction against the deal’s completion, a stay remains in place until Friday to allow the FTC time to appeal. The FTC has the option to request a stay from the appeals court to prevent the deal from closing.
US District Judge Jacqueline Scott Corley of San Francisco, in her opinion, dismissed the Biden administration’s argument that the merger would harm consumers by granting Microsoft exclusive access to popular games like Call of Duty. The judge’s decision contradicts the position of the UK’s Competition and Markets Authority (CMA), which previously opposed the transaction but now suggests that a restructured deal between Microsoft and Activision Blizzard could address its concerns, subject to a new investigation.
Legal experts have debated the merits of the FTC’s appeal, as appeals courts generally defer to judges on matters of fact. Some argue that Judge Corley may have made an error in establishing the standard for halting a merger. In her order, she stated that it is not sufficient for the FTC to demonstrate that “a merger might lessen competition”; they must show that it “will probably substantially lessen competition.” Scholars have questioned this standard, pointing out that under US antitrust law, the FTC only needs to prove that the proposed deal “may” harm competition, not that it “will.”
To address the FTC’s concerns, Microsoft has agreed to license Call of Duty to its competitors, including a decade-long contract with Nintendo. However, when antitrust challenges to mergers are lost in court by US regulatory agencies, appeals are infrequent. Nevertheless, the FTC previously appealed a ruling over a decade ago in its unsuccessful attempt to block Whole Foods’ acquisition of Wild Oats. The agency eventually settled with the companies before a decision was reached by the appeals court.
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