A federal judge has handed Microsoft a major victory by declining to block its looming $69 billion takeover of video game company Activision Blizzard. sought to ax the deal saying it will hurt competition.
U.S. District Judge Jacqueline Scott Corley said in a ruling that the merger deserved scrutiny, noting it could be the largest in the history of the tech industry. But federal regulators were unable to show how it would cause serious harm and wouldn鈥檛 likely prevail if they took it to a full trial, she wrote.
The Federal Trade Commission, which enforces antitrust laws, 鈥渉as not raised serious questions regarding whether the proposed merger is likely to substantially lessen competition鈥� between video game consoles or in the growing markets for monthly game subscriptions or cloud-based gaming, Corley said.
A ruling favorable to Microsoft was not a surprise after the company鈥檚 lawyers had the upper hand in a 5-day San Francisco court hearing that ended late last month. The proceeding showcased testimony by and longtime Activision Blizzard CEO Bobby Kotick, who both pledged to keep Activision鈥檚 blockbuster game Call of Duty available to people who play it on consoles 鈥� particularly Sony鈥檚 PlayStation 鈥� that compete with Microsoft鈥檚 Xbox.
鈥淥ur merger will benefit consumers and workers. It will enable competition rather than allow entrenched market leaders to continue to dominate our rapidly growing industry,鈥� Kotick said in a written statement after Tuesday鈥檚 ruling.
The FTC had asked Corley to issue an injunction temporarily blocking Microsoft and Activision from closing the deal before the FTC鈥檚 in-house judge can review it in an August trial.
Both companies suggested that such a delay would effectively force them to abandon the takeover agreement they signed nearly 18 months ago. Microsoft promised to pay Activision a $3 billion breakup fee if the deal doesn鈥檛 close by July 18.
The FTC hasn鈥檛 said whether it will appeal Corley鈥檚 ruling.
鈥淲e are disappointed in this outcome given the clear threat this merger poses to open competition in cloud gaming, subscription services, and consoles,鈥� FTC spokesperson Douglas Farrar said in a prepared statement. 鈥淚n the coming days we鈥檒l be announcing our next step to continue our fight to preserve competition and protect consumers.鈥�
The decision is a setback for the FTC鈥檚 heightened scrutiny of the technology industry under Chairperson Lina Khan, who was in 2021 because of her tough stance on what she sees as monopolistic behavior by tech giants such as Amazon, Google and Facebook parent Meta.
Another judge rebuffed the FTC鈥檚 attempt earlier this year to stop Meta from taking over the And on Thursday, Khan is expected to face tough questioning from Republicans in Congress who have called her to testify at a House hearing about the commission鈥檚 record of enforcement actions as well as her management of the agency staff.
Corley, herself a Biden nominee, expressed skepticism about the FTC鈥檚 case during the proceedings, particularly about the hypothetical harms caused if Microsoft were to remove Call of Duty from rival platforms or offer a subpar experience on competing consoles.
鈥淭he gist of the FTC鈥檚 complaint is Call of Duty is so popular, and such an important supply for any video game platform, that the combined firm is probably going to foreclose it from its rivals for its own economic benefit to consumers鈥� detriment,鈥� Corley wrote in her ruling.
But she said the FTC hadn鈥檛 make a strong case that Microsoft would likely pull Call of Duty from rival Sony鈥檚 PlayStation. As antitrust investigations and legal challenges mounted in the U.S. and around the world, Microsoft pledged that Call of Duty would appear on Nintendo鈥檚 Switch console, Nvidia鈥檚 cloud gaming service and other platforms for at least a decade.
In that way, the 鈥渟crutiny has paid off,鈥� Corley concluded in her ruling, repeating a message she relayed to regulators in the courtroom last month.
鈥淚n many ways you won,鈥� Corley had told the FTC鈥檚 lead trial attorney on the case, James Weingarten.
鈥淚 don鈥檛 think we won,鈥� Weingarten responded, saying there was no evidence that the 鈥渉astily agreed to鈥� contracts would sufficiently protect the market.
Microsoft valued the deal at $68.7 billion when it announced the acquisition in early 2022, 鈥渋nclusive of Activision Blizzard鈥檚 net cash,鈥� though Microsoft agreed to pay $95 in cash for each share of the gamemaker, closer to $75 billion.
Shares of Activision Blizzard Inc. jumped more than 11% Tuesday on the ruling, a high for the year.
The ruling removes the biggest, but not the only obstacle, to the merger.
A number of other countries have approved the Activision Blizzard takeover, but it still faces opposition from the . The company was set to challenge that decision at a tribunal hearing scheduled for later this month but the FTC鈥檚 ruling appeared to have forced a rethink.
The British regulator and Microsoft both said Tuesday they have jointly applied to put the hearing on hold while they work out a way to resolve their differences so that the deal can go ahead.
鈥淲e stand ready to consider any proposals from Microsoft to restructure the transaction in a way that would address the concerns鈥� outlined in the merger decision, the CMA said in a prepared statement.
Microsoft President Brad Smith said in a statement that the company is looking to modify its transaction 鈥渋n a way that is acceptable to the CMA,鈥� though it disagrees with the agency鈥檚 concerns.
Canadian regulators are also investigating the transaction and have concluded it is 鈥渓ikely to result鈥� in preventing or lessening competition, according to a letter to Microsoft filed in the U.S. case late last month that echoed the FTC鈥檚 concerns.
In the U.S., advocates for tougher antitrust enforcement are urging the FTC to ask an appeals court to pursue an emergency stay of Corley鈥檚 decision so that a trial can proceed. Some are calling attention to a perceived conflict of interest involving the judge鈥檚 son, who works for Microsoft. Corley disclosed the relationship in court.
鈥淭he fact that Judge Corley鈥檚 son works for Microsoft taints the outcome at a time when judicial ethics are top of mind for many,鈥� said a prepared statement from Lee Hepner, legal counsel at the American Economic Liberties Project.
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