Microsoft is headed for a battle with the Federal Trade Commission over whether the US will block the tech giant’s planned acquisition of video game company Activision Blizzard.
Microsoft filed a formal challenge Thursday to the FTC lawsuit declaring the $68.7 billion deal an illegal takeover that should be stopped.
After years of avoiding political backlash aimed at big tech peers like Amazon and Google, the software giant now appears to be on a collision course with US regulators, emboldened by President Joe Biden’s push to crack down on anti-competitive behavior.
The FTC claims the merger could violate antitrust laws by stifling competitors for Microsoft’s Xbox gaming console and its growth Xbox Game Pass subscriptions.
At the center of the dispute is Microsoft’s rivalry with PlayStation maker Sony to secure popular Activision Blizzard franchises such as the military shooter Call of Duty.
The dispute could be a tough test case for Biden-appointed FTC Chair Lina Khan, who has sought to strengthen antitrust enforcement. The FTC voted 3-1 earlier in December to file the complaint to block the deal, with Khan and the two other Democratic commissioners voting in favor and the only Republicans voting against.
The deal is also being closely monitored in the European Union and the United Kingdom, where investigations will not be completed until next year.
The FTC’s complaint points to Microsoft’s 2021 acquisition of well-known game developer Bethesda Softworks and its parent company ZeniMax as an example of where Microsoft is making a number of upcoming Xbox-exclusive game titles, despite having European regulators assured that it had no intention of doing so.
The FTC’s suit describes top-selling franchises like Call of Duty as important because they develop a base of loyal users connected to their favorite console or streaming service.
“With control of ActivityActivision’s content, Microsoft would have the ability and greater incentive to withhold or downgrade Activision’s content in a manner that significantly reduces competition — including competition on product quality, price and innovation,” the FTC lawsuit says. “This loss of competition would likely result in significant harm to consumers in multiple markets at a critical time for the industry.”
Microsoft indicated it will vigorously challenge the case in court with a team led by high-profile corporate attorney Beth Wilkinson, while also leaving open the possibility of a settlement.
“Even with confidence in our cause, we remain committed to creative solutions with regulators that will protect competition, consumers and workers in the tech industry,” Microsoft president Brad Smith said in a statement Thursday. “As we have learned from our past litigation, the door never closes on the possibility of finding an agreement that can benefit everyone.”
Microsoft’s last major antitrust battle came more than two decades ago, when a federal judge ordered its dissolution following the company’s anti-competitive actions against its dominant Windows software. That verdict was overturned on appeal, although the court imposed other penalties on the company.
The FTC’s decision to forward the complaint to its internal administrative law judge D. Michael Chappell instead of seeking an urgent federal court order to halt the merger could drag the case on at least until August, when the first evidence hearing is scheduled. Microsoft agreement with Activision Blizzard requires it to pay the video game company a termination fee of up to $3 billion if it cannot close the deal by July 18.
The timing and trajectory of the case could change depending on how regulators in the UK and Europe decide on the merger next year. If Microsoft gets approval in Europe, it could use that to try to speed up the process in US courts.
The merger faced another challenge this week from a group of individual video game players who filed suit in a San Francisco federal court to stop the deal on antitrust grounds.
The plaintiffs, all fans of Activision Blizzard’s Call of Duty franchise and other popular titles such as World of Warcraft, Overwatch and Diablo, are particularly concerned about how the consolidation will impact future game quality, innovation and output, their attorney said. Joseph Alioto.
“If there is a lack of competition, the quality necessarily declines,” said Alioto. “By taking out Activision, it puts Microsoft in such a strong position that they can do whatever they want.”