Microsoft prepares to go to battle with FTC over Activision deal

The personal computing company has been announcing its position for months, saying the acquisition does not threaten competition in the industry as Microsoft lags behind video game console rivals and has a limited presence in mobile game development. The company has also said it expects the industry to become more competitive in the future with the rise of cloud gaming.

Legal experts say Microsoft will likely build its case around those talking points, as well as the fact that it’s pursuing a so-called vertical merger, meaning it’s buying a company in its supply chain rather than a direct competitor.

The deal “is fundamentally good for gamers, good for consumers, good for game developers and good for competition,” Microsoft president and vice chairman Brad Smith said Tuesday at the company’s annual shareholders’ meeting. “We will have to take this matter to a judge in a court of law because this is a matter in which I have great confidence.”

Microsoft has until Thursday to respond to the FTC’s lawsuit, which was filed Dec. 8 in the agency’s administrative court.

In its complaint, the FTC alleged that the deal is illegal because it would give Microsoft the ability to control how consumers access Activision’s games outside of the Redmond, Washington, company’s own Xbox consoles and subscription services. The company could raise prices or downgrade Activision’s content for people who don’t use the hardware to access the developer’s games, or even cut off access to the games entirely, the FTC said.

“If you can master a major source of content like Activision Blizzard, you have a variety of tools at your disposal,” which could stifle competition, an agency official said earlier this month.

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At the shareholder meeting, Mr. Smith challenged the FTC’s concerns that Microsoft’s main rival, PlayStation maker Sony Group Corp., would be hurt by the deal, saying that Sony has too much of a lead in high -performance consoles to warrant protection.

He further argued that the FTC’s case hinges largely on concerns that Microsoft could one day make games from Activision’s “Call of Duty” – which is a hit among PlayStation users – exclusively for its Xbox system. Mr Smith said that Sony has about four times as many exclusive games on its consoles as Microsoft has on its slot machines.

Sony did not respond to a request for comment.

Microsoft said it made a last-minute offer to keep “Call of Duty” games accessible to others through a legally binding consent decree.

There would be a hearing in the FTC Administrative Court in August unless a resolution is reached before then. After the case is heard, legal experts say it could take months for a decision to be made, and the losing party could then appeal it with the full commission. If an appeal is lodged, the committee reassesses the entire file and hears oral argument before deciding whether to uphold or overturn the administrative court’s order. If Microsoft loses at that point, the company could appeal the commission’s decision to a federal appeals court.

“This is by no means a slam-dunk thing for the FTC,” said Eric Talley, a professor at Columbia Law School. bend legal precedent a little more in their favor.”

Some analysts said Microsoft would like to drop the acquisition, which values ​​the company at $68.7 billion after adjustment Activity‘s net cash, to avoid management distractions and costly regulatory concessions. Microsoft has said it is committed to addressing regulators’ concerns.

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As the litigation continues, Microsoft could make additional commitments to the FTC or implement them itself, said Benjamin Sirota, an antitrust attorney with the law firm Kobre & Kim LLP in New York. But to be satisfied, the government would have to enforce those commitments, which require “resources and often changing circumstances,” he said. The agency could also consider how “commitments that solve a competition problem now may not work in the future,” he said. added.

According to David Hoppe, mergers and acquisitions, technology and media attorney at Gamma Law in San Francisco, the FTC faces hurdles in its case because of the vertical merger status of the deal.

“With these cases, it’s hard to prove consumer harm,” he said. “It’s not two competitors coming together, in which case consumer harm is usually self-evident.”

The FTC has been clear about its intention to extend the scope of damages beyond the likely impact of a merger on consumer prices, said Mr. Hoppe. The agency may be concerned about actions that could indirectly put consumers at risk, he said, such as the combined company’s misuse of sensitive information about competitors. That information could provide Microsoft with a way to prevent newcomers to succeed in video game distribution, which could result in fewer options for consumers, he said.

“It’s all about the network effect,” said Mr. Hoppe.

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