Judge Denies FTC’s Request to Block Microsoft’s Acquisition of Activision

Judge Jacqueline Scott Corley has denied the Federal Trade Commission’s plea for a preliminary injunction to halt Microsoft’s acquisition of Activision Blizzard for $68.7 billion. In the event that the injunction was granted, both Microsoft and Activision had expressed their intention to withdraw from the significant merger.

“This court’s responsibility in this case is narrow. It is to decide whether the merger should be halted — perhaps even terminated — despite these current circumstances, pending resolution of the FTC’s administrative action,” Corley wrote in the decision. “For the reasons explained, the Court finds that the FTC has not demonstrated a likelihood of prevailing on its claim that this vertical merger in this industry could significantly lessen competition. To the contrary, the evidence suggests that consumer access to Call Customs and other Activision content. Injunction is therefore dismissed.”

Corley wrote that since the acquisition “has been described as the largest in the history of technology,” it deserves scrutiny. He noted Microsoft’s commitment to keep Call of Duty on PlayStation and the contracts the company has to bring its games and Activision Blizzard games to Nintendo Switch and cloud gaming services.

“We are grateful to the San Francisco court for this swift and thorough decision and hope that other jurisdictions will continue to work toward a timely resolution.” Microsoft chairman and vice president Brad Smith said. “As we have demonstrated consistently throughout this process, we are committed to working creatively and collaboratively to address regulatory concerns.”

“We are grateful to the court for the way this process has been handled and the discretion of the decision. The United States joins the 38 countries where our business can proceed – these decisions are based on facts and data that show that our merger is good for players and competition in the industry,” Activision Blizzard CEO Bobby Kotick wrote in an email to employees.

The FTC sued to block the merger last December, and an administrative hearing is scheduled for Aug. 2. However, the deadline for the merger agreement is July 18, so Microsoft and Activision Blizzard are eager to complete the deal by then. Otherwise, Microsoft is on the hook for a $3 billion severance payment to Activision unless the two sides can renegotiate terms. As such, they wanted the court to quickly review the FTC’s request for an injunction.

The companies argued that if granted, the preliminary injunction would “effectively prevent the transaction because the FTC’s process is a ‘glacier’ and no significant transaction could ever survive.”

The UK’s Competition and Markets Authority is the only national antitrust authority to have formally denied the Activision takeover. Microsoft and Activision are appealing the CMA’s decision to block the merger over cloud gaming. The appeals process could take several months, but there have been suggestions that the companies could be locked into the deal regardless.

That prompted the FTC to request an injunction in hopes that it could “evaluate the legality of the proposed acquisition” at a hearing in August before the deal closes. “Press reports began to circulate suggesting that the defendants were seriously considering terminating the proposed acquisition despite the pending administrative proceedings and CMA orders,” the FTC’s request reads.

Corley released his decision after a five-day trial in June that saw all sorts of juicy gaming industry secrets and emails between industry executives exposed for all to see. First, we learned that MachineGames’ Indiana Jones project was originally supposed to be a multiplayer game, but when Microsoft bought ZeniMax, it made the title exclusive to the Xbox console.

Microsoft and Activision Blizzard are not entirely clear. Regulatory authorities in dozens of countries have approved the agreement, including in the European Union. However, the UK’s competition authority poses a significant hurdle (the appeals process will begin with a hearing later this month), and the FTC’s administrative proceedings are still ongoing. However, companies have cleared a major hurdle by winning this battle.

Corley ruled that the FTC has until July 14 at 11:59 PM PT to seek a stay from the Ninth Circuit Court of Appeals to further delay the deal’s closing. Otherwise, Microsoft and Activision can make a deal, giving them just enough time to do it before the deadline. Firms may still decide to continue their procurement contract when a CMA appeal is made in the hope that it can be closed without having to resort to a workaround.

“We are optimistic that today’s decision will pave the way for full regulatory approval elsewhere in the world, and we stand ready to work with UK regulators to resolve any remaining concerns so we can quickly close our merger,” Kotick said.

“Following today’s US court decision, our focus now turns back to the UK. While we ultimately disagree with the CMA’s concerns, we are considering how the deal could be amended to address these concerns in a way that is acceptable to the CMA,” Smith said. “In order to prioritize consideration of this proposal, Microsoft and Activision have agreed with the CMA that it would be in the public interest to stay the proceedings in the UK, and the parties have submitted a joint submission to the Competition Appeal Tribunal.”