FTC files to block Microsoft-Activision

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Satya Nadella, chief executive officer of Microsoft Corp., pauses during a Bloomberg event on the opening day of the World Economic Forum (WEF) in Davos, Switzerland, on Tuesday, Jan. 21, 2020.

Simon Dawson | Bloomberg | Getty Images

The Federal Trade Commission on Monday applied for a temporary restraining order and preliminary injunction seeking to block Microsoft’s acquisition of Activision Blizzard before the deal’s July 18 deadline.

CNBC reported on the FTC’s plans earlier in the day.

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The FTC said it fears that should Microsoft be allowed to buy Activision, Microsoft would have the power to “withhold or degrade” Activision’s gaming products, through price, game quality, experience on competitors’ offerings or “withholding content from competitors entirely.”

In other words, the FTC is worried that Microsoft could withhold popular games from Activision Blizzard’s library from launching on other game consoles, like those sold by Sony. Or it could charge more for games that launch on other consoles. Call of Duty is one title that has come up and, while it’s currently available across platforms and Microsoft has promised to continue to sell that series of games broadly, regulators fear that Microsoft could have the power to hold those or similarly popular future titles for Xbox, taking buyers away from Sony and other console makers.

If the parties were allowed to merge before the case made its way through an administrative proceeding, the FTC argued that “reestablishing the status quo would be difficult, if not impossible.”

The injunction request comes as the deadline for the deal was coming down to the wire. Both the FTC’s hearing date, and that of an appeal to the UK’s Competition and Markets Authority’s decision to block the dea,l came after the parties’ deadline of July 18. Meanwhile, European Commission regulators had cleared the acquisition.

The FTC told the court that a preliminary injunction was necessary “because Microsoft and Activision have represented that they may consummate the Proposed Acquisition at any time.”

Microsoft announced its intent to buy Activision Blizzard for $68.7 billion in January 2022 in what would be its largest transaction to date. At the time, the software maker said it expected to complete the deal by the end of June 2023. If the deal falls apart, Microsoft might wind up owing Activision Blizzard a termination fee worth up to $3 billion.

The FTC sued to block the acquisition in December 2022, choosing to bring the case before its internal administrative law judge. A hearing on the FTC’s case will begin on Aug. 2, the agency said in Monday’s filing.

In an administrative case, the in-house judge issues a decision that can be appealed to the full commission. Should the commission vote against Microsoft and Activision, they could appeal the case to a federal court.

“We welcome the opportunity to present our case in federal court,” Microsoft President Brad Smith said. “We believe accelerating the legal process in the U.S. will ultimately bring more choice and competition to the market.”

Activision Blizzard CEO Bobby Kotick said in an email to employees that the company welcomed the FTC’s decision to discuss the planned transaction in a federal court.

“Our excellent legal team has been preparing for this move for more than a year, and we’re ready to present our case to a federal judge who can evaluate the transaction on the merits,” he wrote.

Smith was scheduled to meet last week with UK Chancellor Jeremy Hunt regarding the deal, Bloomberg reported, citing unnamed people.

In May the European Union’s executive arm approved the deal after initially saying it was worried the deal would reduce competition. Regulators had originally felt that Microsoft might be able to prevent other companies from distributing Activision Blizzard games such as Call of Duty titles on other consoles other than Microsoft’s Xbox.

Microsoft offered its main rival in consoles, Sony, a decade-long contract to make every Call of Duty game available on Sony PlayStation at the same time the Xbox gets it. But Sony has not accepted.

“I don’t want a new Call of Duty deal. I just want to block your merger,” Jim Ryan, Sony Interactive Entertainment’s president and CEO, has said, according to a tweet from Lulu Cheng Meservey, an Activision Blizzard executive.

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