Report: FTC ‘likely’ to file suit to block Microsoft/Activision merger

Report: FTC ‘likely’ to file suit to block Microsoft/Activision merger

Report: FTC ‘likely’ to file suit to block Microsoft/Activision merger

Just a few of the Activision franchises that will become Microsoft properties if and when the acquisition is completed.
Magnify / Just a few of the Activision franchises that will become Microsoft properties if and when the acquisition is completed.

Microsoft / Activision

The Federal Trade Commission will “likely” file an antitrust lawsuit against Microsoft and Activision Blizzard to block the companies’ planned $69 billion merger deal. That’s according to a new Politico report that cites “three [unnamed] people with knowledge of the matter.”

While Politico writes that a lawsuit is still “not guaranteed,” it adds that FTC staff “are skeptical of the companies’ arguments” that the deal would not be anticompetitive. The sources also confirmed that “much of the heavy lifting has been completed” in the commission’s investigation, and that a lawsuit could be filed as early as next month.

Sony, the main opponent of Microsoft’s proposed purchase, has publicly argued that an existing contractual three-year guarantee to keep Activision’s best-selling Duty calls franchise on PlayStation is “inadequate on many levels.” In response, Microsoft head of Xbox, Phil Spencer, has publicly promised to continue delivery Duty calls play on PlayStation “as long as there’s a PlayStation out there to ship to.” It is not clear whether the companies have recalled that offer as a legal agreement; The New York Times reported this week that Microsoft had offered a “10-year deal to keep Duty calls on PlayStation.”

Numerous statements from Microsoft executives, including Spencer, have suggested that the company is less interested in strengthening its position in the “console wars” and more interested in growing its mobile, cloud gaming and Game Pass subscription offerings. Beyond Duty callsPolitico reports that the FTC is concerned about how Microsoft “could leverage future, unannounced titles to boost its gaming business.”

Microsoft “is prepared to address the concerns of regulators, including the FTC, and Sony to ensure that the deal closes in good faith,” spokesman David Cuddy told Politico. “We will continue to follow Sony and Tencent in the market after the deal closes, and together Activision and Xbox will benefit gamers and developers and make the industry more competitive.”

Many speed bumps remain

The reports of a potential FTC lawsuit add to a growing list of troubling signals about the proposed purchase from various international authorities. Earlier this month, the European Commission said it was moving to an “in-depth investigation” of the deal. In the UK, a similar “phase 2” investigation by the country’s Competition and Markets Authority is scheduled to be heard next month.

Those international investigations are expected to wrap up in March, to ensure the proposed deal doesn’t end before then, giving the FTC some time before it has to file charges. Such a lawsuit would have to be approved by a majority of the four current FTC commissioners and would likely start in the FTC’s administrative tribunal. And whatever the outcome, legal maneuvering in the case could easily delay the planned merger past a contractual deadline of July 2023, when both companies would have to renegotiate or abandon the deal.

An FTC lawsuit in this case would also be the strongest sign yet of a robust antitrust enforcement regime under FTC Chairman Lina Kahn, a major technology skeptic who was appointed to the post in June. Back in July, Kahn announced an antitrust lawsuit against Meta (formerly Facebook) and the proposed $400 million purchase of Within, makers of the VR fitness app Supernatural.

Three months after Microsoft’s proposed purchase was announced in January, a group of four US senators wrote an open letter strongly urging the FTC to look into the deal. Last month, merger news site Dealreporter said FTC staff had expressed “significant concerns” about the deal. And this week, the New York Times cited “two people” in reporting that the FTC had contacted other companies for sworn statements outlining their concerns about the deal, a possible sign of lawsuit preparations.

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