Microsoft says it can stop the Activision deal if the judge delays it

The first day of a weeklong hearing that could determine the outcome of Microsoft’s $70 billion acquisition of video game giant Activision Blizzard began Thursday with a promise from Microsoft: If a federal judge issues an injunction that would delay closing the deal, Microsoft might refrain from handling it altogether.

“This is going to decide whether the deal goes through,” said Beth Wilkinson, Microsoft’s lead attorney. She added that a loss could force the company into a “three-year administrative nightmare” that would sink the transaction, which it hopes to close on July 18.

That set the stakes for the federal court hearing in San Francisco, where the Federal Trade Commission began laying out its case that Microsoft’s acquisition of Activision — and its popular games like Call of Duty — would be devastating to the video game industry. industry.

The FTC is asking Judge Jacqueline Scott Corley for a preliminary injunction, preventing Microsoft from finalizing the deal before the FTC has had a chance to argue the case in internal court.

The clash is widely seen as a test of whether recent attempts to more aggressively curb the power of tech giants around the world will succeed. Lina Khan, the chair of the FTC, has argued that major tech companies have enormous influence over online commerce and communications, allowing them to engage in anti-competitive practices that harm consumers.

“If this deal closes, the combined company will likely have the opportunity and incentive to hurt competition in various markets related to consoles, subscription services and cloud,” James Weingarten, the FTC’s chief attorney, said in court Thursday. .

Mr Weingarten also said Microsoft could make Activision’s games exclusive to the Xbox console or reduce their quality on other platforms to make the Xbox more appealing to gamers. He pointed to Microsoft’s previous purchase of ZeniMax Media and its array of game studios for $7.5 billion in 2020, after which Microsoft made some of those games exclusive to Xbox.

The FTC is also expected to argue that including Activision’s games in Microsoft’s portfolio would give the company an unfair advantage in the burgeoning cloud gaming market.

Microsoft responded that the Activision deal would be good for consumers because they would expand their ability to play Activision games through low-cost options like Microsoft’s Xbox Game Pass, a subscription service, or through the platforms of other companies like Nintendo and Nvidia, which it has entered into an agreement. entered into a partnership.

Ms. Wilkinson also argued that it would be nonsensical for Microsoft to remove Call of Duty and other titles from other platforms, such as Sony’s PlayStation, because the company would miss out on a large chunk of its gaming revenue. She said Sony had become the “lead complainant” in the case and showed an email from Sony’s CEO, Jim Ryan, in which he suggested he didn’t really believe Microsoft would withhold Call of Duty.

The FTC, in another lawsuit, accused Meta, Facebook’s parent company, of cutting off emerging competitors when it bought Instagram and WhatsApp. On Wednesday, it sued Amazon over allegations that the company tricked users into signing up for its Prime subscription service. But the FTC has had setbacks: Earlier this year, the challenge for Meta’s purchase of a virtual reality start-up fell apart after a judge refused to stop the deal.

The FTC initially challenged Microsoft’s bid for Activision in an internal court. But that court does not have the legal authority to stop the deal. The FTC asked the US District Court for the Northern District of California earlier this month to intervene, arguing that despite the legal challenges, Microsoft would try to finalize the deal.

Judge Corley’s courtroom hearing could be a decisive test for the FTC. If Microsoft wins, it would signal that there are weaknesses in the FTC case and could lead the agency to drop the challenge of the deal. But a win for the FTC could be a sign that the broader challenge has legs, and could put fresh pressure on Microsoft and Activision to reconsider the multibillion-dollar business marriage.

Sony, whose PlayStation console competes with Microsoft’s Xbox, has been an outspoken critic of the deal. Sony claims that PlayStation gamers could lose access to Call of Duty – a massive franchise that has earned more than $30 billion in lifetime revenue – if Microsoft decided to make the game an Xbox exclusive. Microsoft has denied doing this.

While most governments around the world, including the European Union, have approved the acquisition, Microsoft suffered a setback in April when a UK regulatory body blocked the acquisition. That decision is on appeal.

The high-profile list of witnesses expected to testify before Judge Corley next week includes Microsoft CEO Satya Nadella; Amy Hood, the company’s chief financial officer; Bobby Kotick, the CEO of Activision; and Phil Spencer, the CEO of Microsoft’s Xbox unit. Mr. Ryan, the CEO of Sony, will appear via a pre-recorded video deposition.