The Federal Trade Commission will “likely” move to file an antitrust lawsuit against Microsoft and Activision Blizzard to block the companies’ planned $69 billion merger deal. That’s according to a new report from Politico that cites “three [unnamed] people familiar with the matter”.
While Politico writes that a lawsuit is not yet “guaranteed,” it adds that FTC staff “are skeptical of the companies’ arguments” that the settlement won’t 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 buyout, has publicly argued that an existing three-year contractual warranty to keep Activision’s best-selling call of Duty the franchise on PlayStation is “inadequate on many levels”. In response, Microsoft head of Xbox Phil Spencer has publicly promised to continue shipping call of Duty you play on PlayStation “as long as there’s a PlayStation out there to ship to”. However, it’s unclear whether the companies have memorialized that offer as a legal settlement; The New York Times reported this week that Microsoft had offered a “10-year deal to keep call of Duty 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 boosting its mobile subscription, cloud gaming and Game Pass offerings. Beyond call of DutyPolitico reports that the FTC is concerned about how Microsoft “may 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 the deal closes in confidence,” spokesman David Cuddy told Politico. “We will continue to follow Sony and Tencent into the market after the deal closes, and together Activision and Xbox will benefit gamers and developers and make the industry more competitive.”
Many bumps remain
The reports of a potential FTC lawsuit add to a growing list of worrying signals about the proposed purchase from various international governments. Earlier this month, the European Commission said it was moving to a “thorough investigation” into the deal. In the UK, a similar “Phase 2” investigation by the country’s competition and markets authority is scheduled for a hearing next month.
Those international investigations are expected to conclude in March, ensuring the proposed deal doesn’t close before then and giving the FTC some time before it has to file a lawsuit. Any such lawsuit would need to be approved by a majority of the four current FTC commissioners and would likely begin in FTC Administrative Court. And whatever the outcome, legal maneuvering in the case could easily delay the planned merger beyond the July 2023 contractual deadline, at which point both companies would have to either renegotiate or abandon the deal.
An FTC lawsuit in this matter would also be the strongest sign of a robust antitrust enforcement regime under FTC Chair Lina Kahn, a major technology skeptic who was named to the post in June. In July, Kahn announced an antitrust lawsuit against Meta (formerly Facebook) and its proposed $400 million purchase of Within, creators of the VR fitness app Supernatural.
Three months after the announcement of Microsoft’s proposed buyout in January, a group of four US senators wrote an open letter strongly urging the FTC to look closely at 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 quoted “two people” as reporting that the FTC had reached out to other companies for affidavits expressing their concerns about the settlement, a possible sign of preparations for the lawsuit.