California judge denies the FTC’s preliminary injunction against Microsoft

The FTC’s attempts to scupper Microsoft’s acquisition of Activision Blizzard have hit a roadblock

California judge denies the FTC’s preliminary injunction against Microsoft

A San Francisco court has ruled against the FTC’s attempts to block Microsoft’s acquisition of Activision Blizzard, bringing the biggest deal in gaming history a step closer to completion.

The deal has come under intense scrutiny from regulators and competitors alike and, although it has been approved in more and more markets, the USA’s FTC and UK’s CMA have both proven harder to convince.

While Microsoft has repeatedly insisted that the intent behind the deal is to bolster its mobile presence through the acquisition of Activision Blizzard subsidiary King, the bulk of concern from regulators focuses on other areas of the gaming industry, such as the potential that Microsoft could remove the Call of Duty franchise from competing consoles, or use the opportunity to tighten its grip on the cloud gaming market.

Ironically, the complaints of mobile competitors - such as Google, which has voiced its concern that Microsoft could make King titles exclusive to its own app store and cut Google Play out of the equation - have rarely been the focus of investigation by legislators.

The FTC requested a preliminary injunction, which would effectively block the companies from finalising the acquisition until after 11.59 p.m. Pacific Time on the fifth day after the Court rules on the FTC’s request for a preliminary injunction.

As such, the deal could potentially be closed as soon as July 16, just prior to the contractual deadline of July 18.

In her ruling, Judge Jacqueline Scott Corley said: "Microsoft’s acquisition of Activision has been described as the largest in tech history. It deserves scrutiny. That scrutiny has paid off: Microsoft has committed in writing, in public, and in court to keep Call of Duty on PlayStation for 10 years on parity with Xbox. It made an agreement with Nintendo to bring Call of Duty to Switch. And it entered several agreements to for the first time bring Activision’s content to several cloud gaming services.

"This Court’s responsibility in this case is narrow. It is to decide if, notwithstanding these current circumstances, the merger should be halted—perhaps even terminated—pending resolution of the FTC administrative action. For the reasons explained, the Court finds the FTC has not shown a likelihood it will prevail on its claim this particular vertical merger in this specific industry may substantially lessen competition.

"To the contrary, the record evidence points to more consumer access to Call of Duty and other Activision content. The motion for a preliminary injunction is therefore DENIED."

Microsoft president Brad Smith took to Twitter, stating that the company is "grateful to the Court in San Francisco for this quick and thorough decision and [hopes] other jurisdictions will continue working towards a timely resolution".

Activision Blizzard CEO Bobby Kotick also reacted positively, stating: "[The] deal will benefit consumers and workers. It will enable competition rather than allow entrenched market leaders to continue to dominate our rapidly growing industry."

The end of the story?

As noted by Corley, the FTC’s antitrust case against Microsoft is still ongoing: whether the deal is approved or denied, Microsoft and Activision Blizzard could still agree to complete the acquisition, however a rejection by any market would necessitate that Activision Blizzard’s products be taken off sale, at least in the short term.

Workarounds, such as opening specific offices to handle operations in the USA, do exist, and are a likely option - however, this would come at a significant cost, and require strict regulation. While this is likely to be preferable to losing access to the lucrative US market, it still represents a cost Microsoft would prefer to avoid - after all, it’s already spent $68.7 billion on the acquisition, and any added cost is likely to see that number climb even further.

The companies are now able to complete their deal ahead of the deadline, however this comes with a significant caveat: either closing despite the CMA’s objection, or a speedy resolution to the CMA’s case against the deal. The latter in particular is unlikely, as a hearing isn’t due to begin until July 28.

Our deal will benefit consumers and workers. It will enable competition rather than allow entrenched market leaders to continue to dominate our rapidly growing industry.

Bobby Kotick

A path forward

With this in mind, there are two options available for Microsoft and Activision Blizzard.

First, the companies could close the deal, which would essentially call the CMA and FTC’s bluff. Both regulatory bodies have voiced their concerns about how the acquisition could affect consumers, and with Activision Blizzard being one of the biggest game makers in the world across platforms, their concerns may have some legitimacy.

However, refusing to approve the deal would see the countries lose access to some of the biggest gaming franchises in the world such as Call of Duty, World of Warcraft, and Candy Crush, at least temporarily. Should Acquiblizz move ahead, either regulator would therefore be forced to either step aside or continue to protest - potentially harming the very consumers they’ve previously attempted to protect.

The other option would be for Microsoft and Activision Blizzard to play it safe and wait for the cases to be concluded, missing the contractual deadline. Again, this represents something of a gamble, as either the FTC or CMA could refuse to approve the deal. This would allow the companies a full view of the landscape before taking the next step, and notably could offer either company the chance to reevaluate the situation and the deal.

While both remain committed to the deal, Activision Blizzard’s most recent shareholder’s letter noted that the deal could still be abandoned should any action be taken "by any governmental authority of competent jurisdiction, that… prohibits, makes illegal or enjoins the consummation of the merger and has become final and non-appealable".

The story is approaching its conclusion and, while we certainly have reason to believe that Microsoft and Activision Blizzard are making progress towards closing the deal, there’s still time for the deal to be abandoned.

We listed Activision Blizzard as one of the top 50 mobile game makers of 2022. We'll be revealing our 2023 list soon...

Staff Writer

Lewis Rees is a journalist, author, and escape room enthusiast based in South Wales. He got his degree in Film and Video from the University of Glamorgan. He's been a gamer all his life.