The Federal Trade Commission on Thursday sued to block Microsoft’s planned $69 billion acquisition of video game company Activision Blizzard, saying it could suppress competitors to Microsoft’s Xbox game console. and its growing subscription gaming business.
The challenge for the FTC could be a test case for President Joe Biden’s mandate to scrutinize major technology mergers. The committee voted 3-1 to release the complaint after a closed meeting, with the three Democratic commissioners voting in favor and the lone Republican voting against.
The complaint points to Microsoft’s past game acquisitions, particularly popular developer Bethesda Softworks and parent company ZeniMax, as an example of where Microsoft is offering some upcoming game titles exclusively for Xbox despite reassuring European regulators that it has no intention of doing so.
“Microsoft has already shown that it can and will withhold content from its gaming competitors,” said a prepared statement from Holly Vidova, director of the Federal Trade Commission’s Office of Competition. “Today we seek to prevent Microsoft from taking control of a leading independent game studio and using it to damage competition in a wide variety of dynamic and fast-growing game markets.”. “
The FTC said it was moving the complaint through its administrative process rather than taking the case to federal court. According to the complaint, the administrative law judge decided to hear the evidence but not until August 2023.
Microsoft President Brad Smith indicated in a statement Thursday that the company is likely to challenge the FTC’s action.
“While we believed in giving peace a chance,” Smith said, “we have full confidence in our cause and welcome the opportunity to present our case in court.”
The company has been ramping up its public defense of the deal in recent days while it awaits a decision. Smith said Microsoft is committed to addressing competition concerns and submitted the proposed concessions to the Federal Trade Commission earlier this week.
“We still believe this deal will broaden competition and create more opportunities for gamers and game developers,” said Smith.
Microsoft announced the merger deal in January but faced months of resistance from Sony, which makes the competing PlayStation console and raised concerns with antitrust watchdogs. Around the world about losing access to popular Activision Blizzard game franchises like the military shooter Call of Duty.
Antitrust regulators under Biden “has formulated the view that merger policy has been too weak for decades, and they’ve said over and over again, ‘We’re changing that,'” William Kovacic, a former FTC chairman, said.
Kovacic, who was a Republican commissioner appointed by former US President George W. Bush in 2006, said that put pressure on the FTC to make good on its bold promises “not to allow dodgy deals and not to accept weak compromises.” But he said Microsoft had a good chance of winning the legal challenge.
“It is clear that the company has made a number of concessions,” he said. “Microsoft will probably take them to court and say the FTC is irredeemably stubborn about this.”
Microsoft announced its latest promise on Wednesday, saying it will make Call of Duty available on Nintendo Devices for a period of 10 years in the event of continued acquisition. She said she has tried to make the same commitment to Sony.
In an appeal to the Biden administration’s priorities, Microsoft also sought to brand its deal as worker-friendly after announcing a “labor neutrality agreement” in June with Communications Workers of America that would allow workers to unionize after the acquisition closed. The union’s president, Chris Shelton, wrote an opinion column in The Hill this week calling on the FTC to “seal the deal, not blow it.”
The deal is also under close scrutiny in the European Union and the United Kingdom, with investigations due to be completed until next year.
The FTC’s decision to send the complaint to its own internal judge rather than seek an urgent federal court injunction to stop the merger could drag the case on for months and give more “confidence to authorities outside the United States to make a swing of the deal on the matter,” said Kovacic, now a college professor. Law, George Washington University.
Activision Blizzard CEO Bobby Kotick said in a letter to employees Thursday that the FTC’s action “seems troubling, so I want to bolster my confidence that this deal will pan out.”
“The allegation that this transaction is anti-competitive is not consistent with the facts, and we believe we will prevail in this challenge,” Kotick wrote.
Kotick said the deal would be good for the players, staff, competition and industry.
“We believe these arguments will prevail despite a regulatory environment focused on ideology and misconceptions about the tech industry,” he said.
Led by FTC Chair Lena KhanThe committee is made up of three Democrats and one Republican after a second Republican stepped down earlier this year, leaving an open seat on the committee.
Democratic US Sen. Elizabeth Warren tweeted Thursday that she welcomes the FTC’s action, noting that she urged Khan to scrutinize the proposed merger.
“Monopolies have had free rein to raise prices and hurt workers, but now a Biden administration is committed to encouraging competition,” Warren said.
This year, both the Justice Department and the Federal Trade Commission considered strengthening merger guidelines to better detect and prevent illegal and anticompetitive deals.
Federal regulators also opened their campaign on Thursday To block the acquisition of a virtual reality company by Facebook parent Meta, Thursday in a courtroom in San Jose, California.
In this case, the Federal Trade Commission sued to block Meta’s acquisition of Inside Unlimited and fitness app Supernatural, asserting that it would harm competition and violate antitrust laws.
Microsoft has in recent years largely escaped the more intense regulatory backlash suffered by its tech competitors such as Amazon, Google, and Meta. But the sheer scale of the Activision Blizzard acquisition — which may be the most expensive in the history of the tech industry — has drawn attention.
Microsoft’s last big antitrust battle It happened more than two decades ago when a federal judge ordered its dismantling after the company’s anti-competitive actions related to its dominant Windows software. This ruling was overturned on appeal, although the court imposed other, less severe penalties on the company.
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