The FTC argues that the deal needs to be blocked to “maintain the status quo and prevent interim harm to competition” while its administrative process proceeds. Microsoft and the FTC are currently conducting depositions. Hearings are expected to begin in August.
The filing is a gamble for antitrust enforcers, who have recently suffered a series of setbacks in the courts to their efforts to restrain the power of large technology companies. If a judge denies the FTC’s request to block the deal, it would be a blow to its arguments in the parallel administrative proceedings.
Earlier this year, a judge in Northern California ruled against the agency when it attempted to block Facebook parent company Meta from acquiring the virtual reality company Within. Apple recently scored a win as a federal appeals court ruled that Epic Games, the maker of Fortnite, failed to prove that Apple’s App Store policies constituted anticompetitive conduct in violation of federal antitrust laws. And a federal appeals court in April upheld a judge’s decision to dismiss a multistate antitrust lawsuit against Meta.
Microsoft president Brad Smith said he welcomed “the opportunity to present our case in federal court.” The deal is critical to the company’s ambitions in gaming, and it would give the Xbox maker control of popular titles including “Call of Duty.”
“We believe accelerating the legal process in the U.S. will ultimately bring more choice and competition to the market,” he said.
The FTC warned that if Microsoft were able to consummate the deal, it would be able to “begin altering Activision’s operations and business plans, accessing Activision’s sensitive business information, eliminating key Activision personnel, changing Activision’s game development efforts, and entering into new contractual relationships on behalf of Activision.”
The FTC has argued that the Activision deal would give Microsoft the ability to thwart competitors by withholding these games from competing game systems entirely, or by manipulating pricing and degrading game quality on rival consoles. It also has warned that it could give Microsoft an unfair advantage in the nascent field of cloud gaming, which allows gamers to stream titles to consoles, phones or other devices.
Microsoft is appealing a decision in the United Kingdom to block the deal, following similar concerns that the merger would give Microsoft an unfair upper hand in cloud gaming. The European Union, however, gave the deal a green light, after Microsoft made an agreement to license “Call of Duty” and other popular Activision games free to other cloud gaming providers.