The Federal Trade Commission filed a lawsuit Thursday to block Microsoft’s planned $69 billion takeover of video game company Activision Blizzard, saying it could squeeze out competitors from Microsoft’s Xbox game console. and its growing game subscription business.
The FTC’s challenge could be a test for President Joe Biden’s mandate to review big tech mergers. The commission voted 3-1 to file the complaint after a closed meeting, with all three Democratic commissioners voting in favor and the only Republican voting against.
The complaint points to Microsoft’s previous game acquisitions, particularly of well-known developer Bethesda Softworks and its parent company ZeniMax, as an example of where Microsoft is making certain upcoming Xbox-exclusive game titles despite assurances to European regulators that it had no intention of doing so.
“Microsoft has already shown that it can and will withhold content from its gaming rivals,” said a statement prepared by Holly Vedova, director of the FTC’s Competition Bureau. “Today, we seek to prevent Microsoft from taking control of a leading independent game studio and using it to harm competition in several dynamic and fast-growing game markets..”
The FTC said it was filing the suit through its administrative process rather than taking the case to federal court. An administrative law judge assigned him to hear evidence, but not until August 2023, according to the complaint.
Microsoft Chairman Brad Smith said in a statement Thursday that the company is likely to challenge the FTC action.
“While we believe in giving peace a chance, we have complete confidence in our case and welcome the opportunity to present our case in court,” Smith said.
The company had stepped up its public defense of the deal in recent days pending a decision. Smith said Microsoft committed to resolving competition issues and offered concessions to the FTC earlier this week.
“We continue to believe this agreement will expand competition and create more opportunities for gamers and game developers,” Smith said.
Microsoft announced the merger agreement in January, but faced months of resistance from Sony, which makes the rival PlayStation console and raised concerns with antitrust watchdogs worldwide losing access to popular Activision Blizzard game franchises such as military shooter Call of Duty.
Antitrust regulators under Biden “have said that for decades merger policy has been too weak and they’ve repeatedly said, ‘We’re changing that,'” former FTC chairman William Kovacic said.
That put pressure on the FTC to keep its bold promises to “not allow dodgy deals and not accept weak settlements,” said Kovacic, who was a Republican commissioner appointed in 2006 by the president of the time, George W. Bush. But he said Microsoft had a good chance of winning his legal challenge.
“Obviously the company made a number of concessions,” he said. “Microsoft would probably take them to court and say the FTC is incorrigibly stubborn about it.”
Microsoft announced its latest pledge on Wednesday, saying it would make Call of Duty available on Nintendo devices for 10 years if its acquisition materializes. He said he tried to offer the same commitment to Sony.
In an appeal to the Biden administration’s priorities, Microsoft had also sought to brand its deal pro-workers after announcing a “labour neutrality agreement” in June with the Communications Workers of America that would allow workers to unionize after the closing of the acquisition. Union 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 the subject of intense scrutiny in the European Union and the United Kingdom, where investigations are not expected to be completed until next year.
The FTC’s decision to send the complaint to its internal judge instead of seeking 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.” United to accept the deal on their own,” said Kovacic, who is now a professor at George Washington University School of Law.
Activision Blizzard CEO Bobby Kotick said in a message to employees on Thursday that the FTC’s action “seems alarming, so I want to build my confidence in getting this deal done.”
“The allegation that this agreement is anti-competitive does not fit the facts, and we believe we will win this challenge,” Kotick wrote.
Kotick said the deal would be good for players, employees, the competition and the industry.
“We believe these arguments will prevail despite a regulatory environment driven by ideology and misconceptions about the tech industry,” he said.
Led by FTC Chairwoman Lina Khana jurist who has advocated for tougher enforcement of antitrust laws, the commission is made up of three Democrats and a Republican after a second Republican resigned earlier this year and left a seat vacant on the panel.
Democratic U.S. Senator Elizabeth Warren tweeted on Thursday that she welcomed the FTC’s action, noting that she had urged Khan to review the proposed merger.
“Corporate monopolies were given carte blanche to raise prices and hurt workers, but now Biden’s administrator has pledged to promote competition,” Warren said.
The Justice Department and the FTC sought this year to strengthen merger guidelines to better detect and prevent illegal and anticompetitive agreements.
Federal regulators also opened their campaign Thursday to block Facebook parent Meta’s acquisition of a virtual reality company Thursday in a courtroom in San Jose, Calif.
In that case, the FTC filed a lawsuit to block Meta’s acquisition of Within Unlimited and its fitness app Supernatural, claiming it would harm competition and violate antitrust laws.
In recent years, Microsoft has largely escaped the more intense regulatory backlash that tech rivals such as Amazon, Google and Meta have endured. But the sheer size of Activision Blizzard’s acquisition — which could be the most expensive in tech industry history — has caught the eye.
Microsoft’s last big antitrust battle happened more than two decades ago when a federal judge ordered its dissolution following the company’s anti-competitive actions related to its dominant Windows software. This verdict was overturned on appeal, although the court imposed other less drastic sanctions on the company.