The Federal Trade Commission (FTC) is continuing to oppose the Microsoft-Activision merger with a last-minute appeal against a judge’s ruling, while the big tech companies were voicing their eagerness for the merger they say will not harm competition.
U.S. judge Jacqueline Scott Corley ruled on Tuesday that Microsoft can proceed with its planned acquisition of videogame maker Activision Blizzard for $69 billion after the European Union (EU) approved the deal between the two gaming companies.
The FTC’s bid must clear some critical hurdles to succeed, legal experts said.
A U.S. federal appeals court will have a number of options available to it as it weighs that appeal, but legal professionals noted the rushed timing and the need to prove any alleged error by the district court judge merits overturning her decision could hinder the antitrust enforcer’s effort.
In its appeal, the FTC said Judge Corley’s order allowing Microsoft to move ahead with the deal incorrectly held the agency to a legal standard that was too high.
Some legal experts said the FTC had made a compelling argument, but also said there was no certainty for success. Such merger cases are also rare in the federal courts.
Judge Corley’s temporary order prohibiting the deal expires at 11:59 p.m. Pacific Time on Friday, and so the appeals court will be expected to issue an order on Friday. Microsoft and Activision are set to close the deal on July 18.
The appeals court could “administratively” block the deal for at least a few days, allowing a panel of judges more time to study the dispute and to rule, several legal experts said.
The court alternatively could grant the FTC’s request for an injunction—which could create a much longer pause—or outright deny it.
Kathleen Bradish, who oversees legal advocacy at the American Antitrust Institute, said the FTC “certainly has valid grounds” to question the trial judge’s order.
Bradish said any mistake by Judge Corley “won’t just have a bearing on this case, but has the potential to affect any vertical merger challenge in the foreseeable future.” A vertical merger refers to a deal between two companies from different parts of the same supply chain.
Antitrust scholar Sean Sullivan, who teaches at University of Iowa’s law school, said an appeals court can modify or throw out a lower court opinion based on “errors of law.”
“But not every alleged error is an actual error,” Sullivan said. “And not every actual error compels intervention.”
The appeals court is expected to move quickly. But the race against the clock is the fault of the FTC, said Douglas Ross, who teaches antitrust law at University of Washington’s law school.
The FTC could have sued Microsoft in December in federal court, but instead filed a case at the agency’s in-house forum, where an administrative law judge has no power to issue a preliminary injunction.
The appeals court “may be less than sympathetic with the argument it needs to hurry up and do something when the blame for the emergency lies entirely with the FTC,” Ross said.
In 2007, the FTC asked the District of Columbia Circuit to issue a preliminary injunction to block Whole Foods’ merger with Wild Oats. The court issued an “administrative” stay that lasted a few days, and then a panel dissolved its order and let the merger move ahead.
Previous Developments
The FTC also filed for an emergency injunction last month, ahead of the deal’s July 18 deadline. It also sued to block the acquisition last December.Britain’s Competition and Markets Authority (CMA) objected to the deal in April, arguing that it hurts consumers and that it was prepared to consider Microsoft’s proposals to resolve antitrust concerns in the United Kingdom.
The FTC says the deal should be blocked because Microsoft could gain access to a broad range of software and gaming titles and prevent other platforms or software companies from hosting them, thus dominating a large part of this market.
Microsoft and Activision say that the merger will not harm competition, as a best-selling gaming title will remain available for other gaming platforms in the next decade, but they did not address concerns over a wider range of software and business practices.
The federal government “has not shown it is likely to succeed on its assertion the combined firm will probably pull ‘Call of Duty’ from Sony PlayStation, or that its ownership of Activision content will substantially lessen competition in the video game library subscription and cloud gaming markets,” Judge Corley wrote in the 53-page partially redacted opinion.
There was speculation that the FTC would drop the appeal after the court’s decision, as was done in a similar situation in February, where the FTC dropped its in-house case against Meta’s proposed acquisition of Within Unlimited, a virtual reality startup after a different judge in the same court also declined to grant a preliminary injunction.
Microsoft president Brad Smith said on Twitter after the judge’s Tuesday decision that his focus would be on Britain. “While we ultimately disagree with the CMA’s concerns, we are considering how the transaction might be modified to address those concerns in a way acceptable to the CMA.”
The decision came weeks after the United Kingdom’s merger regulator stunned the gaming industry by vetoing the deal. The EU’s analysis indicated that the acquisition would not harm competition, especially as Microsoft has committed to allow cloud rivals to offer popular games like “Call of Duty” on their platforms for the next decade.
