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FTC appeals its loss to Microsoft in Activision Blizzard case

FTC appeals its loss to Microsoft in Activision Blizzard case


Earlier this week, a judge ruled in favor of Microsoft in its fight with the FTC.

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Illustration of the Activision Blizzard logo
Illustration by William Joel / The Verge

The Federal Trade Commission (FTC) is appealing a recent US federal court order that cleared the way for Microsoft to purchase Activision Blizzard. The FTC filed its opposition to Judge Jacqueline Scott Corley’s decision, asking for the deal to be paused once more, this time by the Ninth Circuit Court of Appeals.

Microsoft won a grueling fight with the FTC earlier this week, with a federal judge denying a preliminary injunction request from the US regulator. “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,” Judge Corley wrote in the ruling. “To the contrary, the record evidence points to more consumer access to Call of Duty and other Activision content.”

A screenshot of the FTC’s notice of appeal.
You can read the full notice of appeal here, but the document doesn’t have much more than this.
Screenshot by Jay Peters / The Verge

If the preliminary injunction had been granted, it would have temporarily blocked Microsoft from closing its Activision Blizzard deal until the result of the FTC’s own administrative case against the company. That separate legal challenge is still due to commence on August 2nd.

Now that the FTC is choosing to appeal Judge Corley’s decision, the regulator needs the Ninth Circuit Court of Appeals to issue an emergency stay to extend the existing temporary restraining order (TRO) that is set to expire at 11:59PM PT on Friday, July 14th. It’s not clear if the appeals court will even rule before the deal deadline on July 18th, potentially leaving the door open for Microsoft to close the Activision Blizzard deal on Monday or Tuesday without a restraining order in place.

The FTC makes a series of arguments against the lower court ruling, arguing that:

  1. The ruling applied the wrong legal standard, relying on government cases seeking permanent injunctions.
  2. It erred in saying potential consumer benefits of Xbox Game Pass outweighed the potential for foreclosure of games like Call of Duty appearing on other subscription platforms.
  3. It relied too much on Microsoft’s agreements to provide games to other cloud services.
  4. It missed potential partial foreclosure strategies — or ways that Microsoft could degrade the experience of games on other platforms without fully dropping support.
  5. It ignored the FTC’s evidence about Microsoft’s incentives to foreclose access to games.

“The District Court’s ruling makes crystal clear that this acquisition is good for both competition and consumers,” Brad Smith, Microsoft’s vice chair and president, said in a statement to The Verge. “We’re disappointed that the FTC is continuing to pursue what has become a demonstrably weak case, and we will oppose further efforts to delay the ability to move forward.”

“The facts haven’t changed,” tweeted Lulu Cheng Meservey, Activision Blizzard’s CCO and EVP of corporate affairs. “We’re confident the US will remain among the 39 countries where the merger can close. We look forward to reinforcing the strength of our case in court — again.”

Mike Ybarra, the president of Blizzard Entertainment, quipped about the appeal on Twitter. “Your tax dollars at work,” Ybarra said.

Microsoft still needs to resolve the issues of the UK’s Competition and Markets Authority (CMA) with its acquisition before it can close, after the regulator blocked the deal on cloud concerns earlier this year. Both Microsoft and the CMA almost instantly announced they had agreed to pause their legal battles to negotiate after Judge Corley’s ruling on Tuesday.

In a surprise statement on Wednesday, the CMA then warned Microsoft’s opportunity to restructure its deal could “lead to a new merger investigation” and that talks between the regulator and Microsoft were still at an “early stage.”

A report from CNBC originally claimed Microsoft and the CMA had agreed on a “small divestiture” to address the cloud gaming concerns, but was later corrected to clarify Microsoft has only offered “a small and discrete divestiture” that the CMA hasn’t necessarily accepted. CNBC didn’t expand on what that divestiture could involve, but such a scenario will likely be specific to the UK and could involve changes to Microsoft’s Xbox Cloud Gaming services in the region.

EU regulators also had cloud gaming concerns but approved the deal earlier this year thanks to 10-year licensing deals that Microsoft has offered to cloud gaming competitors. The CMA also warns that Microsoft doesn’t “have the opportunity to put forward new remedies” once a final report is issued.

Microsoft’s deal with the EU included a key remedy that involves a free license to consumers in EU countries that would allow them to stream via “any cloud game streaming services of their choice” all current and future Activision Blizzard PC and console games that they have a license for. Cloud providers will also be offered a free license to stream these games.

All eyes now turn to the Ninth Circuit Court of Appeals and Microsoft’s potential deal with the CMA in the UK.

Update July 12th, 8:26PM ET: Added statement from Microsoft.

Correction July 12th, 7:33PM ET: Based on a CNBC report, this article originally stated Microsoft and the CMA may have agreed to a “small divestiture.” CNBC has corrected its article and now says that Microsoft offered the divestiture without saying the change has been accepted.

Update July 13th, 4:00PM ET: Added FTC’s official appeal to the Ninth Circuit.