FTC v. Microsoft: all the news from the big Xbox courtroom battle

The UK’s Competition Appeal Tribunal has agreed, with some requirements that need to be satisfied on Thursday, to pause Microsoft’s appeal of the CMA decision to block the Activision Blizzard merger. Both the CMA and Microsoft requested this last week, to allow them to negotiate over a cloud gaming deal. The CMA has also extended the date for its final order from July 18th to August 29th, so it’s likely that Microsoft’s deal will tick past the July 18th deadline and could see a temporary extension.

The FTC has filed an appeal over its loss of FTC v. Microsoft with the Ninth Circuit Court of Appeals. It also wants an emergency injunction to temporarily block Microsoft from closing its Activision Blizzard deal until there’s a ruling on the appeal.

Microsoft has now responded to the FTC’s motion, arguing that “the FTC’s claimed emergency is entirely of its own creation,” because the FTC didn’t seek an injunction through federal court until six weeks before the deal close.

Microsoft also claims the FTC could have filed its request for emergency relief earlier, as Judge Corley sent a copy of the ruling to both the FTC and Microsoft on Monday July 10th.

“The Court should not mistake the FTC’s litigation gamesmanship for an emergency meriting this Court’s deviation from the ordinary appellate process,” says Microsoft in its filing.

If the Ninth Circuit Court of Appeals doesn’t grant this emergency injunction then Microsoft is free to close its Activision Blizzard deal after 11:59PM PT tonight, once the temporary restraining order, put in place by Judge Corley, expires.

Finally, Microsoft says the FTC has committed “the cardinal sin of antitrust: mistaking competitive disadvantage for a particular competitor (Sony) with harm to competition and consumers.”

We’ve been waiting on this one. The UK’s Competition Appeal Tribunal (CAT) is handling Microsoft’s appeal of the Competition and Markets Authority’s (CMA) ruling on its proposed Activision Blizzard acquisition. Things are now starting to get moving at the CAT.

A case management conference has been called for Monday July 17th at 2:30PM UK time “to consider the application made jointly by all parties to adjourn these proceedings pending further discussions between the CMA and Microsoft.”

Both the CMA and Microsoft have agreed to pause their legal battles to negotiate how the transaction might be modified in order to address the CMA’s cloud gaming concerns.

Earlier today the CMA issued a notice of extension for its overall investigation into the deal, moving the date for a final order from July 18th to August 29th. The extension arrived just hours after Bloomberg reported that Microsoft is considering selling its UK cloud-gaming rights to a telecommunications, gaming, or internet company to allow the Activision deal to close with the CMA.

The CAT’s case management conference could reveal some details on what Microsoft is proposing, but it’s also possible that Microsoft will have closed its Activision Blizzard deal by then — providing the Ninth Circuit Court of Appeals doesn’t extend a temporary restraining order (TRO) that’s currently preventing Microsoft from closing its deal until 11:59PM PT tonight.

All eyes are now firmly on Monday.

Stephen Totilo from Axios has spotted an interesting aside in Xbox CFO Tim Stuart’s testimony. Apparently Microsoft had expected to sell 10 million units of both Starfield and Indiana Jones on PlayStation, but that if it took them exclusive “it could offset losses incurred” through increased Game Pass subscriptions and console sales.

The situation is changing daily as we approach the key July 18th deal deadline. After the FTC lost its request for a preliminary injunction earlier this week the regulator has filed an appeal. Judge Jacqueline Scott Corley set the expiration date of a temporary restraining order (TRO) preventing Microsoft from closing its deal to 11:59PM PT for Friday July 14th. This means the Ninth Circuit Court of Appeals has very little time to rule on the FTC’s appeal.

The FTC wants the Ninth Circuit Court to grant emergency relief to extend the temporary restraining order until when the appeals court can rule on the preliminary injunction decision. If granted, this will block Microsoft from closing its proposed Activision Blizzard acquisition until the court can make a full decision. If the Ninth Circuit Court doesn’t grant an extension before 11:59PM PT today then Microsoft is free to close the deal over the weekend or early next week.

But there’s still the matter of the UK.

The Competition and Markets Authority in the UK are now negotiating with Microsoft. Both the CMA and Microsoft have agreed to pause their legal battles to figure out how the transaction might be modified in order to address the CMA’s cloud gaming concerns. The CMA blocked Microsoft’s deal earlier this year, citing competition fears in the emerging cloud gaming market.

The CMA has just issued a notice of extension for its overall investigation into the deal, moving the date for final undertakings or a final order from July 18th to August 29th. The extension comes hours after Bloomberg reported that Microsoft is considering selling UK cloud-gaming rights to a telecommunications, gaming, or internet company to allow the Activision deal to close with the CMA.

The extension could mean Microsoft and the CMA aren’t quite ready to make a final deal in time for the July 18th deal deadline. The CMA also warned this week that Microsoft’s proposals may “lead to a new merger investigation” and that discussions with Microsoft were at an early stage.

All eyes are now on the Ninth Circuit Court and the situation with the CMA in the UK.

The Competition and Markets Authority in the UK has just issued a notice of extension in its investigation of Microsoft’s proposed acquisition of Activision Blizzard. The CMA was due to accept final undertakings or make a final order by July 18th, but thanks to fresh negotiations with Microsoft it has now extended that by six weeks to August 29th. “However, the Inquiry Group aims to discharge its duty as soon as possible and in advance of this date,” says CMA group chair Martin Coleman.

The extension comes hours after Bloomberg reported that Microsoft is considering selling UK cloud-gaming rights to a telecommunications, gaming, or internet company to allow the Activision deal to close with the CMA. The UK regulator originally blocked the deal in April over cloud gaming concerns.

Bloomberg says Microsoft and Activision Blizzard are only “considering giving up” those UK rights, but I suspect it might genuinely work if they do.

The CMA’s primary remaining objection to the $68.7 billion deal was a fear that Microsoft would make Activision games exclusive to its own cloud gaming service. (There’s a bit more to it, but still.) If Microsoft permanently removed its own ability to do so...

Judge Corley has wrapped up the closing statements and the hearing is finished. Judge Corley will now look over the submitted arguments, evidence, and testimony and make her decision in the coming days.

The order will be filed under seal, so the public won’t find out immediately but I’m sure the FTC and Microsoft will be keen to let the world know the instant this order is passed down.

Normally I’d say we’ll be back tomorrow at 8:30AM PT, but not this time. I’ll take the advice of someone we overheard in the courtroom moments ago: “get some sleep.”

Thanks for joining and stay tuned to The Verge for Judge Corley’s order as soon as we get it.

We’re finishing up here and talking about public and redacted documents. Judge Corley jokes “and no Sharpies!” referencing the incident where a Sony document was supposed to be redacted and yet you could see plenty of the confidential data.

We’re still arguing about Call of Duty here as it’s so central the case and clear that Judge Corley will rule based around Call of Duty.

Judge Corley: We wouldn’t be here if Microsoft made Call of Duty. It’s the purchasing right. We don’t benefit from just buying up each other. We benefit from keeping things separate and therefore incentivizing people to create themselves

Microsoft: That’s not true. We want smaller groups to create content, right? And the fact that someone purchased — and they’re not small anymore — Activision... they produce popular content and someone else wants to buy it to distribute it, and then someone else wants to make more content. And that’s the art that’s going on whether it’s movies, gaming, television, no one says if you don’t have this one game, or this one television program or movie, you can’t compete.

Judge Corley wants to know about the “Thor” game that gamers call God of War and wouldn’t Call of Duty on Game Pass pressure Sony to put God of War Ragnarök on PlayStation Plus?

The FTC argues that without the merger Activision could do its own Call of Duty deal for PlayStation Plus, but this deal cuts off that option.

“I don’t understand why Sony won’t make its PlayStation Plus subscription better?” asks Judge Corley, she wants to figure out this market and once again says this “all comes down to Call of Duty.” The FTC says Call of Duty is critically important.

We’re still debating the cloud gaming contracts.

Judge Corley: how is Microsoft giving Nvidia content not a positive for consumers?

FTC: It could be but we don’t know, we have no evidence

Judge Corley: That’s why in many ways I say you won. Because you and the other regulators have forced them into deals

FTC: I don’t think we won because... we have no evidence of what these agreements will lead to

The FTC says it can’t “declare victory on behalf of consumers” based on what it believes are hastily put together agreements, with some being signed on the eve of regulatory decisions.

Microsoft has signed 10-year deals with Nvidia, Nintendo, and a bunch of other cloud gaming companies. The FTC is arguing that those agreements aren’t backed by financial analysis or numbers on theses “apparently amazing deals.” Microsoft says:

The question is, what is the output of those agreements? And there’s no dispute that Call of Duty is going to be in cloud services if the transaction goes through. So you asked and I asked every one of our executives whether they would honor these contracts, they said it in open court, they said it to you under oath, and they’ve said it for the last year to be honest. Are they really honestly suggesting that they weren’t credible? They’re going to get up in a public courtroom in front of you lie about whether they would honor these contracts. I mean, it’s absolutely absurd, really, it is to suggest that Satya Nadella got up in your courtroom and said he would honor it. In fact, he doesn’t even like exclusives. he would like his content to be everywhere.

FTC argues that Microsoft is “setting the terms of market competition on their own” and that Microsoft has no deals with Google or Amazon so they’re picking which company to deal with. Worth noting Microsoft isn’t going to sign a deal with Google when Stadia is dead, but it is interesting with Microsoft hasn’t signed a deal with Amazon for Luna.

Microsoft argues that “everyone said that cloud isn't an economically viable model” during their witness testimony.

Judge Corley cuts in: “maybe not right now... but we don’t have DVDs anymore. The FTC’s concern is about the future.”

Microsoft’s lawyer argues we might have a future of mobile where you have to develop native mobile games because phones are “going to be so powerful.” What about the cloud agreements:

MS lawyer: With all of these other streaming services… they are all going to have the ability to stream the game which they don’t have today.

Judge Corley to FTC: In some sense you won and got what you wanted, forced them into enter these agreements

FTC: We have evidence there are agreements... we do not have evidence of anything beyond agreements

Judge Corley: Why would Nvidia do what they did, say what they said? They’re a competitor to Microsoft in cloud gaming so why did they do it then?

FTC: That doesn’t count under the law because it’s not merger specific. The deal could have been achieved whether we were here or not... it was a sweetener.

Judge Corley moves on to subscriptions and the cloud.

“The next big thing is multi-game subscriptions and then cloud,” says FTC’s lawyer, before acknowledging subscriptions are more developed at this point:

We’ve seen from Microsoft documents and their emphasis on cloud and subscriptions. Game Pass is a strategic driver for Microsoft’s gaming business. The effect of this transaction to turbo charge Game Pass... leave Google, Amazon ‘in the dust’ and build the content moat around Game Pass is in the record and compelling. There is a concern that you take this content and use it to advance your own platform and the consumer is harmed.

FTC argues the harm is “we end up in a world where instead of having content available, it’s all just Game Pass and maybe Sony has PlayStation Plus and those two suck up all the content and that’s it.”

This is a much stronger argument from the FTC than the console theory of harm and exclusivity. It’s clear Microsoft isn’t buying Activision Blizzard just for console, it’s about Xbox Game Pass and the future of that service in the cloud, mobile, and elsewhere.

We are back underway after a brief break there and we pick up on the protecting consumers point.

“We’re not here to protect Sony, we’re here to protect consumers,” argues the FTC, claiming it’s concerned if the deal goes ahead then Sony delays devkits (like it did with Minecraft) to Microsoft and that impacts consumers with delayed games.

The FTC claims this concern extends beyond Minecraft, but Microsoft’s lawyer argues that the testimony was related to only Minecraft. “This is their decision,” says Microsoft’s lawyer:

This is why we say they’re protecting Sony and not consumers. Sony is making that decision, and maybe that’s why they have twice as many players. I don’t know.