A preliminary injunction request by the Federal Trade Commission (FTC) to halt Microsoft’s acquisition of Activision Blizzard has been rejected by Judge Jacqueline Scott Corley. The rejection means that Microsoft and Activision can proceed with their $68.7 billion merger agreement. Both companies had stated that they would abandon the merger if the injunction was granted.
In her ruling, Judge Corley explained that the court’s responsibility was to determine whether the merger should be halted or terminated while the FTC’s administrative action is resolved. She concluded that the FTC had not demonstrated a likelihood of prevailing on its claim that the merger would substantially lessen competition in the industry. Instead, the evidence in the record pointed to increased consumer access to Activision Blizzard’s content, such as the popular game Call of Duty.
However, Judge Corley acknowledged the significance of the acquisition, describing it as the largest in tech history. She emphasized Microsoft’s commitment to maintaining Call of Duty on the PlayStation platform and its existing partnerships with Nintendo Switch and cloud gaming services. These factors contributed to her decision to deny the preliminary injunction.
The FTC has until July 14th to obtain a stay pending appeal from the Ninth Circuit Court of Appeals in order to delay the deal further. If no stay is obtained, Microsoft and Activision can proceed with closing the deal before their July 18th deadline. Both companies have the option to extend their acquisition agreement while addressing regulatory challenges from the UK’s Competition and Markets Authority (CMA).
The CMA initially blocked the merger over concerns related to cloud gaming. However, it has now expressed willingness to consider proposals from Microsoft to address these concerns. Microsoft and Activision have agreed with the CMA to stay the litigation in the UK to prioritize work on modifying the transaction to satisfy the regulatory authority.
In response to the court’s ruling, an FTC spokesperson expressed disappointment, highlighting their concern for competition in cloud gaming, subscription services, and consoles. The FTC plans to announce its next steps to preserve competition and protect consumers in the coming days. The FTC originally filed a lawsuit to block the merger in December 2022, and an administrative hearing is scheduled for August 2nd.
If Microsoft and Activision fail to close the deal by their deadline, Microsoft could be liable for a $3 billion breakup fee. However, the companies have the option to renegotiate terms or extend their agreement to avoid this penalty. Despite the CMA’s objections, reports suggest that the companies may proceed with the merger and find workarounds to continue operations in the UK.
Judge Corley’s ruling followed a five-day trial in June that uncovered confidential information and email exchanges within the gaming industry. One notable revelation was that Microsoft’s acquisition of ZeniMax led to the decision to make MachineGames’ Indiana Jones project an Xbox console exclusive, despite initial plans for a multiplatform release.
Overall, the rejection of the preliminary injunction request allows Microsoft and Activision to proceed with their merger plans, subject to addressing regulatory concerns in the UK. The court ruling highlights the importance of considering the impact on competition in the industry while acknowledging the potential benefits for consumer access to gaming content. The outcome also underscores the ongoing challenges faced by regulators in balancing competition and industry consolidation in the rapidly evolving technology sector.
