FTC appeal in Microsoft/Activision case shows US regulator isn’t giving up yet

But stopping the deal from moving forward still looks like an uphill battle.

Kyle Orland – Jul 13, 2023 8:26 am | 134

Artist's conception of the FTC and Microsoft fighting over this deal in the courts.

The Federal Trade Commission has given legal notice that it intends to appeal a recent district court decision that denied a temporary injunction in Microsoft’s proposed merger with Activision.

The appeal notice, filed with the 9th Circuit Court of Appeals late Wednesday, is a rare move for the FTC in cases like this. The FTC is facing down District Court Judge Jacqueline Scott Corley’s finding that the regulator “has not shown a likelihood it will prevail on its claim this particular vertical merger in this specific industry may substantially lessen competition.”

An appeal would have to convince a circuit court judge of some key unconsidered area of fact or law to overturn that decision, which could be a high bar in this case. Still, the appeal filing itself shows that the FTC is not willing to give up easily in this high-profile case.

“The District Court’s ruling makes crystal clear that this acquisition is good for both competition and consumers,” Microsoft Vice Chair and President Brad Smith said in a statement to Ars Technica. “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,” Activision Blizzard said in a statement. “We’re confident the U.S. will remain among the 39 countries where the merger can close. We look forward to reinforcing the strength of our case in court, again.”

Activision Blizzard CEO Bobby Kotick told CNBC earlier this week that he’d “be surprised if they would waste taxpayer resources on something like [an appeal].”

“Your tax dollars at work,” Blizzard Entertainment President Mike Ybarra quipped on Twitter.

What comes next?

Microsoft is still subject to a temporary restraining order blocking it from closing the Activision deal, which was put in place to allow the previous district court proceedings to move forward. That order expires at the end of the day on Friday, though, after which Microsoft and Activision could quickly move to finalize things before a contractual deadline of July 18. To prevent that possibility pending appeal, the FTC would have to apply for a separate emergency stay extending the restraining order.

Aside from the US, Microsoft and Activision still face opposition from the UK’s Competition and Markets Authority (CMA), which blocked the deal in April over cloud gaming competition concerns. Following this week’s decision in US courts, though, the CMA and Microsoft have jointly decided to stay continuing appeal litigation over that decision in order to negotiate “how the transaction might be modified in order to address those concerns in a way that is acceptable to the CMA.”

That modification could involve a carve-out that prevents Microsoft from putting Activision games on its cloud service in the country. But the CMA warned in a Wednesday statement that negotiations with Microsoft are at “an early stage” and that its “final report still stands” as those negotiations move forward.

A Reuters analysis this month found that, in the past two years, the FTC has had a relatively low success rate in challenging vertical mergers like the Microsoft/Activision deal (where the companies involved fill different roles in the same broad industry). The FTC sued to block Quest-maker Meta from acquiring VR fitness company (and Supernatural maker) Within last July, but a judge ruled in February that the acquisition could move forward.

If the Activision acquisition is not closed before July 18, Microsoft is contractually on the hook for a $3 billion termination fee. But most observers expect both sides would simply extend the contract or renegotiate if closure seemed close at that point.