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FTC sues to block Microsoft’s takeover of video game maker Activision Blizzard

by Joshua Brown
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antitrust

Microsoft’s proposed takeover of video game company Activision Blizzard is facing legal challenges as the Federal Trade Commission (FTC) sues to block the deal. The FTC has filed a motion in a San Francisco federal court seeking a temporary restraining order and injunction to halt Microsoft’s $69 billion purchase of Activision Blizzard, the company behind popular games like Call of Duty, World of Warcraft, and Candy Crush. The FTC argues that the merger could stifle competition in the video game market, a concern echoed by regulators in the U.S. and the United Kingdom.

In response to the FTC’s action, Brad Smith, Microsoft’s vice chair and president, expressed the company’s readiness to present its case in federal court, believing that an expedited legal process in the U.S. will ultimately promote market choice and competition. Activision CEO Bobby Kotick also viewed the FTC filing as a positive development, as it would allow the companies to present their arguments more quickly before a federal judge.

This is not the first legal hurdle Microsoft faces regarding the merger. The FTC previously took the company to court last year, but that case was assigned to the agency’s in-house judge. The administrative process did not prevent the parties from proceeding with the deal. However, the FTC’s latest action aims to prevent the deal from closing, arguing that if it is completed and later deemed unlawful by an FTC judge, reversing the course would be challenging or even impossible.

The FTC raises concerns about potential consequences if the merger proceeds, such as changes in Activision’s operations and game development, access to sensitive information, and the elimination of key personnel. Microsoft and Activision Blizzard previously indicated that they could not close the deal due to ongoing antitrust reviews in other jurisdictions. However, the FTC states that the companies have not provided assurances that they will maintain that position, and there are reports suggesting they may be considering closing the deal soon. To prevent this, the FTC has requested a temporary restraining order to halt the acquisition while the review continues.

One major obstacle for Microsoft is the opposition from antitrust regulators in the U.K., who unexpectedly blocked the acquisition. The all-cash deal, announced in January 2022, has faced scrutiny worldwide, with regulators expressing concerns that it would grant Microsoft and its Xbox console control over Activision’s popular franchises, providing an unfair advantage in the cloud-based game subscription market. Sony, Microsoft’s rival in the gaming industry, has been particularly vocal in its opposition.

To address the resistance, Microsoft made a deal with Nintendo to license Activision titles for 10 years and offered the same to Sony if the merger proceeded. European regulators approved the deal last month, with certain conditions aimed at enhancing competition in the cloud-based gaming market. Other countries, including China, Japan, Brazil, and South Korea, have also given their approval.

Despite these approvals, the merger remains uncertain due to the U.K.’s Competition and Markets Authority blocking the deal and the ongoing case in the U.S. Microsoft has appealed the British regulator’s decision and publicly voiced opposition to top government officials. Closing the deal without approval in the U.K. could result in further legal challenges or potential suspension of Microsoft’s broader game business in the country.

Public Citizen, a U.S.-based consumer advocacy group and opponent of the deal, has welcomed the FTC’s move to block the transaction. They accuse Microsoft of attempting to finalize the acquisition before the regulatory process is completed and commend the FTC for standing firm against Microsoft’s escalatory tactics.

Frequently Asked Questions (FAQs) about antitrust

What is the lawsuit filed by the Federal Trade Commission (FTC) regarding Microsoft and Activision Blizzard?

The lawsuit filed by the FTC aims to block Microsoft’s proposed acquisition of video game company Activision Blizzard. The FTC is concerned about potential antitrust issues and the impact on competition in the gaming industry.

Why is the FTC opposing Microsoft’s purchase of Activision Blizzard?

The FTC opposes the acquisition due to concerns that it could stifle competition in the video game market. The merger would give Microsoft control over Activision Blizzard’s popular game franchises, potentially providing an unfair advantage in the emerging cloud-based game subscription business.

What are the potential consequences if the merger proceeds?

The FTC highlights potential risks if the merger is completed. These include changes in Activision’s operations and game development, access to sensitive information, and the possibility of key personnel being eliminated. The FTC argues that these outcomes could harm competition and consumer choice.

Has Microsoft faced similar legal challenges before?

Yes, Microsoft previously faced legal challenges from the FTC regarding this merger. However, the previous case was brought before the agency’s in-house judge, allowing the deal to proceed while the administrative process was ongoing. The current lawsuit seeks to halt the acquisition before it is finalized.

Are there any other countries or jurisdictions involved in reviewing the merger?

Yes, regulators in various countries, including the United Kingdom, China, Japan, Brazil, and South Korea, have reviewed and approved the merger with certain conditions. However, the U.K.’s Competition and Markets Authority unexpectedly blocked the acquisition, and it remains a significant obstacle for Microsoft.

How does Microsoft plan to address the opposition?

Microsoft attempted to counter the resistance by striking a deal with Nintendo to license Activision titles for 10 years. They also offered the same arrangement to Sony if the merger went ahead. However, these efforts have not resolved the concerns raised by regulators, and Microsoft is currently appealing the U.K. regulator’s decision.

What is the potential impact if the merger closes before regulatory approval?

If the merger closes before regulatory approval, and later it is deemed unlawful by an FTC judge, reversing the course could be difficult or even impossible, according to the FTC. It could lead to further legal challenges and potentially require Microsoft to suspend its game business in the U.K. or face additional repercussions.

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