Judge rejects FTC block of Microsoft’s acquisition of Activision Blizzard

A federal judge on Tuesday rejected the Federal Trade Commission’s attempt to block Microsoft’s $69 billion purchase of video game company Activision Blizzard, dealing a blow to the Biden administration’s regulatory efforts to rein in Big Tech mergers.

U.S. District Court Judge Jacqueline Scott Corley for the Northern District of California said the FTC failed to show it was likely to prove that the merger would harm consumers and reduce competition. She denied the agency’s request for an injunction that would have postponed the deal’s completion and given the FTC more time to challenge it.

“The FTC has not raised serious questions regarding whether the proposed merger is likely to substantially lessen competition in the console, library subscription services, or cloud gaming markets,” Judge Corley wrote.

The court also extended a temporary restraining order until midnight Friday to allow the FTC to appeal.

The pending deal, the largest gaming deal to date, would combine Microsoft’s Xbox video-gaming business with the publisher of popular games such as “Call of Duty,” “World of Warcraft” and “Candy Crush.”

The case was an important test for the FTC’s heightened scrutiny of the technology industry under Chairperson Lina Khan, who was installed by President Biden in 2021 because of her tough stance on what she sees as monopolistic behavior by tech giants such as Amazon, Google and Facebook parent Meta.

Another judge rebuffed the FTC’s attempt this year to stop Meta from taking over the virtual reality fitness company Within Unlimited.

“We are disappointed in this outcome given the clear threat this merger poses to open competition in cloud gaming, subscription services and consoles,” said FTC spokesperson Douglas Farrar. “In the coming days we’ll be announcing our next step to continue our fight to preserve competition and protect consumers.”

Microsoft President Brad Smith said the company was “grateful” for the “quick and thorough” decision. Sales in the gaming market are expected to increase by 36% over the next four years to $321 billion, according to a PwC estimate.

Lulu Cheng Meservey, chief communications officer and executive vice president of Activision Blizzard, said Judge Corley’s ruling “rejects the FTC’s ideologically driven attempt to prevent a deal that benefits gamers and allows more competition instead of protecting the market leader.”

“A fair and neutral court has reached the correct conclusion about Activision Blizzard’s merger with Microsoft based on facts and the law,” she said.

Conservative anti-tax figure Grover Norquist said Ms. Kahn at the FTC “keeps filing shoddy, extra legal attacks on American companies.”

“FTC should protect consumers not play left wing politics with gov power and cash,” he tweeted.

The Lexington Institute, a Washington think tank, tweeted that the ruling was “another big, big loss for the overly aggressive, tech-hating @FTC.”

Sen. Kevin Cramer, North Dakota Republican, said after 18 months of litigation over the deal, it was “time to move on.”

The companies are still seeking approval in the United Kingdom, where a British authority said Tuesday it would consider new proposals from Microsoft for addressing competition concerns. Britain’s regulator blocked the merger in April, and an appeal is scheduled for July 28.

In her 53-page opinion, Judge Corley, a Biden appointee, said the FTC didn’t show that Microsoft’s ownership of Activision games would hurt competition.

“To the contrary, the record evidence points to more consumer access to Call of Duty and other Activision content,” she wrote. 

In the Microsoft trial, the Redmond, Washington, company appeared to have the upper hand in the five-day San Francisco court hearing that ended late last month. The trial showcased testimony by Microsoft Chief Executive Officer Satya Nadella and Activision Blizzard CEO Bobby Kotick, who both pledged to keep “Call of Duty” available to people who play it on consoles — particularly Sony’s PlayStation — that compete with Microsoft’s Xbox.

“Our merger will benefit consumers and workers. It will enable competition rather than allow entrenched market leaders to continue to dominate our rapidly growing industry,” Mr. Kotick said in a statement Tuesday.

The FTC had asked Judge Corley to issue an injunction temporarily blocking Microsoft and Activision from closing the deal before the FTC’s in-house judge could review it in an August trial.

Both companies suggested that such a delay would effectively force them to abandon the takeover agreement they signed nearly 18 months ago. Microsoft has promised to pay Activision a $3 billion breakup fee if the deal doesn’t close by July 18.

• This article is based in part on wire-service reports.