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Microsoft wins crucial FTC case on Activision Blizzard acquisition

UPDATE: Decision prompts UK and Xbox back to negotiating table "in the public interest".

The globular Xbox logo, spewing green light. It looks radioactive. I hope the consoles aren't.
Image credit: Microsoft

Microsoft has won its crucial court case against the US Federal Trade Commission (FTC), clearing its way to acquire Call of Duty maker Activision Blizzard for $68.7bn.

Last week's courtroom battle hinged on whether the FTC could be allowed an injunction to temporarily block the deal while it investigated further. But in reality the case was viewed as a referendum on the deal's overall ability to still be successful.

Defeat in court would have left Microsoft's effort to buy the publisher behind World of Warcraft, Diablo 4 and Candy Crush dead in the water, Microsoft had previously admitted.

Today's decision dramatically boosts Microsoft's hopes of closing the deal with just days to go until its 18th July deadline, and despite the UK's Competition and Markets Authority (CMA) still standing in opposition.

Newscast: This week's biggest headlines from the FTC vs Microsoft.Watch on YouTube

Indeed, in another major development today, Microsoft president Brad Smith announced the FTC's decision had prompted his company and the CMA to agree that a "stay of litigation" was now "in the public interest" - sparking further hopes within Microsoft of a breakthrough on these shores.

UK and Microsoft to restart negotiations

"After today's court decision in the US, our focus now turns back to the UK," Smith said today in a statement shared to Eurogamer. "While we ultimately disagree with the CMA's concerns, we are considering how the transaction might be modified in order to address those concerns in a way that is acceptable to the CMA.

"Microsoft and Activision have agreed with the CMA that a stay of the litigation in the UK would be in the public interest." - Brad Smith

"In order to prioritise work on these proposals, Microsoft and Activision have agreed with the CMA that a stay of the litigation in the UK would be in the public interest and the parties have made a joint submission to the Competition Appeal Tribunal to this effect."

Microsoft previously said it would begin a long and likely arduous route to appeal the CMA's decision later this month. That process would take many months to complete - and even if successful, Microsoft would win the ability to resubmit its deal to the UK's previously-reluctant CMA for reconsideration.

The CMA's decision left the UK as a global outlier on its assessment of the deal - something the UK's own politicians did not seem thrilled about, with questions raised by MPs over whether the UK was still seen as being "open for business".

Bloomberg reported last month that Microsoft had considered "extreme" options such as withdrawing Activision Blizzard from the UK completely in a bid to bypass the UK's block of its deal.

Exactly how this would look, and how Activision Blizzard games would then be sold and operated in the UK, remains to be seen. But today's decision by the FTC now prompts these questions anew, as Microsoft will seek to get its deal over the line after success on its home turf is all but assured.

The only other major regulator to take issue with the deal, the EU's European Commission, ultimately gave it the go-ahead after deciding it was happy with concessions made by Microsoft in order to grease the wheels of the acquisition going through.

Why the FTC's case against Microsoft failed

The FTC's defeat today appears to have been sealed by a number of factors. For one, court documentation shows the FTC could not convince the presiding Judge Jacqueline Scott Corley of any likelihood that Microsoft would pull Call of Duty from PlayStation consoles after it bought Xbox.

"There are no internal documents, emails, or chats contradicting Microsoft's stated intent not to make Call of Duty exclusive to Xbox consoles," Judge Corley's ruling states. "Despite the completion of extensive discovery in the FTC administrative proceeding, including production of nearly 1m documents and 30 depositions, the FTC has not identified a single document which contradicts Microsoft's publicly-stated commitment to make Call of Duty available on PlayStation (and Nintendo Switch)."

As for the impact this deal might have on Sony's business, the judge decided that while this may negatively harm PlayStation, it would not necessarily harm PlayStation owners.

"Sony opposes the merger; its opposition is understandable," Judge Corley's ruling continues. "Before the merger Sony paid Activision for exclusive marketing rights that allowed Sony to market Call of Duty on PlayStation, but restricted Xbox's ability to do the same. After the merger, the combined firm [Microsoft and Activision Blizzard] presumably will not agree to such restrictions.

"Perhaps bad for Sony. But good for Call of Duty gamers and future gamers."- Judge Corley

"Before the merger, a consumer wanting to play a Call of Duty console game had to buy a PlayStation or an Xbox. After the merger, consumers can utilise the cloud to play on the device of choice, including, it is intended, on the Nintendo Switch."

Summing this section of the case up, Judge Corley decided the deal was: "Perhaps bad for Sony. But good for Call of Duty gamers and future gamers."

On cloud streaming of games - the issue which caused the UK's CMA to block the deal - the judge was convinced by Microsoft's argument its buyout of Activision Blizzard would lead to more choice for consumers.

"This argument is foreclosed by Microsoft's post-FTC complaint agreements with five cloud-streaming providers," Judge Corley's decision reads. "Before the merger, there is no access to Activision's content on cloud-streaming services. After the merger, several of Microsoft's cloud-streaming competitors will - for the first time - have access to this content. The merger will enhance, not lessen, competition in the cloud-streaming market."

Overall, Judge Corley decided, the process had prompted better benefits for gamers, with a better outcome for video game fans overall if the deal went through.

"Microsoft's acquisition of Activision has been described as the largest in tech history," Judge Corley wrote, summing up. "It deserves scrutiny. That scrutiny has paid off: Microsoft has committed in writing, in public, and in court to keep Call of Duty on PlayStation for 10 years on parity with Xbox. It made an agreement with Nintendo to bring Call of Duty to Switch. And it entered several agreements to for the first time bring Activision's content to several cloud gaming services.

"For the reasons explained, the Court finds the FTC has not shown a likelihood it will prevail on its claim this particular vertical merger in this specific industry may substantially lessen competition. To the contrary, the record evidence points to more consumer access to Call of Duty and other Activision content. The motion for a preliminary injunction is therefore DENIED."

Microsoft and Activision celebrate court decision

"We're grateful to the court for swiftly deciding in our favor," Xbox boss Phil Spencer said today of the FTC's decision, in a statement issued via Twitter today. "The evidence showed the Activision Blizzard deal is good for the industry and the FTC's claims about console switching, multi-game subscription services, and cloud don't reflect the realities of the gaming market.

"Since we first announced this deal, our commitment to bringing more games to more people on more devices has only grown. We've signed multiple agreements to make Activision Blizzard's games, Xbox first-party games and Game Pass all available to more players than they are today.

"We know that players around the world have been watching this case closely and I'm proud of our efforts to expand player access and choice throughout this journey," Spencer concluded.

"The legal system worked," Activision exec Lulu Cheng Meservey wrote on Twitter in reaction to today's decision. "A fair and neutral court has reached the correct conclusion about Activision Blizzard’s merger with Microsoft based on facts and the law.

"The judge'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."

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