The Federal Trade Commission will “likely” file an antitrust suit against Microsoft and Activision Blizzard to block the companies’ planned $69 billion merger deal. That’s according to a new Politico report that “three [unnamed] knowledgeable people.”
While Politico writes that a lawsuit is still “not guaranteed,” it adds that FTC staffers are “skeptical of the companies’ arguments” that the deal will not be anticompetitive. The sources also confirmed that “much of the heavy lifting has been completed” in the commission’s investigation and that a lawsuit could be filed as early as next month.
Sony, the main opponent of the proposed purchase of Microsoft, has publicly argued that an existing three-year contractual warranty to Activision’s top-selling Duty franchise on PlayStation is “inadequate on many levels”. In response, Microsoft head of Xbox Phil Spencer has publicly promised to continue shipping Duty games on PlayStation “as long as there’s a PlayStation to ship to.” However, it’s not clear whether the companies have rethought that offer as a legal agreement; The New York Times reported this week that Microsoft had offered a “10-year deal to keep.” Duty on PlayStation.”
Numerous statements from Microsoft executives, including Spencer, have suggested that the company is less interested in strengthening its position in the “console wars” and more interested in boosting its mobile, cloud gaming, and Game Pass subscription offerings. Past DutyPolitico reports that the FTC is concerned about how Microsoft could “use future, unannounced titles to boost its gaming business.”
Microsoft “is prepared to address concerns from regulators, including the FTC, and Sony to ensure the deal closes with confidence,” spokesman David Cuddy told Politico. “We will continue to monitor Sony and Tencent in the market after the deal closes, and together Activision and Xbox will benefit gamers and developers and make the industry more competitive.”
There are still plenty of speed bumps
Reports of a possible FTC lawsuit add to a growing list of worrying signals about the proposed purchase from several international governments. Earlier this month, the European Commission said it was conducting an “in-depth investigation” of the deal. In the UK, a similar “Phase 2” investigation by the UK Competition and Markets Authority is scheduled for next month.
Those international investigations are expected to conclude in March, so the proposed deal doesn’t close before then and gives the FTC some time before it has to file a lawsuit. Such a lawsuit would need to be approved by a majority of the four current FTC commissioners and would likely start in the FTC Administrative Court. And whatever the outcome, legal maneuvering on the matter could easily delay the planned merger beyond a July 2023 contractual deadline, after which both companies would have to renegotiate or abandon the deal.
An FTC lawsuit on the matter would also be the strongest sign yet of a robust antitrust enforcement regime led by FTC Chair Lina Kahn, a major tech skeptic who was appointed to the post in June. In July, Kahn announced an antitrust suit against Meta (formerly Facebook) and the proposed $400 million purchase of Within, makers of the VR fitness app. Supernatural.
Three months after the proposed purchase of Microsoft was announced in January, a group of four U.S. Senators wrote an open letter urging the FTC to take a close look at the deal. Last month, the merger news site Dealreporter said FTC employees had raised “significant concerns” about the deal. And this week, the New York Times quoted “two people” in reporting that the FTC had contacted other companies for affidavits expressing concerns about the deal, a possible sign of litigation preparations.