Microsoft will fight the US over the $68.7 billion Activision Blizzard deal

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Microsoft is headed for a battle with the Federal Trade Commission over whether the United States will block the tech giant’s planned acquisition of video game company Activision Blizzard.

Microsoft on Thursday filed a formal response to the FTC’s assertions that the $68.7 billion deal is an illegal acquisition that must be stopped.

After years of avoiding the political backlash that has targeted big tech peers like Amazon and Google, the software giant now appears to be on a collision course with US regulators emboldened by President Joe Biden’s push to toughen up against anti-competitive behavior.

The FTC claims the merger could violate antitrust laws by suppressing competitors of Microsoft’s Xbox game console and its growing Xbox Game Pass subscription business.

At the center of the dispute is Microsoft’s rivalry with PlayStation maker Sony to secure popular Activision Blizzard franchises such as military shooter Call of Duty.

Microsoft’s response to the FTC attempts to downplay Xbox’s role in the industry, describing itself as the “third largest game console maker” behind Sony and Nintendo, and one of many popular video game publishers with “virtually no presence on mobile devices. games”, where you are trying to make a profit.

Activision Blizzard filed its own rebuttal to the FTC’s complaint on Thursday criticizing what it described as the FTC’s “unsubstantiated assumption” that Microsoft would want to retain Call of Duty from platforms that compete with Xbox. Its chief executive, Bobby Kotick, said he believes the companies will prevail.

The dispute could be a difficult test case for FTC Chair Lina Khan, a Biden appointee, who has sought to strengthen antitrust enforcement. The FTC voted 3-1 in early December to issue the complaint seeking to block the deal, with Khan and the other two Democratic commissioners voting in favor and the lone Republican voting against.

The deal is also under close scrutiny in the European Union and the United Kingdom, where investigations will not be completed until next year.

The FTC’s complaint points to Microsoft’s 2021 acquisition of well-known game developer Bethesda Softworks and its parent company ZeniMax, as an example of where Microsoft is making some upcoming game titles exclusive to Xbox despite assuring to European regulators that it had no intention of doing so.

Microsoft on Thursday objected to the FTC’s characterization, saying it made it clear to European regulators that it would “approach exclusivity for future game titles on a case-by-case basis, which is exactly what it has done.”

The FTC’s lawsuit describes best-selling franchises like Call of Duty as important because they develop a loyal user base connected to their preferred console or streaming service.

“With control of Activision’s content, Microsoft would have the ability and greater incentive to retain or demote Activision’s content in ways that substantially lessen competition, including competition on quality, price, and product innovation,” it says. the FTC’s lawsuit. “This loss of competition would likely result in significant harm to consumers in multiple markets at a crucial time for the industry.”

Microsoft has said it will aggressively fight the case in court with a team led by high-profile corporate lawyer Beth Wilkinson, while leaving open the possibility of a settlement.

“Even with confidence in our case, we remain committed to creative solutions with regulators that will protect competition, consumers and workers in the technology sector,” Microsoft Chairman Brad Smith said in a statement Thursday. “As we have learned from our lawsuits in the past, the door never closes on the opportunity to find a win-win deal.”

Microsoft’s last major antitrust battle occurred more than two decades ago when a federal judge ordered it disbanded following the company’s anti-competitive actions related to its dominant Windows software. That verdict was overturned on appeal, although the court imposed other sanctions on the company.

The FTC’s decision to send the complaint to its internal administrative law judge D. Michael Chappell instead of seeking an urgent federal injunction to stop the merger could delay the case until at least August, when the first evidentiary hearing is scheduled. . Microsoft’s deal with Activision Blizzard requires it to pay the video game company a breakout fee of up to $3 billion if it can’t close the deal by July 18.

The timing and trajectory of the case could change depending on how UK and European regulators rule on the merger next year. If Microsoft does get approval in Europe, it could use that to try to speed up the process in US courts.

The merger faced another challenge this week from a group of individual video game players who sued in federal court in San Francisco to stop the deal on antitrust grounds.

The plaintiffs, all fans of Activision Blizzard’s Call of Duty franchise and other popular titles such as World of Warcraft, Overwatch and Diablo, are particularly concerned about how consolidation would affect the quality, innovation and performance of future games. said his attorney Joseph Alioto.

“When there is a lack of competition, the quality necessarily goes down,” Alioto said. “By removing Activision, it gives Microsoft such a strong position that they can do whatever they want.”

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