Microsoft and the Federal Trade Commission are set to square off over whether the United States would prevent the computer giant’s acquisition of Activision Blizzard.
Microsoft responded formally to the FTC’s allegations that the $68.7 billion acquisition should be blocked on Thursday.
The software behemoth now appears to be on a collision path with American authorities emboldened by President Joe Biden’s drive to clamp tough on anti-competitive behavior after years of dodging the political criticism that has been aimed at big tech peers such as Amazon and Google.
The FTC asserts that by stifling rivals to Microsoft’s Xbox game system and its expanding Xbox Game Pass subscription business, the acquisition may violate antitrust rules.
Microsoft’s conflict with PlayStation-maker Sony over popular Activision Blizzard properties like the military action game Call of Duty is at the heart of the disagreement.
In its response to the FTC, Microsoft attempts to minimize the significance of Xbox, referring to it as the “third-place manufacturer of gaming consoles” after Sony and Nintendo and one of many publishers of well-known video games with “next to no presence in mobile gaming,” where it is attempting to gain ground.
Activision Blizzard criticized the FTC’s “unfounded presumption” that Microsoft would seek to keep Call of Duty off of platforms that compete with Xbox in its own answer to the FTC complaint, which was submitted on Thursday. According to Bobby Kotick, the CEO, the companies will succeed.
The disagreement may be a challenging test case for Lina Khan, the FTC chairperson chosen by Biden, who has worked to enhance antitrust law enforcement. Earlier in December, the FTC voted 3-1 to launch the complaint attempting to thwart the deal, with Khan voting in favor along with the other two Democratic commissioners and the lone Republican voting against.
The agreement is also being closely scrutinized in the United Kingdom and the European Union, where examinations won’t be finished until the following year.
The FTC’s complaint cites Microsoft’s acquisition of renowned game developer Bethesda Softworks and its parent firm ZeniMax in 2021 as an instance of the business restricting some upcoming game releases to the Xbox One even after promising European regulators it had no such plans.
Microsoft disputed the FTC’s description on Thursday, claiming that it had made it clear to European regulators that it will “approach exclusivity for future game titles on a case-by-case basis, which is exactly what it has done.”
According to the FTC’s lawsuit, successful franchises like Call of Duty are crucial because they create a fan base of devoted players who are attached to their preferred platform or streaming service.
The FTC lawsuit claims that if Microsoft had control over Activision’s material, it would have the power and enhanced motivation to withhold or degrade Activision’s content in ways that significantly reduce competition, including competition on product quality, price, and innovation. At a critical juncture for the business, “this loss of competition would probably cause severe harm to consumers in various markets.”
Microsoft gave the impression that it will forcefully defend its position in court with a team under the direction of renowned corporate lawyer Beth Wilkinson, while simultaneously leaving the door open for a settlement.
Brad Smith, the president of Microsoft, said in a statement on Thursday that “even with confidence in our case, we remain dedicated to creative solutions with regulators that will safeguard competition, customers, and workers in the digital sector.” “The door never closes on the potential to negotiate a compromise that will benefit everyone,” we’ve learned from past litigation.
More than 20 years ago, after Microsoft engaged in anticompetitive behavior relating to its dominating Windows software, a federal judge ordered its dissolution, sparking Microsoft’s most significant antitrust dispute to date. On appeal, the decision was overturned, but the court also fined the corporation.
Instead of requesting an immediate federal court injunction to stop the merger, the FTC chose to send the complaint to its internal Administrative Law Judge D. Michael Chappell, which may cause the case to be delayed at least until August, when the first evidence hearing is set. In accordance with their contract, Microsoft must pay Activision Blizzard a breakup fee of up to $3 billion if the transaction cannot be completed by July 18.
Depending on how the U.K. and European authorities rule on the merger next year, the date and course of the litigation may alter. Microsoft may attempt to speed up the legal procedure in the United States if it receives clearance in Europe.
This past week, a number of individual video game players filed a lawsuit in a federal court in San Francisco seeking to halt the merger due to antitrust concerns.
The plaintiffs, who are all fans of the Call of Duty series from Activision Blizzard as well as other well-known games like World of Warcraft, Overwatch, and Diablo, are especially worried about how the merger will affect future game quality, innovation, and output, according to their attorney Joseph Alioto.
Alioto asserted that when there is no competition, the quality inevitably suffers. “By getting rid of Activision, Microsoft is in such a powerful position that they can do whatever they want.”
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