Microsoft-Activision merger deal in troubled waters again, draws fresh questions

Microsoft Corporation’s acquisition of Activision Blizzard Inc. for a staggering $69 billion faces scrutiny from an appeals court currently reviewing the Federal Trade Commission’s challenge to a ruling that had initially cleared the deal earlier this year.

Jennifer Sung of the San Francisco appeals court probed Microsoft’s attorney during a hearing, repeatedly questioning whether the company’s plan to release Activision titles on the cloud, in addition to video-game consoles, adequately addressed antitrust concerns.

Sung expressed scepticism, stating, “That’s not actually pro-competitive. That might benefit some consumers, but you can’t equate a benefit to some consumers to a pro-competitive effect.” Despite Microsoft and Activision finalizing the largest-ever gaming deal on October 13 after a two-year struggle with global regulators, the appeals court’s decision could impact an ongoing in-house trial initiated by the FTC.

While the court cannot retroactively block the completed merger, a favourable ruling for the FTC in the appeals court may strengthen its position in the in-house proceedings, possibly leading to attempts to unwind the deal. This course of action, though uncommon, has precedent, as demonstrated by the agency’s efforts to reverse Illumina Inc.’s 2021 acquisition of cancer detection startup Grail.

The court proceedings on Wednesday lasted nearly 90 minutes, with judges extensively questioning the lawyers. Notably, Judge Daniel Collins pointed out Microsoft’s dominance in both subscription and cloud-based gaming, emphasizing evidence from a related private suit indicating Microsoft’s aim to “spend Sony out of business.” Judge Danielle Forrest echoed this sentiment, focusing on Microsoft’s prowess in the cloud market, stating, “Microsoft’s gonna get there first, and it’s gonna get there big because it’s got the best infrastructure.”

Microsoft’s lawyer, Rakesh Kilaru, argued that the FTC is shifting its arguments from the summer trial, contending that the agency did not previously assert Microsoft’s purchase would lead to a monopoly in cloud and subscription gaming.

FTC attorney Imad Abyad directed attention to Judge Jacqueline Scott Corley’s decision, arguing that she resolved factual disputes instead of temporarily blocking the deal to allow the agency’s in-house trial to unfold. Abyad also highlighted concerns about the UK settlement, where Microsoft agreed to sell the cloud rights of Activision games released over the next 15 years to Ubisoft Entertainment SA, questioning its enforceability and effectiveness in the US market.

(With inputs from agencies)

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