Microsoft and Activision urge FTC to drop its legal challenge before August hearing

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Update, July 21, 2023: The FTC has withdrawn its internal administrative challenge that was seeking to block Microsoft's acquisition of Activision Blizzard.

As reported by The Verge, the Commission announced it was suspending its in-house challenge yesterday, which was initially due to have its hearing on August 2.

Original story, July 20, 2023: Microsoft and Activision Blizzard have filed a request to the Federal Trade Commission, urging the body to withdraw plans for an administrative hearing next month.

The hearing was first scheduled after the FTC issued a legal challenge against Microsoft's proposed acquisition of Activision Blizzard back in December. While it does not have the power to block the merger, the hearing could lead to the case being elevated to other US courts.

However, Microsoft and Activision Blizzard argue in their filing that the US courts have already demonstrated they do not believe the acquisition to be anti-competitive, following the FTC's failure to secure a preliminary injunction from the District Court and the Ninth Circuit's denial of its appeal against this decision.

"After a five-day evidentiary hearing, the district court found that the FTC is unlikely to succeed on any of the theories of competitive harm advanced in its Complaint for multiple, independently sufficient reasons," the two companies' legal representatives wrote.

The filing adds that withdrawal from adjudication is "not only mandatory but is in the public interest."

It also argues the district court "had a full opportunity" to consider the FTC's arguments, given that the hearing saw testimonies from all of the FTC's major witnesses – including the CEOs of Microsoft, Activision, Xbox and PlayStation – as well as economic experts and any other third parties the Commission subpoenaed for the proceeding.

The FTC also submitted a total of 851 exhibits to the district court, as well as pre- and post-hearing written submissions.

"In light of this thorough airing and the district court's findings that the FTC failed to raise any serious questions regarding the legality of the merger, there is little reason to believe the [administative law judge] would reach a different conclusion," the filing added.

Additionally, the companies say the FTC's justification for continuing the case is "further undermined" by the ten-year deal Microsoft has signed with Sony to keep Call of Duty on PlayStation platforms after the acquisition.

The filing follows a letter signed by 22 Republican members of US Congress, also urging the FTC to drop the case.

We spoke to analysts last week about how the Commission might proceed. While the FTC may or may not drop the August administrative hearing, it can continue to fight the merger after the deal is complete by suing for divestiture (e.g. compelling Microsoft to sell off part of Activision Blizzard's business, such as Call of Duty).

However, this will only be an option for the FTC once all appeals have been resolved, which could take a few years.

Microsoft and Activision Blizzard announced yesterday they have extended the deadline for the acquisition to October 18, 2023.

With approval secured in the EU and no barriers remaining in the US, the only regulatory hurdle left to resolve is the UK's block on the deal. Microsoft is working on proposals for a modified version of the deal which will address the Competition and Markets Authority's concerns, with the CMA aiming to make a final decision on this by August 29.

You can follow the acquisition's journey through our extensive primer.

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