9th Circuit Appeal is FTC’s 'Next Step' in Fight to Block Microsoft/Activision

The FTC will appeal to the 9th U.S. Circuit Court of Appeals Tuesday’s decision by the U.S. District Court for Northern California in San Francisco to deny the agency’s motion for a preliminary injunction to block Microsoft’s Activision Blizzard buy from proceeding to its completion, said the agency’s notice of appeal Wednesday (docket 3:23-cv-02880). The appeal was docketed Thursday as case number 23-15992.

Expressing its disappointment Tuesday with District Court Judge Jacqueline Scott Corley’s denial of its injunction request (see 2307110061), the FTC said: “In the coming days we'll be announcing our next step to continue our fight to preserve competition and protect consumers.” Corley’s 53-page opinion said the FTC hasn’t shown it’s likely to succeed on its assertion that Microsoft/Activision “will probably pull” Call of Duty from the Sony PlayStation, The agency also failed to show Microsoft's ownership of Activision content would “substantially lessen competition in the video game library subscription and cloud gaming markets,” said the opinion.

Microsoft’s proposed Activision buy “is a permanent restructuring of the gaming industry,” said the FTC’s proposed final findings of fact filed Wednesday. One of the “big four” publishers -- the others are Microsoft, Sony and Humble Games -- “will be permanently owned by one of the largest platform holders,” it said. “This restructuring would eliminate the independence of the maker of Call of Duty -- the most successful video game franchise in history -- and place it under the control of Microsoft.

In the consoles market, consumers who want to play each new “optimized version” of Call of Duty or other Activision games “will be forced to purchase an Xbox or settle for less,” said the FTC. In the subscription services market, Microsoft’s “clear intent” is to make its acquired Activision content exclusive, it said. This means other subscription current or future subscription service competitors won’t have the ability to negotiate to offer Activision content on their services, it said: “The same is true for most current or future cloud gaming competitors.”

If Microsoft/Activision is consummated, “the harm begins immediately,” said the FTC. If a preliminary injunction isn’t granted, Microsoft and Activision “can begin to share confidential business information” and long-term “strategic planning information,” and can begin to make exclusivity plans, it said. “Competitors who currently share information with Activision in order to engage in procompetitive innovations will likely stop sharing information with a combined Microsoft/Activision,” it said.

Without a preliminary injunction, even if the FTC ultimately prevails in its Aug. 2 administrative trial, Microsoft and Activision “could begin to engage in foreclosure or partial foreclosure during the pendency of the litigation and any appeals process,” said the FTC. “This will result in ongoing harm to consumers that will be difficult to remedy after the full litigation process runs its course.”

Microsoft and Activision, in their proposed findings of fact, also filed Wednesday, said the FTC failed to demonstrate it’s likely to succeed on its claim that Microsoft/Activision is likely substantially to lessen competition. The evidence at the five-day evidentiary hearing last month “confirmed what Microsoft said the day it announced” the proposed Activision buy, they said. The transaction “will increase access to Activision’s popular games and make the gaming industry more competitive,” they said.

Microsoft’s “valuation documents and deal model,” plus its position as “a low-share player in gaming,” confirm that withholding Activision content from other platforms “would hollow out the value and brand loyalty of the company Microsoft is spending nearly $70 billion to acquire,” said Microsoft and Activision. Microsoft “further demonstrated its commitment to expand access to Activision content” by signing binding 10-year agreements to bring Call of Duty to six new platforms, and making Sony a similar 10-year offer, they said.

The “simple truth” is that Xbox’s “basic economics” confirm that increasing access to Call of Duty “is the only rational decision,” said Microsoft and Activision. “By all accounts, the only time an existing multiplayer, multiplatform game has been acquired is when Microsoft purchased Mojang, the publisher of Minecraft,” they said. Xbox since has expanded access to Minecraft “because doing so is good not just for gamers, but for Microsoft’s bottom line,” they said.

It’s “hard to understand” why the FTC filed a lawsuit to protect other large technology companies that took “different strategic approaches to gaming,” said Microsoft and Activision. That “especially” applies to Sony, which has an exclusive content library that “dwarfs Microsoft’s” by a ratio of 8:1, “and seems focused on preserving the $70-per-game business model,” they said: “The FTC’s speculation about what the future may hold is no substitute for what the record in this case clearly contains: evidence that the transaction will certainly bring Call of Duty to more places -- and give gamers more choices on how to play it -- than today.”