FTC’s 9th Circuit Letter Shows It’s Not Throwing in Towel on Microsoft/Activision

The FTC disagrees with the Oct. 13 assertions of Microsoft and Activision Blizzard that the recent U.K. Competition and Markets Authority (CMA) decision granting final approval of Microsoft’s $69 billion Activision buy and the subsequent consummation of that transaction provides a basis for the 9th U.S. Circuit Appeals Court’s “affirmance” of the merger, FTC counsel Imad Abyad wrote the 9th Circuit clerk in a rebuttal letter Wednesday (docket 23-15992). "Contrary to" those Oct. 13 assertions, recent developments that Microsoft and Activision cited in their favor as resolving all of the FTC's U.S. competition concerns do nothing of the sort, said Abyad.

Activision, before the closing, agreed to divest global cloud streaming rights to all existing console and PC games, and those produced over the next 15 years, to Ubisoft. Microsoft also agreed not to interfere with Ubisoft’s cloud streaming rights, and to give Ubisoft versions of Activision games that are on par with the nonstreaming versions of those games, he said. “Taken together,” Microsoft and Activision told the 9th Circuit Oct. 13 (see 2310160003), “these actions eliminate any possible claim that Microsoft will withhold Activision content from rivals in the alleged cloud streaming market.”

But the CMA’s decision “in fact supports the FTC’s position in this appeal,” said Abyad in the rebuttal letter. Consistent with the FTC’s “showing,” the CMA said the merger would give Microsoft “the ability and incentive to foreclose its rivals in the cloud gaming product market,” it said.

The CMA also said that the cloud-streaming “side agreements,” including those that U.S. District Judge Jacqueline Scott Corley for Northern California “wrongly considered” when she rejected the FTC’s injunction to block Microsoft/Activision (see 2307110031), “were indeed insufficient to resolve the competitive concerns about the transaction” in the U.K., Abyad told the 9th Circuit. The CMA’s decision to approve the deal thus required Microsoft and Activision “to enter into new binding regulatory ‘undertakings’” under U.K. law, said the FTC attorney.

“Significantly,” the CMA’s decision to accept the Microsoft and Activision commitments “turned solely on the commitments’ sufficiency” under U.K. law and the merger’s “competitive effects” in the U.K, Abyad told the 9th Circuit. Moreover, said Abyad, Microsoft’s commitments to the CMA are enforceable only by the U.K., not by the U.S. government, said the rebuttal letter.

No regulatory body “has evaluated the effects” of the Microsoft and Activision agreements to transfer Activision’s cloud-streaming rights to third-party Ubisoft “with respect to the United States, the relevant geographic market in this case,” Abyad told the 9th Circuit.Corley’s decision rejecting the FTC’s injunction predated the Ubisoft agreements, said the letter. And no “record evidence” supports the Microsoft and Activision assertions about the agreements’ effects on competition in the U.S., it said.

“Indeed, the FTC has not even had the opportunity to take discovery regarding that issue,” said the letter. The agency “is seeking such discovery in its ongoing administrative adjudication of the merits of the merger,” it said. Once the FTC “determines the nature and scope of the merger’s anticompetitive effects” in the U.S., the agency “can take the measure of any proposed remedies, including agreements like those with Ubisoft,” it said.