The personal-computing company has been publicizing its position for months, saying the acquisition would not threaten competition in the industry as Microsoft lags rivals in videogame consoles and has a limited presence in mobile-game development. The company has also stated that it expects the industry to become more competitive in the future with the rise of cloud gaming.
Legal experts say Microsoft will likely make its case about those as well as the fact that it’s doing what’s called a vertical merger, meaning it’s buying a company in its supply chain, which is a direct Opposite of competitor.
“This deal is fundamentally good for gamers, good for consumers, good for game developers and good for competition,” Microsoft President and Vice President Brad Smith said at the company’s annual shareholders meeting on Tuesday. ” judge in a court because this is a matter in which I have great confidence.”
Microsoft has until Thursday to respond to the FTC’s lawsuit, which was filed on Dec. 8 in the agency’s Administrative Court.
In its complaint, the FTC alleged that the deal is illegal because it would give Microsoft the ability to control how consumers access Activision’s games beyond the Redmond, Wash., company’s own Xbox console and subscription services. The FTC said the company could raise prices or reduce Activision’s content for those who don’t use its hardware to access the developer’s games, or cut off access to the games altogether.
“If you can control a significant source of content like Activision Blizzard, you have a variety of tools to leverage at your disposal,” an agency official said earlier this month.
At the shareholder meeting, Mr. Smith challenged the FTC’s concerns that Microsoft’s main rival, PlayStation maker Sony Group Corp., would be harmed by the deal, saying Sony has too large a stake in the high-performance console space to warrant protection. There is an edge.
He further argued that the FTC’s case hinged largely on concerns that Microsoft might one day make games from Activision’s “Call of Duty”—which has been a hit among PlayStation users—exclusive to its Xbox system. . Mr. Smith said Sony has about four times as many exclusive games as Microsoft has on its gaming machines.
Sony did not respond to a request for comment.
Microsoft said it made a last-minute offer to keep its “Call of Duty” game accessible to others through a legally binding consent decree.
The FTC’s Administrative Court will hold a hearing in August, unless a resolution is reached before then. After the case is heard, legal experts say it could take months to hand down the decision, and the losing side can appeal with the full commission. If an appeal is filed, the Commission reviews the entire record de novo and hears oral arguments before deciding whether to uphold or reverse the Administrative Law Judge’s order. At that point, if Microsoft loses, the company can appeal the commission’s decision to a federal appeals court.
“This is by no means a slam-dunk case for the FTC,” said Eric Talley, a professor at Columbia Law School. Extend the legal precedent a little further in their favor.”
Some analysts said Microsoft may want to abandon the acquisition, which values the company at $68.7 billion after adjustments activisionnet cash, to avoid executive distraction and costly regulatory concessions. Microsoft has said it is committed to addressing the concerns of regulators.
While the litigation continues, Microsoft may offer additional commitments to the FTC or enforce them itself, said Benjamin Sirota, an antitrust attorney with the law firm Kobre & Kim LLP in New York. But to be satisfied, the government would have to implement those commitments given “resources and circumstances often change,” he said. The agency may also consider how “commitments that currently solve the competition problem may not work in the future,” he added.
The FTC faces obstacles in its case because of the deal’s vertical-merger status, according to David Hope, mergers and acquisitions, technology and media attorney with Gamma Law in San Francisco.
“With these cases, it is difficult to prove consumer harm,” he said.
The FTC has been clear about its intention to expand the scope of damages beyond the merger’s potential impact on consumer prices, Mr. Hoppe said. The agency may be concerned about actions that could indirectly put consumers at risk, he said, such as the misuse of sensitive competitive information by a joint venture. He added that this information could give Microsoft a way to prevent newcomers from succeeding in videogame distribution, resulting in fewer choices for consumers.
“It’s all about network effects,” Mr. Hoppy said.