FTC asks circuit to help pause Microsoft Activision deal

Facing an uphill battle, a Federal Trade Commission attorney asked a 9th U.S. Circuit Court of Appeals panel Wednesday to reverse a district judge’s denial of a preliminary injunction against Microsoft Corp.’s acquisition of Activision Blizzard.

Judges on the panel peppered attorneys for the FTC and Microsoft with a host of questions about the acquisition, which closed Oct. 13 after British antitrust authorities approved the deal. FTC v. Microsoft Corp. et al., 23-15992 (9th Circ., filed July 13, 2023).

FTC attorney Imad D. Abyad argued that the appellate panel should reverse the decision by U.S. District Judge Jacqueline Scott Corley of San Francisco so that the commission can hold its own administrative hearing on the merger.

“We are allowing Microsoft to be a monopolist,” Abyad declared, adding that the company’s dominance in gaming is so complete in the cloud market that even a large company like Alphabet Inc.-owned Google decided it would not be viable to enter the market because it couldn’t get enough content.

“Simply having better customer service is not increasing competition,” Abyad said, noting that Microsoft also dominates the subscriber market.

But 9th Circuit Judge Daniel P. Collins, an appointee of President Donald Trump, repeatedly cited the opinion of Corley — an appointee of President Joe Biden — and questioned whether her factual conclusions and opinion contained clear legal error.

He also asked Abyad whether the approval of the deal by British antitrust authorities should have any effect and was skeptical when the FTC lawyer said it doesn’t matter because of geographical differences.

“None?” Collins asked.

Microsoft attorneys persuaded Corley to reject the FTC’s bid for a preliminary injunction blocking the acquisition of Activision Blizzard in July.

“The FTC has not shown a likelihood it will prevail on its claim this particular vertical merger in this specific industry may substantially lessen competition,” Corley wrote.

Rakesh N. Kilaru, a partner with Wilkinson Stekloff LLP who represents Microsoft, disagreed with Abyad about the relevance of the deal’s approval by British antitrust authorities, noting that it includes a divestiture of cloud rights to Activision games.

Kilaru said Microsoft would have no incentive to block access to Activision’s popular “Call of Duty” game because it is played on multiple platforms — so the company’s financial incentives would be defeated by keeping the game to itself.

He cited rulings that have made it difficult for antitrust authorities to block acquisitions involving companies in different industries, known as vertical mergers.

“No court has ever blocked a vertical merger based on Section 13(b) of the FTC Act,” Kilaru told the panel.

Abyad said Corley used the incorrect standard and ignored Microsoft’s economic incentives to foreclose its rivals. He said the Washington state based company’s 2021 purchase of game maker Zenimax demonstrates that it will make content exclusive to its own platform after an acquisition.

“They foreclosed everyone else from that content,” Abyad said.

9th Circuit Judge Danielle B. Forrest, another Trump appointee, and 9th Circuit Judge Jennifer Sung, a Biden appointee, asked both attorneys a number of questions.

The panel also heard a challenge from gamers — represented by Joseph M. Alioto, an attorney with the Alioto Law Firm — to a judge’s denial of a preliminary injunction.

A different 9th Circuit panel rejected the Federal Trade Commission’s bid for a temporary pause to block Microsoft from acquiring Santa Monica based Activision Blizzard before the deal closed.

The FTC has faced several legal challenges from companies, especially as the commission has grown more aggressive in challenging acquisitions under the leadership of Chair Lina M. Khan, a Biden appointee.

Earlier this year, U.S. District Judge Edward J. Davila of San Jose, an appointee of President Barack Obama, denied the commission’s proposed preliminary injunction to prevent Meta Platforms Inc.’s deal to acquire virtual reality company Within Limited Inc. Federal Trade Commission v. Meta Platforms Inc. et al., 22-CV-04325 (N.D. Cal., filed July 27, 2022).