Lina KhanThe chairman of the Federal Trade Commission, which has pledged to usher in a new era of trust control over US giants, recently said the agency plans to “enforce anti-trust laws.” proprietary to ensure maximum efficiency.”
Now Miss Khan has bet that ambitious agenda in a case it can be very difficult for the agency to win.
FTC on Thursday sued to block Microsoft’s $69 billion acquisition by video game publisher Activision, the largest consumer technology deal in two decades. This action underscored Ms. Khan’s claims about restrain corporate power and is the boldest in a recent series of lawsuits by the agency aimed at blocking other, smaller transactions in the name of competition.
But Ms. Khan and the FTC face obstacles in trying to block the Microsoft-Activision deal, experts say. That’s because the courts have been skeptical of challenges to so-called vertical mergers, where the two businesses do not compete directly. In this case, Microsoft is best known in the game industry as a manufacturer Xbox consolewhile Activision is a major publisher of blockbuster titles like Call of Duty.
Additionally, Microsoft has made some concessions to ease regulatory concerns about purchasing Activision — such as the pledge that Call of Duty will be available on Sony and Nintendo’s PlayStation platforms, not just Xbox — which some judges may find convincing.
Bill Baer, who headed the Justice Department’s antitrust division under the Obama administration and has represented Sony in private practice, said: “It’s undeniably a challenging case. for the commission, because vertical cases often have an uphill battle.
The case is shaping up as a test of Ms Khan’s belief that the FTC must become more aggressive to test the strength of giants in the modern economy, including tech companies. biggest. Appointed to lead the agency by President Bidenshe has signaled that she wants to take more cases to court — instead of dealing with companies — to push the boundaries of antitrust law and back to the kind of trust-breaking that hasn’t been seen since the last century.
Since Ms. Khan took over the FTC last June, the agency has used novel or little-used arguments to challenge the deals. It sued to prevent a merger between chipmakers Nvidia and Arm, another agreement where the companies are not direct competitors. In July, the agency sued to stop MetaFacebook’s parent company, from its purchase of virtual reality startup Inside, in one case revolved around an unpopular argument that the deal would harm competition in an underdeveloped market.
Microsoft has announced it will fight the FTC’s lawsuit against the Activision purchase. On Thursday, Brad Smith, Microsoft’s president, said the company “fully believes in our case and welcomes the opportunity to present it in court.” On Friday, Microsoft pointed to earlier statements that it believes the deal will expand competition and create more opportunities for gamers and game developers.
An FTC spokesman declined to comment on the case.
Regulators have traditionally focused on challenging mergers that combine two direct competitors. When they sued for vertical mergers, their records were mixed.
The biggest and most recent battle over vertical mergers came in 2017, when the Justice Department tried to block AT&T’s $85.4 billion purchase of Time Warner. One last federal judge allow the deal to go forwardsaid he did not believe the combination would harm competition in the telecommunications and media sectors.
This year, a judge ruled against the FTC’s attempt to stop a gene sequencing company from the purchase of the cancer blood test maker, says there is no evidence that the gene-sequencing company would have a post-acquisition motive to harm blood test product competitors .
But Ms. Khan, along with her counterpart at the Justice Department, lead an effort to rewrite the instructions for evaluating such transactions.
The FTC largely based its case against Microsoft’s Activision deal on the idea that Xbox and PlayStation consoles compete in a league of their own, not against other video game consoles like Nintendo. Switch. Barry Nigro, who worked in the Justice Department’s antitrust division during the Obama administration, said the courts will look closely at whether that definition holds true when deciding the case.
In its complaint, the FTC argued that the games Activision created were “critically important” to the success of the video game console, so Microsoft would have the ability and incentive to use uses its control over those titles to keep them out of competitors or reduce their quality. .
No game is more important than Call of Duty, a first-person shooter game, which the company calls “one of the most successful console game franchises ever.” Sony has said that if Microsoft got its hands on Call of Duty, it could remove the game from the PlayStation, pushing players to the Xbox.
Microsoft has repeatedly said that it would not make sense to remove Call of Duty from the PlayStation, where most gamers play the game. This week, Microsoft signed a 10-year agreement to Bring the game to Nintendo’s Switchand said it offers Sony a similar arrangement.
But the FTC rejected Microsoft’s promise. It points to one 7.5 billion USD deal that Microsoft closed last year to buy ZeniMax, the parent company of eight game studios that create popular franchises like The Elder Scrolls, Doom and Fallout.
The agency wrote in the complaint that Microsoft had “assured” European regulators reviewing the ZeniMax deal that it would have no incentive to withhold ZeniMax titles from its consoles. competitor. But Microsoft later announced that major new games from ZeniMax’s studios would only be released on their Xbox and Windows computers.
That would “cast more doubt” on Microsoft’s claims about keeping Call of Duty available on PlayStation, the agency said in its lawsuit.
Microsoft has said that those new ZeniMax games are not comparable to an existing franchise like Call of Duty. It turned out that the FTC was misrepresenting what happened because the company made no commitments to the European Commission, Point at for the European filing, which said it would decide how to release the game on a “case-by-case basis.”
In meetings with the agency and commissioners on Wednesday, Microsoft offered to make binding, enforceable commitments to keep Call of Duty on PlayStation, a person with direct knowledge of the matter said. about said chats. But the commissioners didn’t seem interested in accepting the settlement, the person said.
The FTC declined to comment on conversations with Microsoft prior to the lawsuit.
Those types of deals have not been supported by regulators like Ms Khan. She has said that the promises companies make to regulators are rarely fulfilled and do not address the core problems of companies getting bigger and using their power. them to harm competition.
Judges in several recent antitrust cases have cited settlement offers as a reason to allow the merger to proceed despite regulatory objections. “The courts have been surprisingly concerned about what Microsoft has to offer here,” said Daniel Francis, an assistant professor of law at New York University and a former FTC official.
The FTC’s complaint says the first hearing on the case will take place in August.
Kellen Browning contribution report.
