Lina Khan, who aims to block Activision’s Microsoft deal, faces a challenge
Lina Khan, who aims to block Activision’s Microsoft deal, faces a challenge
Lina KhanChairman of the Federal Trade Commission, has vowed to usher in a new era of no-confidence for US giants, recently saying that the agency plans to “enforce antitrust laws to ensure maximum effectiveness.”
Now Miss Khan has bet that ambitious agenda In a case that may be very difficult for the agency to win.
Federal Trade Commission on Thursday She sued to block Microsoft’s $69 billion acquisition Video game publisher Activision, the biggest consumer technology deal in two decades. The work permeated Mrs. Khan’s statements about Curb corporate power It was the boldest in a series of recent lawsuits the agency has filed to block other, smaller deals in the name of competition.
But experts said Khan and the FTC are facing obstacles in trying to stop Microsoft’s Activision deal. That’s because the courts have been skeptical of the challenges in so-called vertical mergers, where the two companies don’t directly compete. In this case, Microsoft is best known in games as the manufacturer of Xbox consolewhile Activision is a major publisher of blockbuster titles such as Call of Duty.
In addition, Microsoft has made a number of concessions to reduce regulatory concerns about the purchase of Activision — such as a pledge that Call of Duty will be available on Sony’s PlayStation and Nintendo platforms, not just the Xbox — that some judges might find compelling.
“It’s undoubtedly a tough lawsuit before the commission, because vertical challenges generally face an uphill battle,” said Bill Baer, who led the Justice Department’s antitrust division during the Obama administration and represented Sony in private practices.
The case is shaping up as a test of Ms. Khan’s belief that the Federal Trade Commission should become more aggressive in checking the power of giant corporations in the modern economy, including the largest tech companies. He is appointed to lead the agency by President Bidenit has indicated that it wants to bring more lawsuits to court – rather than settle with the companies – to Pushing the boundaries of antitrust law And a return to the kind of betrayal of trust not seen in the last century.
Since Ms. Khan took office as the FTC in June of last year, the agency has used new or little-used arguments to challenge the deals. It sued to block a merger between chipmakers Nvidia and Arm, another deal in which the two companies weren’t direct competitors. In July, agency Filed a lawsuit to stop deadInc., the parent company of Facebook, agreed to buy the virtual reality startup Insider, in the event that it hinged on an unpopular argument that the deal would hurt competition in an as-yet-undeveloped market.
Microsoft has vowed to fight the FTC’s lawsuit against the purchase of Activision. On Thursday, Microsoft President Brad Smith said the company “has complete confidence in our case and welcomes the opportunity to bring it to court.” On Friday, Microsoft cited earlier statements that it believes the deal will broaden competition and create more opportunities for gamers and game developers.
An FTC spokesperson declined to comment on the case.
Regulators have traditionally focused on merger challenges bringing together direct competitors. When they sued against vertical mergers, their record was mixed.
The last, biggest and most bruising battle over vertical merger was in 2017, when the Justice Department tried to block AT&T’s $85.4 billion purchase of Time Warner. Ultimately a federal judge The deal was allowed to go forwardsaying that he is not convinced that the combination will harm competition in communications and media.
This year, a judge ruled against the FTC’s bid Stop the genetic sequencing company of purchasing a cancer blood test product, saying the evidence did not prove that the genetic sequencing company would have an incentive after acquisition to harm competitors of the blood test product.
But Ms. Khan, along with her counterpart at the Department of Justice, has led effort To re-write the guidelines for evaluating such deals.
The FTC based its case against Microsoft’s Activision deal on the idea that the Xbox and PlayStation compete in a league of their own, not against other video game consoles like the Nintendo Switch. Barry Nigro, who worked in the Department of Justice’s antitrust division during the Obama administration, said courts will look hard at whether that definition is correct in adjudicating the case.
The FTC argued in its complaint that games made by Activision were “extremely important” to the success of video game hardware, so Microsoft would have the ability and incentive to use its control of those titles to distance them from competitors or reduce their quality.
No game is more important than Call of Duty, a first-person shooter that the agency called “one of the most successful console game franchises of all time.” Sony said that if Microsoft gets its hands on Call of Duty, it can keep the game off PlayStation, and push players to Xbox.
Microsoft has said time and time again that it wouldn’t make sense to take Call of Duty off the PlayStation, as most gamers play the game. This week, Microsoft signed a 10-year agreement for Bring the game to Nintendo SwitchAnd the He said I offered Sony a similar arrangement.
But the Federal Trade Commission rejected Microsoft’s promises. He pointed out a $7.5 billion deal That Microsoft closed last year to buy ZeniMax, the parent company of eight game studios that make successful franchises like The Elder Scrolls, Doom, and Fallout.
In its complaint, the agency wrote that Microsoft had “assured” regulators in Europe who were reviewing the ZeniMax deal that it would have no incentive to withhold ZeniMax titles from competing consoles. But Microsoft later announced that major new games from ZeniMax Studios will only be released on Xbox and Windows PC.
In its lawsuit, the agency said that should “cast further doubt” on Microsoft’s statements about keeping Call of Duty available on PlayStation.
Microsoft said that the new ZeniMax games cannot be compared to an existing franchise like Call of Duty. She suggested that the FTC is misrepresenting what happened because the company has not made any commitments to the European Commission, pointing to European filings in which it said it would decide how to release the games 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, said a person with direct knowledge of the talks. But the official said the committee members did not seem interested in accepting the settlement.
The FTC declined to comment on conversations it had with Microsoft prior to the lawsuit.
These kinds of agreements are no longer in favor of regulators like Ms Khan. She said the promises companies make to regulators are rarely kept and do not address the core problems of companies getting bigger and beating their strength to the detriment of competition.
Judges in some recent antitrust cases have cited settlement offers as a reason to allow mergers to proceed over regulators’ objections. “The courts have been surprisingly careful about the kind of things Microsoft has introduced here,” said Daniel Francis, an assistant professor of law at New York University and a former official with the Federal Trade Commission.
The FTC complaint said the first hearing in the case will be in August.
Clin Browning Contribute to the preparation of reports.
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