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Microsoft set to face latest challenge from FTC over Activision deal

Microsoft (MSFT) on Wednesday will begin another round in court in its multi-chapter legal defense against the FTC over its $69 billion purchase of "Call of Duty" maker Activision Blizzard.

Microsoft finalized the deal, the largest ever in the gaming market, on Oct. 13.

A court hearing in the agency's appeal of a failed injunction request is set to take place Wednesday in the Ninth Circuit Court of Appeals.

In July, the US Federal Trade Commission (FTC) suspended its administrative challenge to block the acquisition.

The suspension came after a federal district court judge and a three-judge federal appellate court panel declined to grant the FTC a preliminary injunction that would have kept the tie-up from moving forward while the agency completed an investigation into antitrust concerns.

Microsoft later reached an agreement with the UK's Competition and Markets Authority (CMA) to relinquish certain cloud gaming rights contained in its original plan, paving the way for the deal to close.

In its original complaint to block the deal, the FTC said that Microsoft's ownership of Activision "would enable Microsoft to suppress competitors to its Xbox gaming consoles and its rapidly growing subscription content and cloud-gaming business."

Those concerns stem in large part from the fact that the merger of the two companies makes Microsoft the third-largest video game company in the world by revenue behind Sony (SONY) and Tencent.

FILE - An image from Activision's Call of Duty is shown on a smartphone near a photograph of the Microsoft logo in this photo taken in New York, June 15, 2023. Microsoft’s purchase of video game maker Activision Blizzard won final approval Friday, Oct. 13, from Britain’s competition watchdog, reversing its earlier decision to block the $69 billion deal and removing a last obstacle for one of the largest tech transactions in history. (AP Photo/Peter Morgan, File)
An image from Activision's Call of Duty is shown on a smartphone near a photograph of the Microsoft logo in this photo taken in New York, June 15, 2023. (AP Photo/Peter Morgan, File) (ASSOCIATED PRESS)

Microsoft published a statement on Tuesday arguing the FTC should drop its challenge, pointing to 37 venture capital firms that joined together to file a "friend of the court" to endorse the deal.

In the filing, Microsoft described the FTC’s legal position as a "watered-down" stance that would give the agency too much power to block transactions. Support from the venture firms, the company said, "sent a clear message" that the FTC's opposition "threatens the cycle of investment and entrepreneurship that drives America’s innovation economy."

Although the FTC can continue to fight the deal, courts generally shy away from unraveling integrated companies. The FTC has also said it intends to continue scrutinizing the deal using its internal administrative process.

"The FTC's been down that road," Brian Quinn, a Boston College Law School professor, told Yahoo Finance.

"The remedies available include taking apart the merged companies, and that's also the remedy that nobody wants to do. No court wants to be in charge of taking a deal apart."

The protracted legal battle comes amid an aggressive push by the Biden administration over the course of the year to challenge Big Tech's dominance in various markets.

The FTC argued in a court filing in November that Microsoft's acquisition would harm consumers by restructuring the gaming industry and likely giving Microsoft the ability and incentive to deny, delay, degrade, or foreclose rivals from accessing Activision's games.

"If Microsoft is given free rein to weaponize Activision's content, emerging markets for content library subscriptions and cloud gaming will be walled off and dominated by just a few large companies," the FTC wrote in its court filing.

In addition to its pressure on Microsoft, the FTC and US Justice Department have brought or continued antitrust suits against Google (GOOG, GOOGL), Amazon (AMZN), and Facebook (META).

Alexis Keenan is a legal reporter for Yahoo Finance. Follow Alexis on Twitter @alexiskweed.

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