In the latest of a string of losses for antitrust enforcers, the Northern District of California resoundingly denied the FTC’s bid to enjoin the Microsoft-Activision merger, allowing the deal to proceed a week in advance of its upcoming merger termination date. In a case that tested the bounds of antitrust law in vertical integration deals, Presiding Judge Jacqueline Scott Corley found “the record evidence points to more consumer access,” rather than showing signs of reduced competition. Federal Trade Commission v. Microsoft Corporation, et al. 

Microsoft’s acquisition of Activision was announced on January 18, 2022, spurring a whirlwind of regulatory approval hearings across the globe. With an impending merger termination deadline of July 18, and a fear that Microsoft would close its deal in advance of the upcoming FTC proceedings set to begin on August 2, the FTC attempted to jump-start its offensive by filing a TRO and preliminary injunction in the Northern District of California, asking the court to halt Microsoft’s ability to close the deal. Judge Corley summarily granted the TRO, and parties quickly began preliminary injunction hearings on June 22. 

In two tales of the same deal, Microsoft described Activision’s video game content as an opportunity to expand Microsoft’s mobile gaming portfolio. The FTC narrowed its focus to the vertical integration of Microsoft’s Xbox gaming console paired with the unprecedented popularity of Activision’s Call of Duty franchise. It hypothesized that control over the game would be enough for Microsoft to force gamers into the Xbox market and drive out competition. In doing so, the FTC argued for limitation of the relevant market to include only “Gen 9” consoles by Xbox and PlayStation, eliminating Nintendo’s most recent launch, the portable Nintendo Switch, from the playing field. 

Judge Corley’s opinion was quick to highlight facts that suggest the FTC’s focus on console gaming was overblown, having lost its prior predominance to now “represent a smaller share of video game revenue than either mobile or PC” gaming. Judge Corley also took note of Microsoft’s argument that both Nintendo and PlayStation already had a “significantly higher number of exclusive games” than the Xbox. 

In evaluating the parties’ relevant market dispute, Judge Corley suggested that the console market would include Nintendo given that the distinct features of the Switch could increase its attractiveness and draw purchasers away from competing consoles. Nonetheless, Judge Corley allowed the analysis to proceed on that point, stating that the FTC had met its burden at the preliminary injunction stage to make a “tenable showing” of a Gen 9-only market.

But the FTC fell short in arguing a risk of anticompetitive effects. Specifically, the Court found that the combined firm would have the ability, but not the incentive, to foreclose the Call of Duty franchise from competitors. First, Microsoft had not shown any signs of an intent to make Call of Duty exclusive, instead reaching out to competing platforms such as Valve and Nintendo in efforts to continue and expand Call of Duty’s multi-platform success. Sony’s own CEO Jim Ryan agreed in a widely-circulated email that Call of Duty will be on PlayStation “for many years to come.” The Court also noted that the deal documents were consistent with Microsoft’s testimony, reflecting a purchase price that relied on cross-platform sales and reflected Microsoft’s major focus on instead increasing its mobile content. And exclusivity of the game would not create increased value for Microsoft – instead, it would lose valuable cross-platform play and face the wrath of angry gamers. 

The Court found the FTC’s contrary evidence lacking. Judge Corley noted that the FTC’s key expert Dr. Robin Lee did not “dispute the evidence of Microsoft’s lack of an economic incentive.” When Microsoft’s expert, Dr. Dennis Carlton, argued that the FTC’s evidence rested on faulty assumptions as to the consumer choices made by gamers, the FTC responded with “nothing,” and “chose not to challenge, or even address, Dr. Carlton’s identification of material flaws” in the model. Judge Corley also discussed that the Microsoft merge would bring increased access to Call of Duty, and enhanced competition, via subscription services and cloud streaming.

Though the FTC has said it will appeal, the decision further clears the path for Microsoft to close its deal in advance of the July 18 deadline. 

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Photo of Colin Kass Colin Kass

Colin Kass is a partner in the Litigation Department and co-chair of the Antitrust Group, and a member of the Firm’s cross-disciplinary, cross-jurisdictional Coronavirus Response Team. An experienced antitrust and commercial litigation lawyer, Colin has litigated cases before federal and state courts throughout…

Colin Kass is a partner in the Litigation Department and co-chair of the Antitrust Group, and a member of the Firm’s cross-disciplinary, cross-jurisdictional Coronavirus Response Team. An experienced antitrust and commercial litigation lawyer, Colin has litigated cases before federal and state courts throughout the United States and before administrative agencies. His practice involves a wide range of industries and spans the full-range of antitrust and unfair competition-related litigation, including class actions, competitor suits, dealer/distributor termination suits, price discrimination cases, criminal price-fixing investigations, and merger injunctions.

Colin also has extensive experience dealing with the Federal Trade Commission and Department of Justice in obtaining clearance for competitively-sensitive transactions and handling anticompetitive practices investigations. His practice also includes counseling clients on their sales, distribution, and marketing practices, strategic ventures, and general antitrust compliance.

Photo of David Munkittrick David Munkittrick

David Munkittrick is a litigator and trial attorney. His practice focuses on complex and large-scale antitrust, copyright and entertainment matters in all forms of dispute resolution and litigation, from complaint through appeal.

David has been involved in some of the most significant antitrust…

David Munkittrick is a litigator and trial attorney. His practice focuses on complex and large-scale antitrust, copyright and entertainment matters in all forms of dispute resolution and litigation, from complaint through appeal.

David has been involved in some of the most significant antitrust matters over the past few years, obtaining favorable results for Fortune 500 companies and other clients in bench and jury trials involving price discrimination and group boycott claims. His practice includes the full range of antitrust matters and disputes: from class actions to competitor suits and merger review. David advises antitrust clients in a range of industries, including entertainment, automotive, pharmaceutical, healthcare, agriculture, hospitality, financial services, and sports.

David also advises music, publishing, medical device, sports, and technology clients in navigating complex copyright issues and compliance. He has represented some of the most recognized names in entertainment, including Sony Music Entertainment, Lady Gaga, U2, Madonna, Daft Punk, RCA Records, BMG Music Publishing, Live Nation, the National Academy of Recording Arts and Sciences, Universal Music Group and Warner/Chappell.

David maintains an active pro bono practice, supporting clients in the arts and in immigration proceedings. He has been repeatedly recognized as Empire State Counsel by the New York State Bar Association for his pro bono service, and is a recipient of Proskauer’s Golden Gavel Award for excellence in pro bono work.

When not practicing law, David spends time practicing piano. He recently made his Carnegie Hall debut at Weill Recital Hall with a piano trio and accompanying a Schubert lieder.

David frequently speaks on antitrust and copyright issues, and has authored or co-authored numerous articles and treatise chapters, including:

  • Causation and Remoteness, the U.S. Perspective, in GCR Private Litigation Guide.
  • Data Breach Litigation Involving Consumer Class Actions, in Proskauer on Privacy: A Guide to Privacy and Data Security Law in the Information Age.
  • Location Privacy: Technology and the Law, in Proskauer on Privacy: A Guide to Privacy and Data Security Law in the Information Age.
  • FTC Enforcement of Privacy, in Proskauer on Privacy: A Guide to Privacy and Data Security Law in the Information Age.
  • The Role of Experts in Music Copyright Cases, Intellectual Property Magazine.
  • Nonprofit Education: A Historical Basis for Tax Exemption in the Arts, 21 NYSBA Ent., Arts, & Sports L.J. 67
  • A Founding Father of Modern Music Education: The Thought and Philosophy of Karl W. Gehrkens, Journal of Historical Research in Music Education
  • Jackson Family Wines, Inc. v. Diageo North America, Inc. Represented Diageo in trademark infringement litigation
Photo of Briana Seyarto Flores Briana Seyarto Flores

Briana Seyarto Flores is an associate in the Litigation Department.  Her practice focuses on complex commercial litigation in both state and federal court.  Her practice encompasses a versatile range of matters, including false advertising and unfair competition claims, consumer class-actions, antitrust claims, and…

Briana Seyarto Flores is an associate in the Litigation Department.  Her practice focuses on complex commercial litigation in both state and federal court.  Her practice encompasses a versatile range of matters, including false advertising and unfair competition claims, consumer class-actions, antitrust claims, and contract disputes.  She advises clients in connection with active litigation, government investigations and internal business strategy.

Briana maintains an active pro bono practice centered on immigration and issues relating to education and Constitutional rights.

While attending UCLA School of Law, Briana was a writing advisor to first-year law students and a managing editor of the Journal of Internal Law & Foreign Affairs.  She also worked as a judicial extern for the Honorable Cathy Ann Bencivengo in the United States District Court for the Southern District of California.  Prior to law school, Briana worked for several years in higher education while completing her M.A. in Guidance and Counseling.