Summary
The Ninth Circuit affirmed the district court’s denial of the Federal Trade Commission’s motion for a preliminary injunction against Microsoft’s acquisition of Activision Blizzard. The court held that the FTC failed to make a sufficient evidentiary showing of a reasonable probability that the merger would substantially lessen competition in gaming console, subscription-service, or cloud-streaming markets under § 7 of the Clayton Act. The merger was completed while the appeal was pending, and the FTC’s related administrative proceeding remained pending.
Topics
Practice areas
Questions Presented
- Whether the district court applied the correct legal standards in denying the FTC's motion for a preliminary injunction under section 13(b) of the FTC Act.
- Whether the FTC raised sufficiently serious and substantial questions showing a reasonable probability that Microsoft's acquisition of Activision Blizzard would substantially lessen competition under section 7 of the Clayton Act in the high-performance console market.
- Whether the FTC made the requisite showing of likely substantial competitive harm in the multigame content-library subscription-services market.
- Whether the FTC made the requisite showing of likely substantial competitive harm in the cloud-streaming market.
Holdings
- The district court's denial of a preliminary injunction is reviewed for abuse of discretion or an erroneous legal premise, with legal conclusions reviewed de novo and factual findings reviewed for clear error.
- In seeking preliminary injunctive relief under section 13(b) of the FTC Act for an asserted section 7 violation, the FTC must raise questions going to the merits that are sufficiently serious, substantial, difficult, and doubtful to constitute fair grounds for investigation and determination, viewed in relation to the reasonable probability that the merger will substantially lessen competition.
- The FTC failed to show a sufficient likelihood of success on its theory that Microsoft would substantially lessen competition in the high-performance console market by making Call of Duty exclusive to Xbox, releasing an inferior version on PlayStation, delaying releases, or making other Activision Blizzard titles exclusive.
- The FTC failed to show a sufficient likelihood that the merger would substantially lessen competition in the multigame content-library subscription-services market.
- The FTC failed to show a sufficient likelihood that the merger would substantially lessen competition in the cloud-streaming market.
Key quotations
“That “preliminary assessment”—i.e., whether the FTC has raised “serious questions” concerning the merits of its § 7 claim—may properly rest upon pertinent factual findings bearing upon whether that showing has been made.” (22)
“In the unusual circumstances presented here, in which Activision Blizzard as an independent company had persistently resisted allowing its content to be included in subscription services, making Activision Blizzard content exclusive to Microsoft’s subscription services would not foreclose a share of the subscription market “otherwise open to competitors.”” (33)
“But in the context of a vertical merger, the FTC cannot rely on intuition, theory, or other “short cut[s]” to carry its ultimate burden under § 7; rather, it “must make a ‘fact-specific’ showing that the proposed merger is ‘likely to be anticompetitive.’”” (36)
Factual background
Microsoft agreed to acquire Activision Blizzard, one of the largest independent video-game publishers and the owner of the Call of Duty franchise, for $68.7 billion. The FTC alleged that the vertical merger would substantially lessen competition in U.S. markets for high-performance gaming consoles, multigame content-library subscription services, and cloud gaming. Before and during regulatory review, Microsoft entered into agreements and made commitments concerning access to Activision Blizzard content on competing platforms, but the FTC maintained that Microsoft would have the ability and incentive to foreclose rivals.
Procedural history
The FTC filed an administrative complaint challenging the proposed merger and later sought a preliminary injunction in federal district court. After a five-day evidentiary hearing, the district court denied the injunction on July 10, 2023, concluding that the FTC had not raised serious questions regarding a likely substantial lessening of competition. The Ninth Circuit denied an emergency injunction pending appeal, the merger subsequently closed, and the panel affirmed the denial of preliminary relief.