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A building with offices belonging to Microsoft is seen in Chevy Chase, Maryland, January 18, 2023. - Microsoft on January 18, 2023 said it would layoff 10,000 employees in the coming months as the economic downturn continues to punish US tech giants. (Photo by SAUL LOEB / AFP) (Photo by SAUL LOEB/AFP via Getty Images)

Microsoft Wins Call of Duty Acquisition Battle against US Government

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Microsoft’s planned acquisition of Activision Blizzard, the company behind “Call of Duty,” received a boost as a federal court denied the Federal Trade Commission’s (FTC) request for a temporary restraining order to prevent the deal’s closure on July 18.

However, the acquisition still faces an antitrust lawsuit from the FTC, which argues that it would harm competition in the gaming industry. Despite this ongoing legal challenge, Microsoft has moved one step closer to finalizing the transaction.

Upon hearing the court’s decision, shares of Activision Blizzard surged by 11%, while Microsoft’s stock remained steady. The FTC expressed disappointment with the ruling, emphasizing the perceived threat that the merger poses to open competition in cloud gaming, subscription services, and consoles. The FTC plans to announce its next steps in the fight to protect competition and consumers.

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The FTC’s argument for the restraining order centered around concerns that Microsoft’s ownership of Activision Blizzard would enable it to restrict access to the “Call of Duty” franchise, potentially giving the company an advantage in the emerging cloud gaming market.

However, US District Judge Jaqueline Scott Corley disagreed with this claim, stating that the FTC had not demonstrated that the combined firm would likely remove “Call of Duty” from Sony PlayStation or substantially reduce competition in the video game library subscription and cloud gaming markets.

The outcome of the Microsoft-Activision Blizzard deal will largely depend on negotiations between Microsoft and the FTC. Although the court’s decision weakens the FTC’s antitrust claims, the commission can continue pursuing its challenges even if the merger proceeds. The involvement of administrative law judges (ALJ) in this case is considered unusual, as their decisions are typically advisory and subject to review by the Department of Justice or the full FTC.

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While the court victory is in Microsoft’s favor, future proceedings may extend over months or even years, as there are no specific deadlines for the FTC’s reviews. The possibility of a post-close antitrust challenge from the DOJ or the full FTC suggests that the FTC may demand concessions from Microsoft. The FTC Chair Lena Khan’s aggressive stance makes the situation even more uncertain.

Microsoft and Activision Blizzard highlight that the acquisition will benefit consumers and workers while enabling competition in the gaming industry. The appeal of the deal lies in Activision Blizzard’s highly lucrative “Call of Duty” franchise, which generates billions in revenue each year.

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Although global regulators have approved the acquisition, the UK’s Competition and Markets Authority blocked it, expressing concerns about potential limitations on competition in the cloud gaming market. Microsoft is appealing this decision.

To address regulators’ worries about restricting access to “Call of Duty,” Microsoft has signed agreements with Nintendo and Nvidia to ensure the game’s availability on their platforms for at least a decade. However, “Call of Duty” is currently not available on Nintendo Switch and may require significant modifications to run on the less powerful console.

In a statement, Microsoft President Brad Smith expressed hope that the court’s ruling would encourage other jurisdictions to proceed with approving the deal. Activision Blizzard CEO Bobby Kotick believes the acquisition will foster competition rather than allow established market leaders to dominate the growing gaming industry.