US appeals court denies FTC's attempt to temporarily block the Microsoft-Activision deal

The completion of Microsoft's takeover now hinges solely on the UK's CMA

A US appeals court on Friday rejected the US Federal Trade Commission's (FTC) request for temporary relief to block Microsoft's acquisition of game publisher Activision Blizzard, clearing the path for the two companies to proceed with the largest gaming deal ever in the US.

"We appreciate the Ninth Circuit's swift response denying the FTC's motion to further delay the deal," Brad Smith, Microsoft's president and vice chair, said after the appeal court's ruling.

"This brings us another step closer to the finish line in this marathon of global regulatory reviews."

Earlier in the week, following five days of court hearings, Judge Jacqueline Scott Corley of the US district court in northern California ruled that the Microsoft-Activision deal complied with antitrust law.

Judge Corley rejected the FTC's request for a preliminary injunction against Microsoft, which would have allowed the federal agency more time to present the case before an internal FTC judge in August.

Subsequently, on Thursday, the FTC filed an emergency motion [pdf] with the Ninth Circuit.

In the complaint, the agency argued that the district judge had "denied preliminary relief" by applying an incorrect legal standard.

According to the FTC, the court effectively required them to fully prove their case regarding the merger's legality, with the court acting as the final arbiter.

In December of last year, the FTC first filed a lawsuit to prevent the acquisition, contending that the transaction could harm competition.

The FTC's argument cantered around the possibility of Microsoft making certain games exclusive to its Xbox consoles or potentially diminishing the gaming experience of Activision titles, including popular franchises like Call of Duty, on competing platforms if the deal were to be finalized.

"This case is about more than a single video game and the console hardware to play it. It is about the future of the gaming industry," the FTC wrote in a filing to the appeals court last week.

"At stake is how future gamers will play and whether the emerging subscription and cloud markets will calcify into concentrated, walled gardens."

Microsoft asserts that it has reached an agreement to provide rival company Nintendo with access to Activision's Call of Duty, subject to the completion of the deal.

The company argues that such agreements demonstrate its intention not to monopolise the games solely for use on its Xbox platform and subscription service.

Microsoft also said it had reached an agreement with Sony over the issue. "We are pleased to announce that Microsoft and @PlayStation have signed a binding agreement to keep Call of Duty on PlayStation," tweeted head of XBox Phil Spencer on Sunday.

With the rejection of FTC's recent appeal, there is a possibility that the agency may choose to abandon the fight, as it has done in similar circumstances in the past.

A notable example occurred in February, when the FTC lost its challenge in federal court against Meta Platforms' acquisition of virtual reality content maker Within Unlimited and subsequently dropped the case.

But Microsoft still faces significant tasks ahead. The company is actively engaged in addressing concerns raised by the UK's Competition and Markets Authority (CMA) regarding the deal.

Both Microsoft and Activision have been aiming to finalise the deal by 18th July. However, if an extension is not negotiated, either company will have the option to walk away from the agreement after that date.

In Britain, the CMA is opposing the deal over concerns about its potential impact on competition in the cloud gaming sector.

However, following the ruling by the US district court in northern California, there appears to be a shift in the position of the CMA regarding the merger. The CMA is now prepared to resume discussions with Microsoft, indicating a potential softening of its stance on the deal.

Last week, the watchdog said that restructuring the deal would be necessary to address its concerns.

"They can choose to restructure a deal, which can lead to a new merger investigation," the CMA stated.

Microsoft responded by expressing its intention to restructure the deal in order to address CMA's concerns.

On Friday, Microsoft submitted a "detailed and complex" new proposal to the CMA, after which the watchdog extended its deadline for a final ruling to 29th August.

The CMA said it would make a decision as promptly as possible.