Yep. Lina's actions are politically motivated, as are Kevin's.
Yep. Lina's actions are politically motivated, as are Kevin's.
One is a Republican politician. Lina Khan is not supposed to be a supporter of the Democrats but a professional with some autonomy.
Correct. That is the fundamental problem with the FTC, but it's being run exactly how Biden wants it to be.
Microsoft may abandon Activision merger if federal judge grants FTC request
Microsoft and Activision have indicated that they may abandon their proposed $68.7 billion merger if federal courts grant FTC a preliminary injunction.
www.tweaktown.com
View: https://imgur.com/a/CDRdxHf
Has this been discussed?
Last edited:
Yes.Microsoft may abandon Activision merger if federal judge grants FTC request
Microsoft and Activision have indicated that they may abandon their proposed $68.7 billion merger if federal courts grant FTC a preliminary injunction.
Has this been discussed?
Microsoft may abandon Activision merger if federal judge grants FTC request
Microsoft and Activision have indicated that they may abandon their proposed $68.7 billion merger if federal courts grant FTC a preliminary injunction.
Has this been discussed?
Yes, Microsoft stated this as the reasoning for wanting an expedited hearing. People have said it's PR but whatever they're doing has been working, PR or not. The fact that they got the FTC to flinch is still surprising to many analysts.
Microsoft may abandon Activision merger if federal judge grants FTC request
Microsoft and Activision have indicated that they may abandon their proposed $68.7 billion merger if federal courts grant FTC a preliminary injunction.
Has this been discussed?
I think this is part of the MS filing which says that an injunction is part of the FTC's plan to kill the deal via stall and delay. It can be construed that MS will abandon the merger if the injunction is granted but that is not the thrust of the argument. The argument is that the FTC has stalled and waited till the last minute for the merger agreement to file an injunction and if granted one, they will stall at their own ALJ with no prerogative to obey the ALJ's ruling.
So they've approved the iRobot merger with a picture of a Roborock? I'm pretty sure iRobot don't use Lidar.
Just goes to show how unprofessional they are as an outfit.
I really think this is a non-issue. Don't get me wrong. I don't think the "High end console market" is a thing. I just don't think this paper really matters. It is my understanding that the PS4 was first released November 15, 2013 and The XBox One was first released November 22, 2013, and the switch was released March 3, 2017. Someone can double check my googling. So this would leave us with a console market of... Xbox 360, PS3 and the Wii U that would have been in the market by the time this paper was written.
Additionally, the paper appears not to be analyzing the then contemporary market, but rather to be analyzing the 6th generation console market in the years 2000-2005, just from an *extremely* quick glance at the paper
I don't expect the FTC to argue that in 2000-2005 there was a high end console market, which was a duopoly between Sony and Microsoft, so this paper seems pretty unrelated.
Well they probably should not be tweeting so much because I am guessing its a junior level employee or intern (as in many govt agencies) who get the grunt work in addition to their actual day jobs
So for someone who sees the weekly headlines and back-and-forth, is there a "confidence percentage" of this going through? Like a rough estimate? Kinda hard to extrapolate at this point.
Crazy! Guess that explains why I couldn't get a confident response from any gaming podcast I've listened to (well...that and they're not law experts I guess lol).
We have crazy new developments every week, it's impossible to make any educated guess tbh.
View: https://twitter.com/kendraeclark/status/1669455258362290178?s=46&t=gf8rfJgiXtRzEKTUzSF5Yw
Seeing more mainstream coverage and opinions being thrown into the ring now. Havent heard of this reporter or the website The Drum but it seems fairly legit and not like a right wing rag or anything
Can Microsoft spontaneously use this in one of their court days as a prime example and point of what a bunch of clowns the CMA is?
Not a growing market....
For fuck sake, even my mother/father in law have a robot vacuum cleaner and they are the most anti technology old folks I know. They barely use the internet, don't use streaming services, still use an iPhone 4S, but they have one of these. I'm stunned by this.
People will say CMA this and CMA that. But if Microsoft is prepared to close over and an injunction from the FTC is the last obstacle, it's an approximate 90-95% chance
If MS wins and still seeks CMA approval, I think maybe 50% chance. Comity argument would be quite strong.
Even though confidence is high for MS winning vs FTC, there is always the slight chance they lose and it really depends on the judge.
I still remember confidence bring high CMA would approve. Not just here but all over twitter/reddit.
So right now I don't trust any experts or pundits.
Shit roomba is pretty important to my smart home. We have pets and roomba is great at maintaining dog hair removal.
Reuters discusses the possibilities....
Factbox: Potential outcomes of FTC legal bids to block Microsoft-Activision deal
Factbox: Potential outcomes of FTC legal bids to block Microsoft-Activision deal
So far Idas has been the only person thats been reliable, at least on Era, with their analysis and estimates. Well at least out of everyone I've seen on here, this thread is too big to keep track of everyones predictions.
maybe not, but a lot of people here are more confident o don't know a shit (like practically everyone lol)
Since the CMA ruling, bad feelings about the deal should more or less be the default position.
We talk ourselves in circles but at no point recently has any expert said "yes, great chance of winning here now, very likely!" It's uncharted territory; there are a lot of ways it could go and nobody knows how likely any of them are because so much rests on unknowable intentions at each party (Microsoft's level of determination, ABKs willingness to extend and at what cost, the judge's personal rulings and opinions, the strength of the cases both the CMA and FTC will bring to court).
It will be impressive if they manage to defeat all challengers. The mood in the room here in this thread varies a lot based on vibes we get from the most recent developments but it can and has been wrong multiple times, both in support of and against the merger completing.
Yeah, I felt like it would pass, but the CMA was always going to be a wildcard post Brexit.
We'll see what happens. This has definitely been interesting to follow.
Confidence was high because blocking over cloud is nonsensical, and Microsoft was willing to torch their market share for over 10 years for it. CMA had to break nearly every rule to get that result. (As well as ignore high court direction)
Difference with a judge and a regulator is the judge is being asked to decide between two entities based on the likelihood that one or the other party will win based on the law, they didn't go out and target them. It's done on the merits, not on an intangible future market which doesn't exist.
MS/ABK opposition to the FTC preliminary injunction
OP
OP
The opposition of MS/ABK to the FTC preliminary injunction request is 244 pages long :p
It includes:
- The legal arguments (around 25 pages long).
- 72 exhibits (lots of them redacted).
- The full commitments to the EC, although the agreements with Nvidia, Boosteroid and Ubitus are redacted.
- The full Sony Corporate Report 2022.
- It mentions at least 3 times the article from FT (from different sources) where Sony chief Kenichiro Yoshida warned about the technical problems of cloud gaming.
- The report from MLex in December 2022 saying that Microsoft didn't mislead the EU over the ZeniMax deal, in response to the FTC concerns.
Lots of reading to do!
If the opposition is published online, it should be here.
Highlights from the legal arguments:
The FTC has never persuaded a court to preliminarily enjoin a merger involving anything close to the facts here. Unlike in other merger contexts, the government gets no presumption of harm as to vertical mergers because they do not eliminate a competitor from the marketplace and are widely recognized to be procompetitive. The U.S. antitrust agencies have rarely sought to enjoin vertical mergers and have lost every recent case when they tried. Indeed, the FTC is asking this Court to be the first in decades to find a vertical merger unlawful. (Page 1)
This is the exceptional case where the Court can rely on actions rather than words. Microsoft's valuation of the deal was premised on making Activision's limited portfolio of popular games more accessible. And since the transaction was announced, Microsoft has sought to address any concerns that might be raised about the deal. Here is what Microsoft has done:
- Committed to bring Activision's games to Xbox Game Pass, a subscription gaming service offering numerous games for $9.99 per month, rather than up to $70 per game;
- Signed a binding contract to bring COD to Nintendo (which does not currently have it);
- Offered Valve, the popular digital PC game distributor, a ten-year deal for Activision content, which Valve declined REDACTED;
- Signed contracts to make Activision games available on leading services that "stream" popular games to devices of consumers' choosing;
- Obligated itself, as part of the global regulatory process, to grant streaming rights to current and future Activision games to other cloud gaming services, regardless of whether Xbox decides to stream those games on its own service; and
- Offered Sony a contract to guarantee access to Activision content on PlayStation for ten years, on equal footing with the Xbox console versions, REDACTED; (Page 2)
The FTC simply ignores these facts, claiming that it needs to offer only scant proof to stop the transaction. The FTC is wrong. The government has the burden of proof in seeking the "extraordinary and drastic remedy" of "a preliminary injunction prior to a full trial on the merits." Because the FTC's central claim is that Xbox will withhold Activision content from rivals (principally the market leader, Sony), it must also show that the combined firm would have "the ability and incentive" to foreclose competitors. And the FTC must show that such foreclosure "is likely to substantially lessen competition" in a properly pleaded product and geographic market. On each of these issues, the FTC must show that the evidence "raise questions going to the merits so serious, substantial, difficult and doubtful as to make them fair ground for thorough investigation, study, deliberation and determination." (Page 2)
The FTC cannot come close to carrying its burden. After 18 months of investigation and litigation, including 56 investigational hearings and depositions and the production of nearly 6 million documents, the FTC offers only a minuscule collection of incomplete quotations in support of its motion. The record will decisively refute the FTC's claims. (Page 2)
First, there is no evidence to support the FTC's central theory that Xbox will take COD away from Playstation. The FTC does not cite a single document or witness even suggesting this will happen. On the contrary, Jim Ryan, the CEO of SIE, and the chief commercial opponent of this deal, said privately on the day it was announced REDACTED. Withholding COD would harm Xbox. It would contradict the valuation the Board relied on in approving the deal, which assumed profits from continued Playstation sales. It would cut off highly lucrative income stream to one of Microsoft REDACTED. And it would make COD a worse game and enrage the gaming community, because much of the game's popularity steams from the way it brings together players who use competing consoles. It is therefore unsurprising that every single worldwide regulator that has examined the deal other than the FTC has rejected this theory, including both the EC and the CMA (Page 3)
Third, the FTC has failed to identify relevant antitrust markets, dooming their entire case. Potential anticompetitive effects can be measured only in a properly defined market. But the FTC has replaced sound economics analysis with results-orientated "contort[ions] to meet its litigations meets" Hicks vs PGA Tour. As one example, the FTC claims that gaming's PCs and Nintendo's consoles (both far more popular than Xbox) are not in the same market as Playstation and Xbox, even though the economic evidence REDACTED have said the opposite. Why does the FTC contradict REDACTED in this respect? Because recognizing Nintendo and PCs as part of the market would destroy the FTC's flimsy foreclosure theory: Nintendo has been successful for years without COD, as was the dominant PC game store Valve's Steam. COD cannot be essential to competition if market participants thrive without it. (Page 4)
Fourth, the FTC has literally no factual basis for its claim that the merger will harm competition in the supposed markets for multi-game library subscription and cloud gaming services. Among other things, there is absolutely no evidence that Activision content would put its content on these services without the deal. To the contrary, Activision views such a step as anathema to its business strategy. The transaction will thus benefit consumers by bringing Activision content to Xbox Game Pass for the first time. (Page 4)
Finally, the equities cut sharply against injunctive relief. The merger agreement expires on July 18, 2023. The injunction sought by the FTC would thus almost certainly scuttle the transaction. Moreover, there is no need for a preliminary injunction because the FTC could obtain effective relief at the end of the administrative process if it prevailed. Microsoft intends to operate Activision similarly to other recent acquisitions, whose studio and creative operations remained separate and continued to build games as they had done pre-acquisition. That means divestiture would be possible if it ever proved necessary. (Page 4)
As a result, the industry is exploring how to expand beyond the traditional model of selling individual games. Some companies have had great success with free-to- play games, which allow gamers to download the game and then decide whether to make in-game purchases such as costumes or special powers. Free-to-play games have allowed small independent companies to grow quickly. For example, Epic Games" valuation has increased from $1 billion in 2012 to over $30 billion, powered by the 2017 launch of its flagship free-to-play game, Fortnite. Exs. 5, 6. Free-to-play games are a key part of Activision's strategic vision, and it has successfully launched free-to-play versions of popular games like COD. (Page 5)
Innovation is also occurring in distribution. In 2017, Xbox launched Game Pass, a subscription service allowing consumers to play a library of games for $9.99 a month rather than having to purchase each individual title. Xbox invests heavily in Game Pass, making its own new games available in the service immediately upon release (so-called "day and date" releases). Although this means Xbox loses revenue on the sales of individual game titles, Xbox believes that Game Pass will ultimately prompt subscribers to engage with a variety of games and spend more overall. But others in the industry are much more skeptical. REDACTED. Sony primarily puts old games in its service, forcing customers to pay high per-game fees to access new content. (Page 6)
Last, some companies are experimenting with delivery of games through cloud gaming "streaming," which runs games on remote servers that gamers can access on consoles, PCs, mobile devices, or TVs. The idea is to let gamers play games on less highly powered and more affordable devices, particularly salient in less developed nations. Several companies, including Xbox, Amazon, Nvidia, and smaller upstarts, have experimented with different forms of cloud gaming. But the technology remains challenging, particularly for latency-sensitive multiplayer games. Gameplay is balky, and it has proved hard to generate consumer demand or consistent profits. Here too, REDACTED. Likewise, Sony Group's CEO has admitted that cloud gaming faces substantial "technical difficulties" and is "very tricky" from both a financial and technological standpoint." (Page 6)
Sony is a gaming giant. Its gamer base is two times as large as Xbox's worldwide, and 50% larger in the U.S. (Page 6)
As a game publisher, Sony's in-house developer, PlayStation Studios, is responsible for major hits like God of War, The Last of Us, and Spider-Man, most of which can be played only on PlayStation. As a purchaser of third-party games, Sony pursues exclusivity REDACTED (long two sentences). Sony dwarfs Xbox on exclusives, REDACTED (just a sentence). (Page 7)
By contrast, Xbox's console has consistently ranked third behind PlayStation (first) and Nintendo (second). Xbox has thus pivoted to a different business strategy of making games more accessible. As noted above, Xbox invests heavily in Game Pass. For years, Xbox has tried to get a foothold into mobile gaming, but has had no success REDACTED (four sentences). (Page 7)
Against this backdrop, Xbox and Activision determined that, together, they could significantly improve gaming and increase Xbox's competitiveness. Xbox's vision is to expand choice for gamers and developers by making games more widely accessible on Xbox Game Pass and on mobile devices. A key driver of the merger was Activision's mobile gaming business, which includes popular games like Candy Crush Saga and COD Warzone, a free-to-play variant. (Page 7)
Regulators around the world have been reviewing the transaction ever since. And Microsoft has tried to accommodate any concerns they raised —however speculative those concerns may be. As| noted above, Microsoft has signed a ten-year agreement to bring COD to Nintendo for the first time since 2013.
REDACTED. It has offered a similar agreement to Sony that would preserve Sony's access to the game REDACTED it REDACTED but Sony has refused to deal —instead focusing on trying to derail a transaction that would strengthen a rival. Xbox offered a ten-year agreement to keep COD on Valve, the popular PC
game platform, but Valve turned down the agreement as unnecessary REDACTED (Page 8)
Separately, Xbox has entered five separate ten-year agreements with cloud gaming providers —Boosteroid, EE, Nvidia, NWare, and Ubitus, —to ensure that all Xbox games, including Activision games, can be played on their services. In addition to those agreements, during the European Commission's regulatory process, Xbox committed to grant streaming rights to Activision games to other cloud gaming services—regardless of whether Xbox ultimately decides to stream those games itself. (Page 8)
As a result of these efforts, al but one foreign regulator to pass on the issue has cleared the transaction. The lone exception is the United Kingdom's CMA. But like the European Commission and other global competition authorities, the CMA rejected the FTC's core theories of harm here, tied to console foreclosure and subscription service foreclosure. Its only objection to the transaction was that it might harm, at some point in the future, the evolution of cloud gaming. Xbox is currently appealing that decision.
(Page 8)
To meet its burden to show a substantial lessening of competition, the FTC first must "define the relevant market" in which anticompetitive effects will occur. Courts determine "[t]he outer boundaries of a product market" based on "the reasonable interchangeability of use or the cross-elasticity of demand between the product itself and substitutes for it." Within a relevant market, "[p]roducts need not be fungible." Rather, the "overarching goal of market definition is to "recognize competition where, in fact, competition exists."" By those metrics, the FTC's proposed markets fail entirely. (Page 10)
The FTC offers two unduly narrow proposed definitions of its "high-performance consoles" market. The FTC primarily proposes that PlayStation and Xbox alone compose the entire console market and then alternatively adds Nintendo Switch but still excludes PCs. Both Nintendo and PCs are "economic substitutes," that must be considered in any relevant market. (Page 11)
There is no basis for excluding Nintendo. REDACTED (four sentences). By excluding Nintendo, the FTC inflates Xbox's market share. It also conveniently excludes a key competitor that has thrived without COD for the past decade. (Page 11)
In response, the FTC offers its expert's ipse dixit that Nintendo's Switch is so differentiated along price, specifications, and content that it is in a different product category than the other two consoles. To the contrary, Xbox and Sony compete with Nintendo and with each other on all of these features. For example, the entry-level versions of the current Xbox and Nintendo consoles are offered at the same price point ($299.99). Moreover, while the FTC makes much of Nintendo"s supposed technical differences from the other consoles, it ignores that Xbox and Sony also differentiate their consoles based on performance. The substantial overlap in the three consoles" content libraries further demonstrates that they compete: any of the most popular games on PlayStation and Xbox consoles are also available on Switch. To the extent there are differences, the FTC fails to show that the difference is the result of Xbox and PlayStation games not being available on Switch, as opposed to the many Switch-exclusive titles (such as Mario and Zelda). (Pages 11-12)
The FTC is likewise wrong to exclude PC gaming, which offers specifications and features comparable to or even greater than those offered by consoles. There is also substantial catalogue overlap: In 2022, al but one of the top 30 Xbox titles and al but three ofthe top 30 PlayStation titles were available on PC. Indeed, even SIE's CEO REDACTED. (Page 12)
A related footnote includes more REDACTED content and this: The only evidence the FTC cites to support its position that PCs "are not commercially reasonable alternatives" is testimony from one Microsoft executive in an unrelated case that "she does not "view the Xbox console as a replacement or substitute for the iPhone or iPad." FTC. But the iPhone and iPad are both mobile devices, not gaming PCs. (Page 12)
Finally, even accepting that Nintendo and PC gaming are differentiated from Xbox and PlayStation in certain ways, including with respect to "price, use and qualities," that does not decide the market definition question. That products are differentiated, even in ways that some customers prefer, "do[es] not negate interchangeability," because the relevant question "is not what solutions the customers would /like or prefer," but instead "what they could do in the event of an anticompetitive price increase." Id. As just explained, the evidence shows that Xbox, PlayStation, Nintendo, and PCs all serve as substitutes and compete.
(Page 12)
Subscription services, such as Game Pass or Sony's PlayStation Plus, are not their own market, but rather an alternative way for consumers to pay for console, PC, or mobile games that are otherwise offered as standalone buy-to-play or free-to- play games. (Page 12)
REDACTED (5 sentences + a long footnote). The cannibalization risk is why many game publishers, Activision included, do not embrace the subscription model. (Page 13)
The FTC's proposed cloud-gaming subscription services market is similarly incoherent. As an initial matter, cloud gaming is not a separate product—it is a euphemism for a technology that allows for a game to be streamed from an external source, such as the cloud, rather than downloaded onto a device (like a PC or console) and played natively. In addition, the FTC's proposed market includes some multi-game subscription services, like Game Pass, that offer cloud streaming of console games as feature for subscribers, who typically use it to try games before downloading them. But it also includes other distinct services, like Nvidia's GeForce NOW, that allow consumers to stream games they already own on PC. The FTC provides no explanation for how these products are substitutable, particularly given its own argument that consoles and PCs are in distinct markets. (Page 13)
Beyond that, cloud-gaming is entirely unproven—while the technology has been around for some time, it has never seen significant demand—and predictions about its future development and Xbox's role are conjectural. Even assuming that perceived harm to a future market is relevant, the FTC itself has recognized that projecting harm in future markets "can be difficult," must be "strongly rooted in the evidence," and requires "considerable evidence" that the market will emerge and that the merger will result in a substantial lessening of competition. Nielsen Holdings, N.V. & Arbitron Inc., FTC File No. 131-0058, at 2-3; see also, e.g., FTC v. Facebook, Inc., 560 F. Supp. 3d 1,4 (D.D.C. 2021) (rejecting reliance on a future market as "too speculative and conclusory"). (Pages 13-14)
The FTC cannot make those showings. As noted, Sony Group's CEO recently acknowledged the financial and technical difficulties cloud gaming faces. And even if the FTC had evidence of what this segment would look like in the future, it is wholly speculative that Xbox would participate in it in a meaningful way, REDACTED. (Page 14)
The FTC alleges a single theory of harm: vertical foreclosure. Courts appropriately place a heavy burden on the government in vertical merger cases because "[v]ertical mergers often generate efficiencies and other procompetitive effects." ("Vertical integration is ubiquitous in our economy and virtually never poses a threat to competition when undertaken unilaterally and in competitive markets."). These considerations apply with particular force here as the merger will make Activision's games more accessible to consumers. (Page 14)
The FTC's central claim is that the combined firm would withhold certain Activision content—in particular, COD—from Sony, the longtime market leader. In citing such "foreclosure" as its basis for opposing this transaction, the FTC must prove, among other things, (1) that the combined company would have the incentive to withhold COD from rivals to whom an independent Activision would otherwise sell COD (i.e., that doing so would be profitable despite the forgone Activision sales), (2) that it has the ability to foreclose (i.e., that rivals cannot effectively compete without COD and could not offset any harm through a competitive response), and (3) that competition (as opposed to individual competitors) would likely be harmed. The FTC cannot make these showings. (Pages 14-15)
No incentive. This element is simple. Microsoft has committed not to withhold from anyone by signing binding contracts to bring COD on nondiscriminatory terms to Nintendo and multiple different cloud gaming providers. The FTC must account for these economic realities in trying to meet its burden, rather than relying on "assumptions and simplifications that are not supported by real-world" facts, and that ignore "economic reality". The government fails to do so. (Page 15)
As further proof of its lack of incentive, Microsoft has offered to provide Activision content to Sony for the next ten years. REDACTED (three sentences).
The only plausible reason why Sony has declined to sign is not because it fears "foreclosure" (which it could prevent with the stroke of a pen), but because it believes this transaction will make third-place Xbox a more effective competitor. Sony is presumably worried that putting Activision games in Game Pass "day and date" will increase consumer interest in subscription services—a business model Sony believes is less profitable than making consumers pay $70 for each new release. But that belief is a reason to approve this deal because the antitrust laws "were enacted for the protection of competition not competitors." The antitrust laws do not protect a dominant firm's profit margin. (Page 15)
Even setting aside the offer, withholding COD would harm Xbox economically (Xbox would be losing COD revenues on the /argest console provider, Sony.) Those revenues were critical to the price Microsoft paid for Activision, the Board's evaluation of the transaction, and the financial targets to which Xbox is held accountable. Withholding would cause even greater harm by degrading the game and infuriating gamers. (Pages 15-16)
Microsoft's acquisition of Mojang's Minecraft franchise in 2014 illustrates why all of these incentives cut against withholding. Like COD, Minecraft is a popular franchise with substantial cross-platform play. Under the reasoning advanced by the FTC, Xbox would have had incentives to make Minecraft exclusive to its Xbox. It did not, and has not since. On the contrary, Xbox has expanded access to the game, and continues to release new editions available on PlayStation. Indeed, Defendants are not aware of any situation where a publisher has chosen to take exclusive an existing game franchise that is multi-player and offers cross-platform play. There is no reason to believe this would be the first. (Page 16)
The government's two responses to this straightforward logic are unavailing. The FTC primarily relies on its expert, Dr. Lee, who claims withholding would be profitable. He arrives at that conclusion by purporting to simulate the likely increase in Xbox purchases as a result of withholding (the "demand model") and analyzing how profitable withholding would be for Xbox (the "foreclosure analysis"). The linchpin of his conclusion is that withholding COD would result in a 5% increase in Xbox's console share. Dr. Lee initially tried to justify this prediction with his demand model, but Defendants" expert Dr. Carlton demonstrated that it had serious conceptual flaws. Dr. Lee then pivoted to saying that his demand model is "distinct and separate" from his foreclosure model, and tried to justify the 5% figure based on cherry-picked documents. Even assuming that is a proper role for an expert (which it is not), the sources do not support his conclusion. And Dr. Carlton further shows that Dr. Lee's foreclosure analysis relies on multiple false assumptions and that correcting for them shows that any foreclosure strategy would in fact be unprofitable. Ultimately, Lee's analysis provides no basis to disregard the real world, where Sony has a favorable offer for COD, Xbox has made plain that it wants to provide COD to Sony (and in fact needs to continue to sell to Sony), and regulators around the world all agree that withholding COD from Sony would be unprofitable and is thus not a serious concern. (Pages 16-17)
The FTC's strained analogy to Microsoft's acquisition of ZeniMax, a fundamentally different game developer, likewise fails to establish that COD would become exclusive. The first two ZeniMax games Xbox released post-acquisition (Deathloop and Ghostwire) were exclusives for Sony, REDACTED.The ZeniMax story thus says nothing about what Xbox would do with an existing, multi-player, cross-platform franchise like COD—the relevant analogy there is Minecraft. (Page 17)
Related footnote: In drawing its analogy to Zenimax, the FTC wrongly implies that Xbox misled the European Commission about its intent regarding future Zenimax titles. The European Commission took the extraordinary step of responding directly when the FTC made this claim in its administrative complaint, by stating publicly that Microsoft did not make any "commitments" to the European Commission, nor did the European Commission "rely on any statements made by Microsoft about the future distribution strategy concerning ZeniMax's games." Instead, the European Commission cleared the transaction "unconditionally as it concluded that the transaction would not raise competition concerns." (Page 17)
No ability. There is likewise no reason to think Xbox could foreclose PlayStation by withholding COD. If every PlayStation device that accounted for as little as two hours of COD per month were to somehow transform into an Xbox device overnight, PlayStations would still comfortably outnumber Xboxes. If any such shift occurred between Xbox and PlayStation, that would serve only to make the console market less concentrated and more competitive. But the existence of such an extreme shift is implausible: Nintendo outcompetes Xbox even though it does not currently have access to COD. Likewise, Steam, the leading PC gamestore, has also risen in popularity without COD. That is no doubt why the FTC tries to exclude Nintendo and PC from the console market—they are proof that COD is not essential to competition. (Pages 17-18)
Moreover, any claim that Xbox could foreclose PlayStation would need to take account of Sony's ability to respond competitively. The myriad options available to Sony are fatal to the FTC's case. Sony could lower prices or improve the quality ofits console. It could invest in other first-party or third-party games, as it recently did with Bungie in a deal the FTC quickly cleared. Or, as Sony's CEO told investors in the wake of news of Microsoft's acquisition of Activision, it could "grow [Sony's] own studios organically" to increase Sony's own value proposition to consumers. These likely competitive responses are integral to antitrust analysis, but the FTC simply ignores them. See Barry Wright Corp. v. 1TT Grinnell Corp., 724 F.2d 227,232 (1st Cir. 1983) (Breyer, J.) (the "long term effects" of any proposed merger will "depend in large measure on competitors" responses."); Paddock Publ'ns, Inc. v. Chi. Trib. Co., 103 F.3d 42, 44 (7th Cir. 1996) (rejecting challenge to exclusivity agreement between incumbent newspaper and content creators because any rival newspaper "deprived of access" even to the "best known" content can compete on the basis of alternative content). (Page 18)
No harm to competition. In any event, even if Microsoft could be expected to make COD exclusive, the FTC has not shown harm to competition. The entirety of the FTC's analysis is Dr. Lee's assertion that any exclusivity that would result from the merger must necessarily be anticompetitive because it reduces the availability of a single company's games on a single company's platform (complaining making COD exclusive would result in diminished "consumer choice"). That is not the law. Exclusivity arrangements (whether from contract or vertical integration) are ubiquitous throughout the economy and are usually procompetitive. Indeed, both Sony and Nintendo have entered into a wide range of exclusivity arrangements of their own with various game publishers, and each has far more exclusive gaming content than Xbox does. Dr.Lee himself has recognized in his prior academic work about gaming that such arrangements can be procompetitive. (Page 19)
This transaction also does not exhibit, and the FTC's motion does not address, any of the special features that have led courts in unusual cases to conclude that vertical integration will give rise to anticompetitive outcomes. In particular, COD is not a "necessary input" for Xbox rivals, and any "foreclosure" percentages would be far too small to warrant any presumption of competitive harm. Tellingly, Dr. Lee never seeks to show that competition would be harmed such that Xbox would be able to raise console (or game) prices. (Page 19)
Related footnote: Even if, counterfactually, Xbox had the incentive to withhold all of Activision's content, that would be a modest share of the console game publishing by any measure. Such a "foreclosure percentage" would be far smaller than the level (30-50%) needed to raise any presumption of anticompetitive effect even if Xbox were a platform monopolist. (Page 19)
Finally, the FTC ignores critical variables in the economic analysis by disregarding the new options the merger will create for playing Activision content "ncrease[ed] output" is a clear "indicator of a merger's competitive impact." In re AMR Corp., 625 B.R. 215, 255 (Bankr. S.D.N.Y. 2021), aff'd, 2023 WL 2563897 (2d Cir. 2023); see also Ohio v. Am. Express Co., 138 S. Ct. 2274, 2289 (2018) (practices that "expand output and improv[e] quality" are procompetitive). (Page 20)
Here, the acquisition would benefit consumers by making COD available on Microsoft's Game Pass on the day it is released on console (with no price increase for the service based on the acquisition), on Nintendo, and on other services that allow cloud streaming. Activision has historically refused to provide this type of access to COD, REDACTED (sentence and footnote). These clear consumer benefits likewise eviscerate the FTC's case. (Page 20)
With respect to the console market, the FTC at least purports to offer a quantitative analysis—however flawed—of likely foreclosure effects. But it makes no such pretense when it turns to the putative markets for "content library" and "cloud gaming" subscription services. Even if these gaming features were (wrongly) considered separate "markets," the FTC"s claims regarding "content-library" and "cloud gaming" services would fail. Indeed, the FTC does not even allege, let alone substantiate, any allegation that the merger will likely cause the withholding of content that Activision would otherwise provide to third-party content-library or cloud-gaming providers. (Page 20)
As a threshold matter, the FTC misconceives the law. Even accepting the government's framing of the standard, the question is whether this "merger will likely lead to a substantial lessening of competition," whether the world with this merger is "likely" to be substantially less competitive than the but-for world without it. The FTC does not even purport to make that showing as to content-library subscription services and cloud gaming subscription services. Instead, Dr. Lee contends that he need only show that "an independent Activision" is somewhat "more likely" than the combined company would be "to support particular content library and [cloud] gaming services." But that is not enough under the law — Dr. Lee instead (at minimum) must be willing to show that an independent Activision would likely support such services and that the combined firm likely would not. Dr. Lee is not willing to make that representation, which dooms the government's case here, just as it did in AT&T. (Page 21)
Related footnote: A plain-meaning interpretation of Section 7 precludes liability for the simple reason that Activision does not make COD available to content-library or cloud-gaming providers today; thus, continued withholding could not constitute a "substantial lessening" of competition. U.S. v. Falstaff' Brewing Corp., 410 U.S. 526, 537 (1973) ("[w]e leave for another day the question of the applicability of $ 7 to a merger that will leave competition in the marketplace exactly as it was" but will nonetheless result in "less competition than there would have been" in the but-for world); U.S. v. Marine Bancorp., Inc., 418 U.S. 602, 639 (1974) (continuing to "express no view on the appropriate resolution of the question reserved in Falstajf"). As discussed in the text, the FTC's alternative-market theories of harm fail even if the relevant Section 7 comparison is between future but-for and with-merger worlds. (Page 21)
More generally, to carry its burden as to the content-library and cloud-gaming "markets," the FTC must prove that al of the following claims are likely true. In fact, none is true. (Page 21)
First, the FTC must prove that, but for this merger, Activision would allow COD to be included in third-party content-library or cloud-gaming services. REDACTED (5 sentences). This merger could only increase access to COD on these services, to the benefit of consumers—as cloud provider Nvidia agrees. (Page 22)
Second, the FTC must then prove that the post-merger combined company would likely withhold COD from subscription and cloud gaming services. Again, however, the FTC does not even try to make that showing, nor could it—particularly in light of the binding contracts Microsoft has already struck with Nvidia and other cloud providers. (Page 22)
Third, the FTC must additionally prove that any post-merger withholding would substantially lessen competition. It cannot do so because exclusivity arrangements are ubiquitous; Sony and Nintendo already use them more than Microsoft does; and, as discussed above, they raise no competitive concerns except in narrow circumstances involving substantial market power and large foreclosure percentages, neither of which is present here. (Page 22)
Fourth, as to the cloud-gaming "market," the FTC must prove that cloud gaming will develop in the near-to-intermediate term as a genuine alternative to consoles or performance PCs, in particular for multi-player, fast-twitch, graphics-intensive games such as COD. REDACTED (two sentences). The FTC can show no such thing. As Sony admits, network engineers are nowhere close to solving the immense technological challenges presented by that cloud game-play model, which is one of the reasons why Activision refuses to make COD available for cloud gaming. And there is no basis for blocking a merger based on speculation about harm to non-existent markets that are unlikely to materialize anytime in the foreseeable future. (Page 22)
Fifth, if the FTC could establish that a cloud-gaming market will develop, it would also have to show that Xbox will be a major player in it; otherwise, it would have no cloud-gaming business to promote through exclusivity arrangements. The FTC cannot substantiate that speculation either. REDACTED (6 sentences) (Page 22)
The FTC's failure to demonstrate a likelihood of ultimate success means there is no reason to consider the equities. But in any event, the equities—both public and private—weigh against granting the "extraordinary and drastic remedy" the agency requests. (Page 23)
As a threshold matter, Microsoft's merger with Activision does not implicate the "principal" "public equity consideration [that Congress had] in mind when it enacted section 13(b)"—namely, the need to maintain the pre-merger "status quo" so the FTC can award effective relief if it succeeds on the merits. This consideration applies chiefly in the context of horizontal mergers where two competing companies integrate their operations and, in the process, often eliminate stores, factories, or other redundant assets, making it difficult to unscramble the merger. (Page 23)
Microsoft's vertical merger with Activision, however, raises none of these concerns. Microsoft and Activision are not competitors in the relevant markets alleged. And Microsoft intends to operate Activision similar to other recent acquisitions, such as Minecraft developer Mojang. In other words, Activision's creative operations will remain separate and continue to run as they did pre-merger. Consequently, even in the (unlikely) event the FTC continues to press its Part 3 case and then succeeds on the ultimate merits in that proceeding, the agency can order Microsoft's divesture of Activision—"an effective ultimate remedy". As a result, the "principal public equity" cuts against the government. (Page 23)
In addition, granting a preliminary injunction would kill the deal, robbing consumers of the "beneficial economic effects and procompetitive advantages" resulting from this merger, including increased availability of Activision content. By contrast, there is no risk that consumers would be injured while the administrative process runs its course—Sony's existing contract for COD runs through 2024 and it has an offer for much longer access. (Page 24)
Exhibits and description:
Remedies offered and approved by the EC - Highlights:
1) License for consumers
Microsoft commits to grant Consumers the right to stream the Eligible Games from the Closing Date for a period of 10 years, by amending its end-user license agreements ("Consumer License") in accordance with Annex 3. Consumers will be granted this right regardless of whether the Eligible Game was obtained prior to or after the Closing Date.
Definition of Eligible Games: all current and future PC franchises, titles in these PC franchises, and any other PC games that (i) have been developed in the past or will be developed in the future, either in part or in full, by any of the Activision Blizzard Studios (as listed in Annex 1); or (ii) are based, either in part orin full, on IP rights of any PC franchises, titles in these PC franchises, and any other PC games that Activision Blizzard Studios have developed in the past or will develop in the future.
2) License for Streaming providers
Microsoft commits for a period of 10 years from the Closing Date to grant a royalty-free license to stream Eligible Games to Eligible Streaming Services in accordance with the terms in Annex 4 (each a "Streaming Provider Licence").
Microsoft commits to grant Streaming Provider Licenses in accordance with this paragraph (4) regardless of whether Microsoft currently streams or will in the future stream Eligible Games on its own cloud game streaming service, Xbox Cloud Gaming. For new releases, Microsoft commits to make Eligible Games, including publicly available beta versions and early access releases, accessible for streaming from the release of the game on a Microsoft Game Store or any other Authorized Game Store, whichever date is the earliest.
Microsoft further commits, for a period of 10 years from the Closing Date, to grant a royalty-free, worldwide license to stream Eligible Games to:
- NVIDIA in accordance with the terms in Annex 5;
- Boosteroid in accordance with the terms in Annex 6; and
- Ubitus in accordance with the terms in Annex 7.
Licenses granted under the Streaming Provider License commitment will be available on Microsoft's website and subject to the following terms:
- Unless otherwise agreed with Authorized Game Stores, Microsoft may retain all revenue from game sales, in-app purchases and any other future game-related transactional revenue generated from Eligible Games on Eligible Streaming Services.
- Eligible Streaming Services will be responsible for:(i) securing any third-party public performance, communication to the public or other rights that are not owned by Microsoft to the extent necessary to support the Eligible Streaming Service; (i) adapting their services, to the extent necessary in reaction to third- party rights mentioned under (i), to allow Consumers to stream Eligible Games; and (iii) compliance with relevant laws, including the Digital Services Act, the GDPR, the e-Privacy Directive, and privacy standards.
Microsoft may amend the terms of Consumer Licenses or Streaming Provider Licenses with the approval of the Monitoring Trustee and the Commission.
Definition of Authorized Game Store: the Microsoft Game Store or a third-party digital PC game store on which Microsoft distributes Eligible Games after the Closing Date.
Definition of Eligible Streaming Service: a Streaming Service which currently provides or intends to provide cloud game streaming services to Consumers and either: (i) is permitted by an Authorized Game Store to provide access to Eligible Games; or (ii) offers access to Eligible Games through applications which do not require integration with an Authorized Game Store.
3) The Monitoring Trustee
A) Appointment procedure
No later than the Closing Date, Microsoft shall appoint a Monitoring Trustee to carry out the functions specified in these Commitments for a Monitoring Trustee. Microsoft commits not to close the Concentration before the appointment of a Monitoring Trustee.
The Monitoring Trustee shall, at the time of appointment, be independent of the Parties and each of their Affiliated Undertakings; possess the necessary experience, competence and qualifications to carry out its mandate; and neither have nor become exposed to a Conflict of Interest.
The Monitoring Trustee shall be remunerated by Microsoft in a way that does not impede the independent and effective fulfilment of its mandate.
Proposal by Microsoft. No later than two weeks after the Effective Date, Microsoft shall submit the name or names of one or more natural or legal persons whom Microsoft proposes to appoint as the Monitoring Trustee to the Commission for approval. The proposal shall contain sufficient information for the Commission to verify that the person or persons proposed as Monitoring Trustee fulfil the requirements set out in paragraph 9 and shall include:
a) the full terms of the proposed mandate, which shall include al provisions necessary to enable the Monitoring Trustee to fulfil its duties under these Commitments; and
b) the outline of awork plan which describes how the Monitoring Trustee intends to carry outits assigned tasks.
Approval or rejection by the Commission. The Commission shall have the discretion to approve or reject the proposed Monitoring Trustee(s) and to approve the proposed mandate subject to any modifications it deems necessary for the Monitoring Trustee to fulfil its obligations. If only one name is approved, Microsoft shall appoint or cause to be appointed the person or persons concerned as Monitoring Trustee, in accordance with the mandate approved by the Commission. If more than one name is approved, Microsoft shall be free to choose the Monitoring Trustee to be appointed from among the names approved. The Monitoring Trustee shall be appointed within one week of the Commission's approval, in accordance with the mandate approved by the Commission
New proposal by Microsoft. If all the proposed Monitoring Trustees are rejected, Microsoft shall submit the names of at least two more natural or legal persons within one week of being informed of the rejection, in accordance with paragraphs 8 and 12 of these Commitments.
Monitoring Trustee nominated by the Commission. If all further proposed Monitoring Trustees are rejected by the Commission, the Commission shall nominate a Monitoring Trustee, whom Microsoft shall appoint, or cause to be appointed, in accordance with a Monitoring Trustee mandate approved by the Commission.
B) Functions of the Monitoring Trustee
The Monitoring Trustee shall assume its specified duties and obligations in order to ensure compliance with the Commitments. The Commission may, on its own initiative or at the request of the Monitoring Trustee or Microsoft, give any orders or instructions to the Monitoring Trustee in order to ensure compliance with the conditions and obligations attached to the Decision
The Monitoring Trustee shall:
a) propose in its first report to the Commission a detailed work plan describing how it intends to monitor compliance with the obligations and conditions attached to the Decision;
b) provide to the Commission, sending Microsoft a non-confidential copy at the same time, a written report within 15 days after the end of each 6 month period so that the Commission can assess whether the Commitments are being complied with;
c) propose, as applicable, to Microsoft such measures as the Monitoring Trustee considers necessary to ensure Microsoft's compliance with the Commitments;
d) promptly report in writing to the Commission, sending Microsoft a non- confidential copy at the same time, if it concludes on reasonable grounds that Microsoft is failing to comply with the Commitments;
e) act as a contact point for questions from third parties about the nature and scope of the Commitments; and
f) assume any other functions assigned to the Monitoring Trustee under the conditions and obligations attached to the Decision.
C) Duties and obligations of the Parties
Microsoft shall provide and shall cause its advisors to provide the Monitoring Trustee with all such co-operation, assistance and information as the Monitoring Trustee may reasonably require to perform its tasks. The Monitoring Trustee shall have full and complete access to Microsoft's books, records, documents, management or other personnel, facilities, sites and technical information necessary for fulfilling its duties under the Commitments and Microsoft shall provide the Monitoring Trustee upon request with copies of any documents except where such disclosure would give rise to a loss of any applicable legal privilege. Microsoft shall be available for meetings in order to provide the Monitoring Trustee with al information necessary for the performance ofits tasks
Microsoft shall indemnify the Monitoring Trustee and its employees and agents (each an "Indemnified Party") and hold each Indemnified Party harmless against, and hereby agrees that an Indemnified Party shall have no liability to Microsoft for, any liabilities arising out of the performance of the Monitoring Trustee's duties under the Commitments, except to the extent that such liabilities result from the wilful default, recklessness, gross negligence or bad faith of the Monitoring Trustee, its employees, agents or advisors.
At the expense of Microsoft, the Monitoring Trustee may appoint advisors (in particular an IT expert with the capability to monitor the correct implementation of the Commitments, or any advisors for corporate finance or legal advice), subject to Microsoft's approval (this approval not to be unreasonably withheld or delayed) if the Monitoring Trustee considers the appointment of such advisors necessary or appropriate for the performance of its duties and obligations under the mandate, provided that any fees and other expenses incurred by the Monitoring Trustee are reasonable. Should Microsoft refuse to approve the advisors proposed by the Monitoring Trustee the Commission may approve the appointment of such advisors instead, after having heard Microsoft. Only the Monitoring Trustee shall be entitled to issue instructions to the advisors. Paragraph 18 of these Commitments shall apply mutatis mutandis.
Microsoft agrees that the Commission may share Confidential Information proprietary to Microsoft with the Monitoring Trustee. The Monitoring Trustee shall not disclose such information and the principles contained in Article 17 (1) and (2) of the Merger Regulation apply mutatis mutandis.
Microsoft agrees that the contact details of the Monitoring Trustee are published on the website of the Commission's Directorate-General for Competition and Microsoft shall inform interested third parties of the identity and the tasks of the Monitoring Trustee.
For a period of 10 years from the Closing Date the Commission may request al information from the Parties that is reasonably necessary to monitor the effective implementation of these Commitments.
If the Monitoring Trustee, acting reasonably, suspects that Microsoft is not making a PC game or PC franchise available which should have been made available under the Commitments, or that Microsoft is circumventing the application of these Commitments to a PC game or PC franchise that would, in part or in full, have been developed by any of the Activision Blizzard Studios absent the Transaction, Microsoft shall bear the burden of proof to demonstrate to the Monitoring Trustee that the PC game or PC franchise does not qualify as an Eligible Game under the wording or purpose of the Commitments. In this context, the purpose of the Commitments is to make all PC games that have been developed in the past or would have been developed in the future by Activision Blizzard Studios absent the Transaction available for cloud game streaming.
D) Replacement, discharge and reappointment of the Monitoring Trustee
If the Monitoring Trustee ceases to perform its functions under the Commitments or for any other good cause, including the exposure of the Monitoring Trustee to a Conflict of Interest:
a) the Commission may, after hearing the Monitoring Trustee and Microsoft, require Microsoft to replace the Monitoring Trustee; or
b) Microsoft may, with the prior approval of the Commission, replace the Monitoring Trustee.
If the Monitoring Trustee is removed according to paragraph 24 of these Commitments, the Monitoring Trustee may be required to continue in its function until a new Monitoring Trustee is in place to whom the Monitoring Trustee has effected a full hand over of al relevant information. The new Monitoring Trustee shall be appointed in accordance with the procedure referred to in paragraphs 8-14 of these Commitments.
Unless removed according to paragraph 24 of these Commitments, the Monitoring Trustee shall cease to act as Monitoring Trustee only after the Commission has discharged it from its duties after al the Commitments with which the Monitoring Trustee has been entrusted have been implemented. However, the Commission may at any time require the reappointment of the Monitoring Trustee if it subsequently appears that the relevant remedies might not have been fully and properly implemented.
4) Dispute Resolution
In the event an Eligible Streaming Service (including NVIDIA, Boosteroid and Ubitus), showing a sufficient legitimate interest, claims that Microsoft is failing to comply with its obligations arising from the Commitments, the Fast-Track Dispute Resolution Procedure described in Annex 2 shall apply.
In the event an Eligible Streaming Service (including NVIDIA, Boosteroid and Ubitus), breaches the terms of its license agreement with Microsoft, Microsoft shall inform the Eligible Streaming Service of that breach in writing. If the Eligible Streaming Service fails to comply with the terms of its license agreement within 30 days, Microsoft shall have the right to terminate the license agreement with the Eligible Streaming Service, following an opinion of the Monitoring Trustee and approval by the Commission. If the Eligible Streaming Service wishes to oppose to Microsoft's termination of its license agreement, the Fast-Track Dispute Resolution Procedure described in Annex 2 shall apply.
5) The Review Clause
The Commission may extend the time periods foreseen in the Commitments in response to a request from Microsoft or, in appropriate cases, on its own initiative. Where Microsoft requests an extension of a time period, it shall submit a reasoned request to the Commission no later than one month before the expiry of that period, showing good cause. This request shall be accompanicd by a report from the Monitoring Trustee, who shall, at the same time send a non-confidential copy of the report to Microsoft. Only in exceptional circumstances shall Microsoft be entitled to request an extension within the last month of any period
The Commission may further, in response to a reasoned request from Microsoft showing good cause waive, modify or substitute, in exceptional circumstances, one or more of the undertakings in these Commitments. This request shall be accompanied by a report from the Monitoring Trustee, who shall, at the same time send a non- confidential copy of the report to Microsoft. The request shall not have the effect of suspending the application of the undertaking and, in particular, of suspending the expiry of any time period in which the undertaking has to be complied with.
There is also a long explanation about the Fast-Track Dispute Resolution Procedure, but it's very legalese. If someone is interested, let me know.
It includes:
- The legal arguments (around 25 pages long).
- 72 exhibits (lots of them redacted).
- The full commitments to the EC, although the agreements with Nvidia, Boosteroid and Ubitus are redacted.
- The full Sony Corporate Report 2022.
- It mentions at least 3 times the article from FT (from different sources) where Sony chief Kenichiro Yoshida warned about the technical problems of cloud gaming.
- The report from MLex in December 2022 saying that Microsoft didn't mislead the EU over the ZeniMax deal, in response to the FTC concerns.
Lots of reading to do!
If the opposition is published online, it should be here.
Highlights from the legal arguments:
The FTC has never persuaded a court to preliminarily enjoin a merger involving anything close to the facts here. Unlike in other merger contexts, the government gets no presumption of harm as to vertical mergers because they do not eliminate a competitor from the marketplace and are widely recognized to be procompetitive. The U.S. antitrust agencies have rarely sought to enjoin vertical mergers and have lost every recent case when they tried. Indeed, the FTC is asking this Court to be the first in decades to find a vertical merger unlawful. (Page 1)
This is the exceptional case where the Court can rely on actions rather than words. Microsoft's valuation of the deal was premised on making Activision's limited portfolio of popular games more accessible. And since the transaction was announced, Microsoft has sought to address any concerns that might be raised about the deal. Here is what Microsoft has done:
- Committed to bring Activision's games to Xbox Game Pass, a subscription gaming service offering numerous games for $9.99 per month, rather than up to $70 per game;
- Signed a binding contract to bring COD to Nintendo (which does not currently have it);
- Offered Valve, the popular digital PC game distributor, a ten-year deal for Activision content, which Valve declined REDACTED;
- Signed contracts to make Activision games available on leading services that "stream" popular games to devices of consumers' choosing;
- Obligated itself, as part of the global regulatory process, to grant streaming rights to current and future Activision games to other cloud gaming services, regardless of whether Xbox decides to stream those games on its own service; and
- Offered Sony a contract to guarantee access to Activision content on PlayStation for ten years, on equal footing with the Xbox console versions, REDACTED; (Page 2)
The FTC simply ignores these facts, claiming that it needs to offer only scant proof to stop the transaction. The FTC is wrong. The government has the burden of proof in seeking the "extraordinary and drastic remedy" of "a preliminary injunction prior to a full trial on the merits." Because the FTC's central claim is that Xbox will withhold Activision content from rivals (principally the market leader, Sony), it must also show that the combined firm would have "the ability and incentive" to foreclose competitors. And the FTC must show that such foreclosure "is likely to substantially lessen competition" in a properly pleaded product and geographic market. On each of these issues, the FTC must show that the evidence "raise questions going to the merits so serious, substantial, difficult and doubtful as to make them fair ground for thorough investigation, study, deliberation and determination." (Page 2)
The FTC cannot come close to carrying its burden. After 18 months of investigation and litigation, including 56 investigational hearings and depositions and the production of nearly 6 million documents, the FTC offers only a minuscule collection of incomplete quotations in support of its motion. The record will decisively refute the FTC's claims. (Page 2)
First, there is no evidence to support the FTC's central theory that Xbox will take COD away from Playstation. The FTC does not cite a single document or witness even suggesting this will happen. On the contrary, Jim Ryan, the CEO of SIE, and the chief commercial opponent of this deal, said privately on the day it was announced REDACTED. Withholding COD would harm Xbox. It would contradict the valuation the Board relied on in approving the deal, which assumed profits from continued Playstation sales. It would cut off highly lucrative income stream to one of Microsoft REDACTED. And it would make COD a worse game and enrage the gaming community, because much of the game's popularity steams from the way it brings together players who use competing consoles. It is therefore unsurprising that every single worldwide regulator that has examined the deal other than the FTC has rejected this theory, including both the EC and the CMA (Page 3)
Third, the FTC has failed to identify relevant antitrust markets, dooming their entire case. Potential anticompetitive effects can be measured only in a properly defined market. But the FTC has replaced sound economics analysis with results-orientated "contort[ions] to meet its litigations meets" Hicks vs PGA Tour. As one example, the FTC claims that gaming's PCs and Nintendo's consoles (both far more popular than Xbox) are not in the same market as Playstation and Xbox, even though the economic evidence REDACTED have said the opposite. Why does the FTC contradict REDACTED in this respect? Because recognizing Nintendo and PCs as part of the market would destroy the FTC's flimsy foreclosure theory: Nintendo has been successful for years without COD, as was the dominant PC game store Valve's Steam. COD cannot be essential to competition if market participants thrive without it. (Page 4)
Fourth, the FTC has literally no factual basis for its claim that the merger will harm competition in the supposed markets for multi-game library subscription and cloud gaming services. Among other things, there is absolutely no evidence that Activision content would put its content on these services without the deal. To the contrary, Activision views such a step as anathema to its business strategy. The transaction will thus benefit consumers by bringing Activision content to Xbox Game Pass for the first time. (Page 4)
Finally, the equities cut sharply against injunctive relief. The merger agreement expires on July 18, 2023. The injunction sought by the FTC would thus almost certainly scuttle the transaction. Moreover, there is no need for a preliminary injunction because the FTC could obtain effective relief at the end of the administrative process if it prevailed. Microsoft intends to operate Activision similarly to other recent acquisitions, whose studio and creative operations remained separate and continued to build games as they had done pre-acquisition. That means divestiture would be possible if it ever proved necessary. (Page 4)
As a result, the industry is exploring how to expand beyond the traditional model of selling individual games. Some companies have had great success with free-to- play games, which allow gamers to download the game and then decide whether to make in-game purchases such as costumes or special powers. Free-to-play games have allowed small independent companies to grow quickly. For example, Epic Games" valuation has increased from $1 billion in 2012 to over $30 billion, powered by the 2017 launch of its flagship free-to-play game, Fortnite. Exs. 5, 6. Free-to-play games are a key part of Activision's strategic vision, and it has successfully launched free-to-play versions of popular games like COD. (Page 5)
Innovation is also occurring in distribution. In 2017, Xbox launched Game Pass, a subscription service allowing consumers to play a library of games for $9.99 a month rather than having to purchase each individual title. Xbox invests heavily in Game Pass, making its own new games available in the service immediately upon release (so-called "day and date" releases). Although this means Xbox loses revenue on the sales of individual game titles, Xbox believes that Game Pass will ultimately prompt subscribers to engage with a variety of games and spend more overall. But others in the industry are much more skeptical. REDACTED. Sony primarily puts old games in its service, forcing customers to pay high per-game fees to access new content. (Page 6)
Last, some companies are experimenting with delivery of games through cloud gaming "streaming," which runs games on remote servers that gamers can access on consoles, PCs, mobile devices, or TVs. The idea is to let gamers play games on less highly powered and more affordable devices, particularly salient in less developed nations. Several companies, including Xbox, Amazon, Nvidia, and smaller upstarts, have experimented with different forms of cloud gaming. But the technology remains challenging, particularly for latency-sensitive multiplayer games. Gameplay is balky, and it has proved hard to generate consumer demand or consistent profits. Here too, REDACTED. Likewise, Sony Group's CEO has admitted that cloud gaming faces substantial "technical difficulties" and is "very tricky" from both a financial and technological standpoint." (Page 6)
Sony is a gaming giant. Its gamer base is two times as large as Xbox's worldwide, and 50% larger in the U.S. (Page 6)
As a game publisher, Sony's in-house developer, PlayStation Studios, is responsible for major hits like God of War, The Last of Us, and Spider-Man, most of which can be played only on PlayStation. As a purchaser of third-party games, Sony pursues exclusivity REDACTED (long two sentences). Sony dwarfs Xbox on exclusives, REDACTED (just a sentence). (Page 7)
By contrast, Xbox's console has consistently ranked third behind PlayStation (first) and Nintendo (second). Xbox has thus pivoted to a different business strategy of making games more accessible. As noted above, Xbox invests heavily in Game Pass. For years, Xbox has tried to get a foothold into mobile gaming, but has had no success REDACTED (four sentences). (Page 7)
Against this backdrop, Xbox and Activision determined that, together, they could significantly improve gaming and increase Xbox's competitiveness. Xbox's vision is to expand choice for gamers and developers by making games more widely accessible on Xbox Game Pass and on mobile devices. A key driver of the merger was Activision's mobile gaming business, which includes popular games like Candy Crush Saga and COD Warzone, a free-to-play variant. (Page 7)
Regulators around the world have been reviewing the transaction ever since. And Microsoft has tried to accommodate any concerns they raised —however speculative those concerns may be. As| noted above, Microsoft has signed a ten-year agreement to bring COD to Nintendo for the first time since 2013.
REDACTED. It has offered a similar agreement to Sony that would preserve Sony's access to the game REDACTED it REDACTED but Sony has refused to deal —instead focusing on trying to derail a transaction that would strengthen a rival. Xbox offered a ten-year agreement to keep COD on Valve, the popular PC
game platform, but Valve turned down the agreement as unnecessary REDACTED (Page 8)
Separately, Xbox has entered five separate ten-year agreements with cloud gaming providers —Boosteroid, EE, Nvidia, NWare, and Ubitus, —to ensure that all Xbox games, including Activision games, can be played on their services. In addition to those agreements, during the European Commission's regulatory process, Xbox committed to grant streaming rights to Activision games to other cloud gaming services—regardless of whether Xbox ultimately decides to stream those games itself. (Page 8)
As a result of these efforts, al but one foreign regulator to pass on the issue has cleared the transaction. The lone exception is the United Kingdom's CMA. But like the European Commission and other global competition authorities, the CMA rejected the FTC's core theories of harm here, tied to console foreclosure and subscription service foreclosure. Its only objection to the transaction was that it might harm, at some point in the future, the evolution of cloud gaming. Xbox is currently appealing that decision.
(Page 8)
To meet its burden to show a substantial lessening of competition, the FTC first must "define the relevant market" in which anticompetitive effects will occur. Courts determine "[t]he outer boundaries of a product market" based on "the reasonable interchangeability of use or the cross-elasticity of demand between the product itself and substitutes for it." Within a relevant market, "[p]roducts need not be fungible." Rather, the "overarching goal of market definition is to "recognize competition where, in fact, competition exists."" By those metrics, the FTC's proposed markets fail entirely. (Page 10)
The FTC offers two unduly narrow proposed definitions of its "high-performance consoles" market. The FTC primarily proposes that PlayStation and Xbox alone compose the entire console market and then alternatively adds Nintendo Switch but still excludes PCs. Both Nintendo and PCs are "economic substitutes," that must be considered in any relevant market. (Page 11)
There is no basis for excluding Nintendo. REDACTED (four sentences). By excluding Nintendo, the FTC inflates Xbox's market share. It also conveniently excludes a key competitor that has thrived without COD for the past decade. (Page 11)
In response, the FTC offers its expert's ipse dixit that Nintendo's Switch is so differentiated along price, specifications, and content that it is in a different product category than the other two consoles. To the contrary, Xbox and Sony compete with Nintendo and with each other on all of these features. For example, the entry-level versions of the current Xbox and Nintendo consoles are offered at the same price point ($299.99). Moreover, while the FTC makes much of Nintendo"s supposed technical differences from the other consoles, it ignores that Xbox and Sony also differentiate their consoles based on performance. The substantial overlap in the three consoles" content libraries further demonstrates that they compete: any of the most popular games on PlayStation and Xbox consoles are also available on Switch. To the extent there are differences, the FTC fails to show that the difference is the result of Xbox and PlayStation games not being available on Switch, as opposed to the many Switch-exclusive titles (such as Mario and Zelda). (Pages 11-12)
The FTC is likewise wrong to exclude PC gaming, which offers specifications and features comparable to or even greater than those offered by consoles. There is also substantial catalogue overlap: In 2022, al but one of the top 30 Xbox titles and al but three ofthe top 30 PlayStation titles were available on PC. Indeed, even SIE's CEO REDACTED. (Page 12)
A related footnote includes more REDACTED content and this: The only evidence the FTC cites to support its position that PCs "are not commercially reasonable alternatives" is testimony from one Microsoft executive in an unrelated case that "she does not "view the Xbox console as a replacement or substitute for the iPhone or iPad." FTC. But the iPhone and iPad are both mobile devices, not gaming PCs. (Page 12)
Finally, even accepting that Nintendo and PC gaming are differentiated from Xbox and PlayStation in certain ways, including with respect to "price, use and qualities," that does not decide the market definition question. That products are differentiated, even in ways that some customers prefer, "do[es] not negate interchangeability," because the relevant question "is not what solutions the customers would /like or prefer," but instead "what they could do in the event of an anticompetitive price increase." Id. As just explained, the evidence shows that Xbox, PlayStation, Nintendo, and PCs all serve as substitutes and compete.
(Page 12)
Subscription services, such as Game Pass or Sony's PlayStation Plus, are not their own market, but rather an alternative way for consumers to pay for console, PC, or mobile games that are otherwise offered as standalone buy-to-play or free-to- play games. (Page 12)
REDACTED (5 sentences + a long footnote). The cannibalization risk is why many game publishers, Activision included, do not embrace the subscription model. (Page 13)
The FTC's proposed cloud-gaming subscription services market is similarly incoherent. As an initial matter, cloud gaming is not a separate product—it is a euphemism for a technology that allows for a game to be streamed from an external source, such as the cloud, rather than downloaded onto a device (like a PC or console) and played natively. In addition, the FTC's proposed market includes some multi-game subscription services, like Game Pass, that offer cloud streaming of console games as feature for subscribers, who typically use it to try games before downloading them. But it also includes other distinct services, like Nvidia's GeForce NOW, that allow consumers to stream games they already own on PC. The FTC provides no explanation for how these products are substitutable, particularly given its own argument that consoles and PCs are in distinct markets. (Page 13)
Beyond that, cloud-gaming is entirely unproven—while the technology has been around for some time, it has never seen significant demand—and predictions about its future development and Xbox's role are conjectural. Even assuming that perceived harm to a future market is relevant, the FTC itself has recognized that projecting harm in future markets "can be difficult," must be "strongly rooted in the evidence," and requires "considerable evidence" that the market will emerge and that the merger will result in a substantial lessening of competition. Nielsen Holdings, N.V. & Arbitron Inc., FTC File No. 131-0058, at 2-3; see also, e.g., FTC v. Facebook, Inc., 560 F. Supp. 3d 1,4 (D.D.C. 2021) (rejecting reliance on a future market as "too speculative and conclusory"). (Pages 13-14)
The FTC cannot make those showings. As noted, Sony Group's CEO recently acknowledged the financial and technical difficulties cloud gaming faces. And even if the FTC had evidence of what this segment would look like in the future, it is wholly speculative that Xbox would participate in it in a meaningful way, REDACTED. (Page 14)
The FTC alleges a single theory of harm: vertical foreclosure. Courts appropriately place a heavy burden on the government in vertical merger cases because "[v]ertical mergers often generate efficiencies and other procompetitive effects." ("Vertical integration is ubiquitous in our economy and virtually never poses a threat to competition when undertaken unilaterally and in competitive markets."). These considerations apply with particular force here as the merger will make Activision's games more accessible to consumers. (Page 14)
The FTC's central claim is that the combined firm would withhold certain Activision content—in particular, COD—from Sony, the longtime market leader. In citing such "foreclosure" as its basis for opposing this transaction, the FTC must prove, among other things, (1) that the combined company would have the incentive to withhold COD from rivals to whom an independent Activision would otherwise sell COD (i.e., that doing so would be profitable despite the forgone Activision sales), (2) that it has the ability to foreclose (i.e., that rivals cannot effectively compete without COD and could not offset any harm through a competitive response), and (3) that competition (as opposed to individual competitors) would likely be harmed. The FTC cannot make these showings. (Pages 14-15)
No incentive. This element is simple. Microsoft has committed not to withhold from anyone by signing binding contracts to bring COD on nondiscriminatory terms to Nintendo and multiple different cloud gaming providers. The FTC must account for these economic realities in trying to meet its burden, rather than relying on "assumptions and simplifications that are not supported by real-world" facts, and that ignore "economic reality". The government fails to do so. (Page 15)
As further proof of its lack of incentive, Microsoft has offered to provide Activision content to Sony for the next ten years. REDACTED (three sentences).
The only plausible reason why Sony has declined to sign is not because it fears "foreclosure" (which it could prevent with the stroke of a pen), but because it believes this transaction will make third-place Xbox a more effective competitor. Sony is presumably worried that putting Activision games in Game Pass "day and date" will increase consumer interest in subscription services—a business model Sony believes is less profitable than making consumers pay $70 for each new release. But that belief is a reason to approve this deal because the antitrust laws "were enacted for the protection of competition not competitors." The antitrust laws do not protect a dominant firm's profit margin. (Page 15)
Even setting aside the offer, withholding COD would harm Xbox economically (Xbox would be losing COD revenues on the /argest console provider, Sony.) Those revenues were critical to the price Microsoft paid for Activision, the Board's evaluation of the transaction, and the financial targets to which Xbox is held accountable. Withholding would cause even greater harm by degrading the game and infuriating gamers. (Pages 15-16)
Microsoft's acquisition of Mojang's Minecraft franchise in 2014 illustrates why all of these incentives cut against withholding. Like COD, Minecraft is a popular franchise with substantial cross-platform play. Under the reasoning advanced by the FTC, Xbox would have had incentives to make Minecraft exclusive to its Xbox. It did not, and has not since. On the contrary, Xbox has expanded access to the game, and continues to release new editions available on PlayStation. Indeed, Defendants are not aware of any situation where a publisher has chosen to take exclusive an existing game franchise that is multi-player and offers cross-platform play. There is no reason to believe this would be the first. (Page 16)
The government's two responses to this straightforward logic are unavailing. The FTC primarily relies on its expert, Dr. Lee, who claims withholding would be profitable. He arrives at that conclusion by purporting to simulate the likely increase in Xbox purchases as a result of withholding (the "demand model") and analyzing how profitable withholding would be for Xbox (the "foreclosure analysis"). The linchpin of his conclusion is that withholding COD would result in a 5% increase in Xbox's console share. Dr. Lee initially tried to justify this prediction with his demand model, but Defendants" expert Dr. Carlton demonstrated that it had serious conceptual flaws. Dr. Lee then pivoted to saying that his demand model is "distinct and separate" from his foreclosure model, and tried to justify the 5% figure based on cherry-picked documents. Even assuming that is a proper role for an expert (which it is not), the sources do not support his conclusion. And Dr. Carlton further shows that Dr. Lee's foreclosure analysis relies on multiple false assumptions and that correcting for them shows that any foreclosure strategy would in fact be unprofitable. Ultimately, Lee's analysis provides no basis to disregard the real world, where Sony has a favorable offer for COD, Xbox has made plain that it wants to provide COD to Sony (and in fact needs to continue to sell to Sony), and regulators around the world all agree that withholding COD from Sony would be unprofitable and is thus not a serious concern. (Pages 16-17)
The FTC's strained analogy to Microsoft's acquisition of ZeniMax, a fundamentally different game developer, likewise fails to establish that COD would become exclusive. The first two ZeniMax games Xbox released post-acquisition (Deathloop and Ghostwire) were exclusives for Sony, REDACTED.The ZeniMax story thus says nothing about what Xbox would do with an existing, multi-player, cross-platform franchise like COD—the relevant analogy there is Minecraft. (Page 17)
Related footnote: In drawing its analogy to Zenimax, the FTC wrongly implies that Xbox misled the European Commission about its intent regarding future Zenimax titles. The European Commission took the extraordinary step of responding directly when the FTC made this claim in its administrative complaint, by stating publicly that Microsoft did not make any "commitments" to the European Commission, nor did the European Commission "rely on any statements made by Microsoft about the future distribution strategy concerning ZeniMax's games." Instead, the European Commission cleared the transaction "unconditionally as it concluded that the transaction would not raise competition concerns." (Page 17)
No ability. There is likewise no reason to think Xbox could foreclose PlayStation by withholding COD. If every PlayStation device that accounted for as little as two hours of COD per month were to somehow transform into an Xbox device overnight, PlayStations would still comfortably outnumber Xboxes. If any such shift occurred between Xbox and PlayStation, that would serve only to make the console market less concentrated and more competitive. But the existence of such an extreme shift is implausible: Nintendo outcompetes Xbox even though it does not currently have access to COD. Likewise, Steam, the leading PC gamestore, has also risen in popularity without COD. That is no doubt why the FTC tries to exclude Nintendo and PC from the console market—they are proof that COD is not essential to competition. (Pages 17-18)
Moreover, any claim that Xbox could foreclose PlayStation would need to take account of Sony's ability to respond competitively. The myriad options available to Sony are fatal to the FTC's case. Sony could lower prices or improve the quality ofits console. It could invest in other first-party or third-party games, as it recently did with Bungie in a deal the FTC quickly cleared. Or, as Sony's CEO told investors in the wake of news of Microsoft's acquisition of Activision, it could "grow [Sony's] own studios organically" to increase Sony's own value proposition to consumers. These likely competitive responses are integral to antitrust analysis, but the FTC simply ignores them. See Barry Wright Corp. v. 1TT Grinnell Corp., 724 F.2d 227,232 (1st Cir. 1983) (Breyer, J.) (the "long term effects" of any proposed merger will "depend in large measure on competitors" responses."); Paddock Publ'ns, Inc. v. Chi. Trib. Co., 103 F.3d 42, 44 (7th Cir. 1996) (rejecting challenge to exclusivity agreement between incumbent newspaper and content creators because any rival newspaper "deprived of access" even to the "best known" content can compete on the basis of alternative content). (Page 18)
No harm to competition. In any event, even if Microsoft could be expected to make COD exclusive, the FTC has not shown harm to competition. The entirety of the FTC's analysis is Dr. Lee's assertion that any exclusivity that would result from the merger must necessarily be anticompetitive because it reduces the availability of a single company's games on a single company's platform (complaining making COD exclusive would result in diminished "consumer choice"). That is not the law. Exclusivity arrangements (whether from contract or vertical integration) are ubiquitous throughout the economy and are usually procompetitive. Indeed, both Sony and Nintendo have entered into a wide range of exclusivity arrangements of their own with various game publishers, and each has far more exclusive gaming content than Xbox does. Dr.Lee himself has recognized in his prior academic work about gaming that such arrangements can be procompetitive. (Page 19)
This transaction also does not exhibit, and the FTC's motion does not address, any of the special features that have led courts in unusual cases to conclude that vertical integration will give rise to anticompetitive outcomes. In particular, COD is not a "necessary input" for Xbox rivals, and any "foreclosure" percentages would be far too small to warrant any presumption of competitive harm. Tellingly, Dr. Lee never seeks to show that competition would be harmed such that Xbox would be able to raise console (or game) prices. (Page 19)
Related footnote: Even if, counterfactually, Xbox had the incentive to withhold all of Activision's content, that would be a modest share of the console game publishing by any measure. Such a "foreclosure percentage" would be far smaller than the level (30-50%) needed to raise any presumption of anticompetitive effect even if Xbox were a platform monopolist. (Page 19)
Finally, the FTC ignores critical variables in the economic analysis by disregarding the new options the merger will create for playing Activision content "ncrease[ed] output" is a clear "indicator of a merger's competitive impact." In re AMR Corp., 625 B.R. 215, 255 (Bankr. S.D.N.Y. 2021), aff'd, 2023 WL 2563897 (2d Cir. 2023); see also Ohio v. Am. Express Co., 138 S. Ct. 2274, 2289 (2018) (practices that "expand output and improv[e] quality" are procompetitive). (Page 20)
Here, the acquisition would benefit consumers by making COD available on Microsoft's Game Pass on the day it is released on console (with no price increase for the service based on the acquisition), on Nintendo, and on other services that allow cloud streaming. Activision has historically refused to provide this type of access to COD, REDACTED (sentence and footnote). These clear consumer benefits likewise eviscerate the FTC's case. (Page 20)
With respect to the console market, the FTC at least purports to offer a quantitative analysis—however flawed—of likely foreclosure effects. But it makes no such pretense when it turns to the putative markets for "content library" and "cloud gaming" subscription services. Even if these gaming features were (wrongly) considered separate "markets," the FTC"s claims regarding "content-library" and "cloud gaming" services would fail. Indeed, the FTC does not even allege, let alone substantiate, any allegation that the merger will likely cause the withholding of content that Activision would otherwise provide to third-party content-library or cloud-gaming providers. (Page 20)
As a threshold matter, the FTC misconceives the law. Even accepting the government's framing of the standard, the question is whether this "merger will likely lead to a substantial lessening of competition," whether the world with this merger is "likely" to be substantially less competitive than the but-for world without it. The FTC does not even purport to make that showing as to content-library subscription services and cloud gaming subscription services. Instead, Dr. Lee contends that he need only show that "an independent Activision" is somewhat "more likely" than the combined company would be "to support particular content library and [cloud] gaming services." But that is not enough under the law — Dr. Lee instead (at minimum) must be willing to show that an independent Activision would likely support such services and that the combined firm likely would not. Dr. Lee is not willing to make that representation, which dooms the government's case here, just as it did in AT&T. (Page 21)
Related footnote: A plain-meaning interpretation of Section 7 precludes liability for the simple reason that Activision does not make COD available to content-library or cloud-gaming providers today; thus, continued withholding could not constitute a "substantial lessening" of competition. U.S. v. Falstaff' Brewing Corp., 410 U.S. 526, 537 (1973) ("[w]e leave for another day the question of the applicability of $ 7 to a merger that will leave competition in the marketplace exactly as it was" but will nonetheless result in "less competition than there would have been" in the but-for world); U.S. v. Marine Bancorp., Inc., 418 U.S. 602, 639 (1974) (continuing to "express no view on the appropriate resolution of the question reserved in Falstajf"). As discussed in the text, the FTC's alternative-market theories of harm fail even if the relevant Section 7 comparison is between future but-for and with-merger worlds. (Page 21)
More generally, to carry its burden as to the content-library and cloud-gaming "markets," the FTC must prove that al of the following claims are likely true. In fact, none is true. (Page 21)
First, the FTC must prove that, but for this merger, Activision would allow COD to be included in third-party content-library or cloud-gaming services. REDACTED (5 sentences). This merger could only increase access to COD on these services, to the benefit of consumers—as cloud provider Nvidia agrees. (Page 22)
Second, the FTC must then prove that the post-merger combined company would likely withhold COD from subscription and cloud gaming services. Again, however, the FTC does not even try to make that showing, nor could it—particularly in light of the binding contracts Microsoft has already struck with Nvidia and other cloud providers. (Page 22)
Third, the FTC must additionally prove that any post-merger withholding would substantially lessen competition. It cannot do so because exclusivity arrangements are ubiquitous; Sony and Nintendo already use them more than Microsoft does; and, as discussed above, they raise no competitive concerns except in narrow circumstances involving substantial market power and large foreclosure percentages, neither of which is present here. (Page 22)
Fourth, as to the cloud-gaming "market," the FTC must prove that cloud gaming will develop in the near-to-intermediate term as a genuine alternative to consoles or performance PCs, in particular for multi-player, fast-twitch, graphics-intensive games such as COD. REDACTED (two sentences). The FTC can show no such thing. As Sony admits, network engineers are nowhere close to solving the immense technological challenges presented by that cloud game-play model, which is one of the reasons why Activision refuses to make COD available for cloud gaming. And there is no basis for blocking a merger based on speculation about harm to non-existent markets that are unlikely to materialize anytime in the foreseeable future. (Page 22)
Fifth, if the FTC could establish that a cloud-gaming market will develop, it would also have to show that Xbox will be a major player in it; otherwise, it would have no cloud-gaming business to promote through exclusivity arrangements. The FTC cannot substantiate that speculation either. REDACTED (6 sentences) (Page 22)
The FTC's failure to demonstrate a likelihood of ultimate success means there is no reason to consider the equities. But in any event, the equities—both public and private—weigh against granting the "extraordinary and drastic remedy" the agency requests. (Page 23)
As a threshold matter, Microsoft's merger with Activision does not implicate the "principal" "public equity consideration [that Congress had] in mind when it enacted section 13(b)"—namely, the need to maintain the pre-merger "status quo" so the FTC can award effective relief if it succeeds on the merits. This consideration applies chiefly in the context of horizontal mergers where two competing companies integrate their operations and, in the process, often eliminate stores, factories, or other redundant assets, making it difficult to unscramble the merger. (Page 23)
Microsoft's vertical merger with Activision, however, raises none of these concerns. Microsoft and Activision are not competitors in the relevant markets alleged. And Microsoft intends to operate Activision similar to other recent acquisitions, such as Minecraft developer Mojang. In other words, Activision's creative operations will remain separate and continue to run as they did pre-merger. Consequently, even in the (unlikely) event the FTC continues to press its Part 3 case and then succeeds on the ultimate merits in that proceeding, the agency can order Microsoft's divesture of Activision—"an effective ultimate remedy". As a result, the "principal public equity" cuts against the government. (Page 23)
In addition, granting a preliminary injunction would kill the deal, robbing consumers of the "beneficial economic effects and procompetitive advantages" resulting from this merger, including increased availability of Activision content. By contrast, there is no risk that consumers would be injured while the administrative process runs its course—Sony's existing contract for COD runs through 2024 and it has an offer for much longer access. (Page 24)
Exhibits and description:
| Number of exhibit, description and related content in the REDACTED ones |
| 1.- REDACTED, related to a private call from Jim Ryan (Sony) the day the acquisition was announced and the availability of COD on Playstation |
| 2.- REDACTED, related to consoles representing the smallest share of video game revenue |
| 3.- Expert report of Dr. Elizabeth M. Bailey |
| 4.- There is not Exhibit number 4 although it's mentioned during the text in relation to mobile being the fastest growing segment in gaming |
| 5.- Ben Gilbert, Epic Games, Maker of Fortnite," Saw Its Value Rise By $17 Billion In Just 8 Years — A More Than Twentyfold Increase, Bus. Insider (July 13, 2020), https://bit.ly/4693arC |
| 6.- Aisha Malik, Epic Raises $2B at a Nearly $32B Valuation to Build its Kid-Friendly Metaverse, TechCrunch (April 11, 2022), https://tcrn.ch/463E9xP |
| 7.- REDACTED, related to the marketshare of Xbox in comparison to Playstation worldwide and in the US |
| 8.- REDACTED, related to the deposition of a witness, I think |
| 9.- REDACTED, related to UNKNOWN |
| 10.- REDACTED, related to a statement from Jin Ryan in relation to PC gaming being a market |
| 11.- REDACTED, related to the number of exclusives from Sony in comparison to Xbox |
| 12.- Sony Corporate Report (2022) |
| 13.- REDACTED, related to PC gaming being a market |
| 14.- REDACTED, related to UNKNOWN |
| 15.- REDACTED, related to UNKNOWN |
| 16.- Sony Chief Warns Technical Problems Persist For Cloud Gaming, Financial Times (6/3/2023) |
| 17.- REDACTED, related to UNKNOWN |
| 18.- REDACTED, related to UNKNOWN |
| 19.- REDACTED, related to UNKNOWN |
| 20.- REDACTED, related to UNKNOWN |
| 21.- REDACTED, related to UNKNOWN |
| 22.- REDACTED, related to UNKNOWN |
| 23.- REDACTED, related to UNKNOWN |
| 24.- REDACTED, related to Xbox position in relation to Sony and Nintendo |
| 25.- REDACTED, related to UNKNOWN |
| 26.- REDACTED, related to UNKNOWN |
| 27.- REDACTED, related to UNKNOWN |
| 28.- REDACTED, related to Xbox trying to get a foothold into mobile gaming without success |
| 29.- REDACTED, related to UNKNOWN |
| 30.- REDACTED, related to UNKNOWN |
| 31.- REDACTED, related to UNKNOWN |
| 32.- REDACTED, related to UNKNOWN |
| 33.- REDACTED, related to UNKNOWN |
| 34.- REDACTED, related to the rationale of the acquisition being about making games more widely accessible on Xbox Game Pass and on mobile devices |
| 35.- Activision Press Release, Activision Blizzard Completes King Acquisition Becomes the Largest Game Network in the World with over 500 Million Users (Feb. 23, 2016), https://tinyur].com/ybxussu5 |
| 36.- Microsoft Press Release, Microsoft to Acquire Activision Blizzard to Bring the Joy and Community of Gaming to Everyone, Across Every Device (Jan. 18, 2022), https://bit.ly/3XeajTh |
| 37.- REDACTED, related to UNKNOWN |
| 38.- REDACTED, related to the agreement with Nintendo to bring COD |
| 39.- REDACTED, related to the cloud gaming agreement with Boosteroid |
| 40.- REDACTED, related to the cloud gaming agreement with EE |
| 41.- REDACTED, related to the cloud gaming agreement with Nvidia |
| 42.- REDACTED, related to the cloud gaming agreement with Nware |
| 43.- REDACTED, related to the cloud gaming agreement with Ubitus |
| 44.- REDACTED, related to the all the cloud gaming agreements |
| 45.- EC Press Release, Mergers: Commission Clears Acquisition Of Activision Blizzard by Microsoft, Subject To Conditions, European Commission (May 15, 2023), https://tinyurl.com/y5s3b2hc |
| 46.- REDACTED, related to UNKNOWN |
| 47.- REDACTED, related to customer preferences demonstrating that Xbox and PlayStation compete with Nintendo Switch for customers and playtime |
| 48.- Expert Report of Dr. Robin Lee |
| 49.- Kevin Webb, PS5 vs. PS5 Digital Edition: Which PlayStation 5 is the Best Choice in 2023?, Insider (May 12, 2023), https://bit.ly/3JOtD01 |
| 50.- Ian Evenden, PS5 Pro and Slim: Everything We've Heard About Sony's Future Console Upgrades, Stuff (June 15, 2023), https://bit.ly/43HbYUS |
| 51.- Stephen Totilo, Nintendo's Legend of Zelda: Tears of the Kingdom Sells 10 Million Copies in 3 Days, Axios (May 17, 2023), https://bit.ly/3MJkIHn |
| 52.- REDACTED, related to UNKNOWN |
| 53.- REDACTED, related to UNKNOWN |
| 54.- REDACTED, related to the rationale of the acquisition being about making games more widely accesible on Gamepass and mobile |
| 55.- REDACTED, related to UNKNOWN |
| 56.- Rhiannon Bevan, PlayStation Boss Says Cloud Gaming Has Too Many Technical Difficulties, The Gamer (June 4, 2023), https://bit.ly/43D5pBA |
| 57.- REDACTED, related to the offer that MS made to Sony to get ABK content for 10 years |
| 58.- Expert Report of Dr. Dennis W. Carlton |
| 59.- Microsoft Press Release, Minecraft tojoin Microsoft (Sept. 15, 2014), |
| 60.- REDACTED, related to UNKNOWN |
| 61.- Microsoft Didn't Mislead EU over Zenimax Deal, Watchdog Says in Response to US Concerns, MLex (Dec. 9, 2022), https://tinyurl.com/33S5rpbxr |
| 62.- Sony Press Release: Bungie Acquisition (Feb. 1, 2022), https://tinyurl.com/m7r8aku9 |
| 63.- Rebuttal Report of Dr. Robin Lee |
| 64.- Michael Kan, Nvidia Rebuts UK, Says Microsoft-Activision Deal Good for Cloud Gaming, PCMag.com (Apr. 28, 2023). https://bit.ly/3PnUgro |
| 65.- Kana Inagaki & Leo Lewis, Sony Chief Warns Technical Problems Persist for Cloud Gaming, Fin. Times (June 3, 2023) |
| 66.- Joshua Fineman, Sony CEO Downplays Risk of Cloud Gaming on Console Market, Seeking Alpha (June4, 2023), https://bit.ly/3NxC7ik |
| 67.- Sony Will Keep Acquiring Game Studios To Sustain "Virtuous Cycle" Of Success, Game Developer (April 4, 2022), https://tinyurl.com/3jezsdnm |
| 68.- REDACTED, related to the evaluation of the transaction and the financial targets of MS |
| 69.- REDACTED, related to the significant appeal of COD as a multi-player game across different platforms, including PS |
| 70.- REDACTED, related to UNKNOWN |
| 71.- REDACTED, related to UNKNOWN |
| 72.- REDACTED, related to UNKNOWN |
Remedies offered and approved by the EC - Highlights:
1) License for consumers
Microsoft commits to grant Consumers the right to stream the Eligible Games from the Closing Date for a period of 10 years, by amending its end-user license agreements ("Consumer License") in accordance with Annex 3. Consumers will be granted this right regardless of whether the Eligible Game was obtained prior to or after the Closing Date.
Definition of Eligible Games: all current and future PC franchises, titles in these PC franchises, and any other PC games that (i) have been developed in the past or will be developed in the future, either in part or in full, by any of the Activision Blizzard Studios (as listed in Annex 1); or (ii) are based, either in part orin full, on IP rights of any PC franchises, titles in these PC franchises, and any other PC games that Activision Blizzard Studios have developed in the past or will develop in the future.
2) License for Streaming providers
Microsoft commits for a period of 10 years from the Closing Date to grant a royalty-free license to stream Eligible Games to Eligible Streaming Services in accordance with the terms in Annex 4 (each a "Streaming Provider Licence").
Microsoft commits to grant Streaming Provider Licenses in accordance with this paragraph (4) regardless of whether Microsoft currently streams or will in the future stream Eligible Games on its own cloud game streaming service, Xbox Cloud Gaming. For new releases, Microsoft commits to make Eligible Games, including publicly available beta versions and early access releases, accessible for streaming from the release of the game on a Microsoft Game Store or any other Authorized Game Store, whichever date is the earliest.
Microsoft further commits, for a period of 10 years from the Closing Date, to grant a royalty-free, worldwide license to stream Eligible Games to:
- NVIDIA in accordance with the terms in Annex 5;
- Boosteroid in accordance with the terms in Annex 6; and
- Ubitus in accordance with the terms in Annex 7.
Licenses granted under the Streaming Provider License commitment will be available on Microsoft's website and subject to the following terms:
- Unless otherwise agreed with Authorized Game Stores, Microsoft may retain all revenue from game sales, in-app purchases and any other future game-related transactional revenue generated from Eligible Games on Eligible Streaming Services.
- Eligible Streaming Services will be responsible for:(i) securing any third-party public performance, communication to the public or other rights that are not owned by Microsoft to the extent necessary to support the Eligible Streaming Service; (i) adapting their services, to the extent necessary in reaction to third- party rights mentioned under (i), to allow Consumers to stream Eligible Games; and (iii) compliance with relevant laws, including the Digital Services Act, the GDPR, the e-Privacy Directive, and privacy standards.
Microsoft may amend the terms of Consumer Licenses or Streaming Provider Licenses with the approval of the Monitoring Trustee and the Commission.
Definition of Authorized Game Store: the Microsoft Game Store or a third-party digital PC game store on which Microsoft distributes Eligible Games after the Closing Date.
Definition of Eligible Streaming Service: a Streaming Service which currently provides or intends to provide cloud game streaming services to Consumers and either: (i) is permitted by an Authorized Game Store to provide access to Eligible Games; or (ii) offers access to Eligible Games through applications which do not require integration with an Authorized Game Store.
3) The Monitoring Trustee
A) Appointment procedure
No later than the Closing Date, Microsoft shall appoint a Monitoring Trustee to carry out the functions specified in these Commitments for a Monitoring Trustee. Microsoft commits not to close the Concentration before the appointment of a Monitoring Trustee.
The Monitoring Trustee shall, at the time of appointment, be independent of the Parties and each of their Affiliated Undertakings; possess the necessary experience, competence and qualifications to carry out its mandate; and neither have nor become exposed to a Conflict of Interest.
The Monitoring Trustee shall be remunerated by Microsoft in a way that does not impede the independent and effective fulfilment of its mandate.
Proposal by Microsoft. No later than two weeks after the Effective Date, Microsoft shall submit the name or names of one or more natural or legal persons whom Microsoft proposes to appoint as the Monitoring Trustee to the Commission for approval. The proposal shall contain sufficient information for the Commission to verify that the person or persons proposed as Monitoring Trustee fulfil the requirements set out in paragraph 9 and shall include:
a) the full terms of the proposed mandate, which shall include al provisions necessary to enable the Monitoring Trustee to fulfil its duties under these Commitments; and
b) the outline of awork plan which describes how the Monitoring Trustee intends to carry outits assigned tasks.
Approval or rejection by the Commission. The Commission shall have the discretion to approve or reject the proposed Monitoring Trustee(s) and to approve the proposed mandate subject to any modifications it deems necessary for the Monitoring Trustee to fulfil its obligations. If only one name is approved, Microsoft shall appoint or cause to be appointed the person or persons concerned as Monitoring Trustee, in accordance with the mandate approved by the Commission. If more than one name is approved, Microsoft shall be free to choose the Monitoring Trustee to be appointed from among the names approved. The Monitoring Trustee shall be appointed within one week of the Commission's approval, in accordance with the mandate approved by the Commission
New proposal by Microsoft. If all the proposed Monitoring Trustees are rejected, Microsoft shall submit the names of at least two more natural or legal persons within one week of being informed of the rejection, in accordance with paragraphs 8 and 12 of these Commitments.
Monitoring Trustee nominated by the Commission. If all further proposed Monitoring Trustees are rejected by the Commission, the Commission shall nominate a Monitoring Trustee, whom Microsoft shall appoint, or cause to be appointed, in accordance with a Monitoring Trustee mandate approved by the Commission.
B) Functions of the Monitoring Trustee
The Monitoring Trustee shall assume its specified duties and obligations in order to ensure compliance with the Commitments. The Commission may, on its own initiative or at the request of the Monitoring Trustee or Microsoft, give any orders or instructions to the Monitoring Trustee in order to ensure compliance with the conditions and obligations attached to the Decision
The Monitoring Trustee shall:
a) propose in its first report to the Commission a detailed work plan describing how it intends to monitor compliance with the obligations and conditions attached to the Decision;
b) provide to the Commission, sending Microsoft a non-confidential copy at the same time, a written report within 15 days after the end of each 6 month period so that the Commission can assess whether the Commitments are being complied with;
c) propose, as applicable, to Microsoft such measures as the Monitoring Trustee considers necessary to ensure Microsoft's compliance with the Commitments;
d) promptly report in writing to the Commission, sending Microsoft a non- confidential copy at the same time, if it concludes on reasonable grounds that Microsoft is failing to comply with the Commitments;
e) act as a contact point for questions from third parties about the nature and scope of the Commitments; and
f) assume any other functions assigned to the Monitoring Trustee under the conditions and obligations attached to the Decision.
C) Duties and obligations of the Parties
Microsoft shall provide and shall cause its advisors to provide the Monitoring Trustee with all such co-operation, assistance and information as the Monitoring Trustee may reasonably require to perform its tasks. The Monitoring Trustee shall have full and complete access to Microsoft's books, records, documents, management or other personnel, facilities, sites and technical information necessary for fulfilling its duties under the Commitments and Microsoft shall provide the Monitoring Trustee upon request with copies of any documents except where such disclosure would give rise to a loss of any applicable legal privilege. Microsoft shall be available for meetings in order to provide the Monitoring Trustee with al information necessary for the performance ofits tasks
Microsoft shall indemnify the Monitoring Trustee and its employees and agents (each an "Indemnified Party") and hold each Indemnified Party harmless against, and hereby agrees that an Indemnified Party shall have no liability to Microsoft for, any liabilities arising out of the performance of the Monitoring Trustee's duties under the Commitments, except to the extent that such liabilities result from the wilful default, recklessness, gross negligence or bad faith of the Monitoring Trustee, its employees, agents or advisors.
At the expense of Microsoft, the Monitoring Trustee may appoint advisors (in particular an IT expert with the capability to monitor the correct implementation of the Commitments, or any advisors for corporate finance or legal advice), subject to Microsoft's approval (this approval not to be unreasonably withheld or delayed) if the Monitoring Trustee considers the appointment of such advisors necessary or appropriate for the performance of its duties and obligations under the mandate, provided that any fees and other expenses incurred by the Monitoring Trustee are reasonable. Should Microsoft refuse to approve the advisors proposed by the Monitoring Trustee the Commission may approve the appointment of such advisors instead, after having heard Microsoft. Only the Monitoring Trustee shall be entitled to issue instructions to the advisors. Paragraph 18 of these Commitments shall apply mutatis mutandis.
Microsoft agrees that the Commission may share Confidential Information proprietary to Microsoft with the Monitoring Trustee. The Monitoring Trustee shall not disclose such information and the principles contained in Article 17 (1) and (2) of the Merger Regulation apply mutatis mutandis.
Microsoft agrees that the contact details of the Monitoring Trustee are published on the website of the Commission's Directorate-General for Competition and Microsoft shall inform interested third parties of the identity and the tasks of the Monitoring Trustee.
For a period of 10 years from the Closing Date the Commission may request al information from the Parties that is reasonably necessary to monitor the effective implementation of these Commitments.
If the Monitoring Trustee, acting reasonably, suspects that Microsoft is not making a PC game or PC franchise available which should have been made available under the Commitments, or that Microsoft is circumventing the application of these Commitments to a PC game or PC franchise that would, in part or in full, have been developed by any of the Activision Blizzard Studios absent the Transaction, Microsoft shall bear the burden of proof to demonstrate to the Monitoring Trustee that the PC game or PC franchise does not qualify as an Eligible Game under the wording or purpose of the Commitments. In this context, the purpose of the Commitments is to make all PC games that have been developed in the past or would have been developed in the future by Activision Blizzard Studios absent the Transaction available for cloud game streaming.
D) Replacement, discharge and reappointment of the Monitoring Trustee
If the Monitoring Trustee ceases to perform its functions under the Commitments or for any other good cause, including the exposure of the Monitoring Trustee to a Conflict of Interest:
a) the Commission may, after hearing the Monitoring Trustee and Microsoft, require Microsoft to replace the Monitoring Trustee; or
b) Microsoft may, with the prior approval of the Commission, replace the Monitoring Trustee.
If the Monitoring Trustee is removed according to paragraph 24 of these Commitments, the Monitoring Trustee may be required to continue in its function until a new Monitoring Trustee is in place to whom the Monitoring Trustee has effected a full hand over of al relevant information. The new Monitoring Trustee shall be appointed in accordance with the procedure referred to in paragraphs 8-14 of these Commitments.
Unless removed according to paragraph 24 of these Commitments, the Monitoring Trustee shall cease to act as Monitoring Trustee only after the Commission has discharged it from its duties after al the Commitments with which the Monitoring Trustee has been entrusted have been implemented. However, the Commission may at any time require the reappointment of the Monitoring Trustee if it subsequently appears that the relevant remedies might not have been fully and properly implemented.
4) Dispute Resolution
In the event an Eligible Streaming Service (including NVIDIA, Boosteroid and Ubitus), showing a sufficient legitimate interest, claims that Microsoft is failing to comply with its obligations arising from the Commitments, the Fast-Track Dispute Resolution Procedure described in Annex 2 shall apply.
In the event an Eligible Streaming Service (including NVIDIA, Boosteroid and Ubitus), breaches the terms of its license agreement with Microsoft, Microsoft shall inform the Eligible Streaming Service of that breach in writing. If the Eligible Streaming Service fails to comply with the terms of its license agreement within 30 days, Microsoft shall have the right to terminate the license agreement with the Eligible Streaming Service, following an opinion of the Monitoring Trustee and approval by the Commission. If the Eligible Streaming Service wishes to oppose to Microsoft's termination of its license agreement, the Fast-Track Dispute Resolution Procedure described in Annex 2 shall apply.
5) The Review Clause
The Commission may extend the time periods foreseen in the Commitments in response to a request from Microsoft or, in appropriate cases, on its own initiative. Where Microsoft requests an extension of a time period, it shall submit a reasoned request to the Commission no later than one month before the expiry of that period, showing good cause. This request shall be accompanicd by a report from the Monitoring Trustee, who shall, at the same time send a non-confidential copy of the report to Microsoft. Only in exceptional circumstances shall Microsoft be entitled to request an extension within the last month of any period
The Commission may further, in response to a reasoned request from Microsoft showing good cause waive, modify or substitute, in exceptional circumstances, one or more of the undertakings in these Commitments. This request shall be accompanied by a report from the Monitoring Trustee, who shall, at the same time send a non- confidential copy of the report to Microsoft. The request shall not have the effect of suspending the application of the undertaking and, in particular, of suspending the expiry of any time period in which the undertaking has to be complied with.
There is also a long explanation about the Fast-Track Dispute Resolution Procedure, but it's very legalese. If someone is interested, let me know.
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I'd actually prefer it if the professional referees weren't supporters of any team tbh
I did not either, that is surprising, because I do not think any regulator would have cared about the Activision games outside of CoD at all.
I don't think what's written implies that.
It's a very cleverly worded statement.
Cited as Exhibit 1, I think that'd be transcript of a call with $MSFT exec or an internal communication. This one is especially interesting given it's the first thing cited. xD
It says Activision, so I assume in the absence of other comments that it doesn't include Blizzard and (obviously not) King.
Still, it's more than CoD, which I don't think we knew.
Oof.
It was behind closed doors and not over a call no?
I remember lulu tweeting about it.
It's literally in the quote "opponent of this deal, said privately on the day it was announced". This is different. Furthermore, if you read the whole context, it's implied he said something positive about COD (or contradictory to FTC's claim).
$MSFT is saying FTC thinks Xbox will take away COD from PS, but Mr Ryan doesn't believe in this.
Those arguments from Microsoft are pretty damning. Why do they need 5 days to prove it? 5 seconds reading it is pretty compelling.
Steam and Nintendo thriving without COD. Microsoft still making deals for both to have COD for 10+ years. The only company who loses out of all this is the market leader Sony. Who still have guaranteed access for 10 years, they just won't enjoy all the exclusive shit and marketing they had.
Steam and Nintendo thriving without COD. Microsoft still making deals for both to have COD for 10+ years. The only company who loses out of all this is the market leader Sony. Who still have guaranteed access for 10 years, they just won't enjoy all the exclusive shit and marketing they had.
So many users on this board tried to convince everyone that Sony's comments on cloud had no meaning for MS/ABK merger, and yet we see it being used to strengthen MS argument against FTC (I assume CMA too), like we sensibly predicted, once again people trying to reimagine reality so that MS/ABK can't be seen in a more favourable position with the judge.
Instincts were correct, nobody knows anything, apart from a few (thanks Idas).
Really strong arguments by MS. Can't see the Judge siding with FTC.