In Federal Trade Commission v. Microsoft Corporation, the Federal Trade Commission sought to enjoin Microsoft Corporation’s proposed acquisition of Activision Blizzard, Inc. The dispute arose after Microsoft announced an agreement to acquire Activision Blizzard, a major video game publisher known for popular gaming franchises. The acquisition was structured as a merger transaction valued in the tens of billions of dollars.
Following announcement of the transaction, the Federal Trade Commission initiated an administrative proceeding challenging the merger under Section 7 of the Clayton Act. The Commission alleged that the acquisition would substantially lessen competition in certain video game markets. While the administrative case was pending, the Federal Trade Commission filed an action in federal district court seeking a preliminary injunction to prevent Microsoft from closing the transaction before completion of administrative review.
The district court conducted an evidentiary hearing that included testimony from corporate executives, economists, and industry participants. The court received documentary evidence concerning Microsoft’s internal strategy, Activision Blizzard’s product offerings, and existing contractual relationships in the gaming industry.
The Federal Trade Commission advanced a theory that the acquisition would enable Microsoft to withhold or degrade access to Activision Blizzard’s popular titles, including the Call of Duty franchise, from competing gaming platforms. The Commission asserted that such conduct could harm competition in markets for console gaming, subscription gaming services, and cloud gaming.
Microsoft presented evidence that it had entered into agreements with rival platforms to continue offering certain Activision Blizzard titles. Microsoft also provided testimony regarding its incentives and business strategy, asserting that making games widely available increased overall revenue and player engagement.
After considering the evidence, the district court denied the request for a preliminary injunction. The court concluded that the Federal Trade Commission had not demonstrated a likelihood of success on the merits of its Section 7 claim. The court determined that the Commission had not shown that Microsoft would likely foreclose rivals or substantially lessen competition in the relevant markets.
The Federal Trade Commission appealed the denial of the preliminary injunction to the United States Court of Appeals for the Ninth Circuit.
On appeal, the Ninth Circuit reviewed the district court’s decision under the standards governing preliminary injunctions. The appellate court examined whether the district court abused its discretion, relied on erroneous legal standards, or made clearly erroneous factual findings.
The court addressed the applicable standard for a preliminary injunction sought by the Federal Trade Commission under Section 13(b) of the Federal Trade Commission Act. Under that provision, the Commission was required to show a likelihood of success on the merits and that the balance of equities favored injunctive relief.
The appellate court emphasized that the district court’s role at the preliminary injunction stage was not to determine the ultimate legality of the merger, but to assess the probability of success in the administrative proceeding.
A central issue on appeal involved the district court’s evaluation of market definition and competitive effects. The Federal Trade Commission argued that the district court improperly evaluated the relevant product markets and underestimated the risk that Microsoft could restrict access to key gaming content.
The Ninth Circuit examined the district court’s findings regarding console gaming, subscription services, and cloud gaming. The district court had evaluated evidence concerning Microsoft’s existing market share, the competitive presence of Sony and Nintendo, and contractual commitments Microsoft had offered to continue licensing certain titles.
The appellate court reviewed whether the district court clearly erred in finding that the Commission failed to establish a likelihood that Microsoft would engage in foreclosure strategies that would substantially lessen competition. The Ninth Circuit also considered the district court’s assessment of Microsoft’s economic incentives and its analysis of internal business documents.
The court noted that the district court conducted a detailed review of witness testimony and economic modeling presented by both sides. The appellate court concluded that the district court applied the correct legal framework in evaluating competitive effects and did not rely on an improper standard.
The Ninth Circuit also addressed the district court’s balancing of equities. The Federal Trade Commission maintained that allowing the merger to proceed would risk irreparable harm to competition before administrative adjudication. Microsoft argued that an injunction would cause significant harm to the companies and their shareholders and would delay integration of the businesses.
The appellate court evaluated whether the district court properly weighed the competing considerations. The Ninth Circuit determined that the district court did not abuse its discretion in concluding that the Commission failed to meet its burden for preliminary relief.
After reviewing the record and the district court’s findings, the Ninth Circuit affirmed the denial of the preliminary injunction. The appellate court concluded that the district court did not apply an incorrect legal standard and did not clearly err in its factual determinations. The court held that the Federal Trade Commission had not demonstrated a likelihood of success on the merits sufficient to warrant preliminary injunctive relief.
The decision allowed Microsoft Corporation to proceed with closing the acquisition of Activision Blizzard, Inc., subject to any remaining regulatory considerations.
If your business is navigating a merger, acquisition, or regulatory review, Whitcomb, Selinsky PC handles mergers and acquisitions transactions and related regulatory compliance matters. Contact us to learn how our team can assist with your transaction.