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The Feds are likely to challenge Microsoft’s $69 billion acquisition of Activision

The Federal Trade Commission is likely to file an antitrust lawsuit to block Microsoft’s $69 billion acquisition of video game giant Activision Blizzard, maker of hit games Call of Duty and Candy Crush, according to three people with knowledge of the matter.

A lawsuit would be the biggest move yet by the FTC, chaired by Lina Khan, to rein in the power of the world’s largest tech companies. It would also be a major black mark for Microsoft, which has positioned itself as a sort of white knight on antitrust issues in the technology sector after fighting its own grueling antitrust battles around the world more than two decades ago.

A lawsuit against the deal is not guaranteed, and the FTC’s four commissioners have yet to dismiss a complaint or meet with lawyers for the companies, two of the people said. But FTC officials reviewing the deal are skeptical of the companies’ arguments, these people said.

The investigation is still ongoing, but much of the heavy lifting has been completed, including testimonies from Microsoft CEO Satya Nadella and Activision CEO Bobby Kotick, people familiar with the investigation said. If the agency moves a case forward, it could be as early as next month, said the people, who were all granted anonymity to discuss a confidential matter.

Central to the FTC’s concerns is whether the acquisition of Activision would give Microsoft an unfair boost in the video game market. Microsoft’s Xbox is number three behind industry-leading Sony Interactive Entertainment and its PlayStation console. However, Sony has emerged as the main opponent of the deal, telling the FTC and regulators in other countries that Sony would be significantly disadvantaged if Microsoft made hit games like Call of Duty exclusive to its platforms.

The FTC declined to comment.

In a statement to Britain’s Competition and Markets Authority released on Wednesday, outlining Sony’s position, Sony says the deal will not only hurt its competitiveness but also give consumers fewer choices for games and developers fewer choices for games Release will let games. Microsoft is a “tech titan that is buying up irreplaceable content at undeniable prices ($68.7 billion) to win over the competition,” Sony said.

In a statement of its own, also released by the UK regulator on Wednesday, Microsoft accused Sony of making self-serving statements to maintain its position as number one in gaming. “The suggestion that reigning market leader Sony, with clear and sustained market power, could be foreclosed on by the smallest of the three console competitors, Xbox, because it loses access to a title is not credible.”

Microsoft said it has repeatedly promised to keep Call of Duty available on Sony’s PlayStation, and what’s more, the game isn’t the must-have Sony says it is. Additionally, Microsoft notes that the game isn’t currently available on any subscription service and adding it to the Xbox service in the future wouldn’t hurt Sony.

To a lesser extent, Google is also an opponent of the deal, according to two of those familiar with the matter. The company has argued that Microsoft intentionally downgraded the quality of its Game Pass subscription service when used with Google’s Chrome operating system, and owning Activision would increase its incentive to do so, ultimately steering hardware sales towards Microsoft and away from Google, said the people.

Google is a small player in the gaming industry and is retiring its own online gaming service, Stadia. However, it faces antitrust scrutiny around the world, including conduct in the gambling market, and is unlikely to be a sympathetic opponent. Fortnite maker Epic Games is currently suing Google, arguing that it is illegally banning Fortnite from its mobile app store, Google Play. As part of that case, Epic recently accused Google of paying Activision $360 million not to offer a competing app store on Android phones.

A Google spokesman declined to comment.

Microsoft has pledged to continue making Call of Duty available on Sony’s Playstation console and recently made an offer to give Sony access to the game for the next 10 years. The New York Times first reported on the offer. It’s unknown how Sony reacted to the offer and didn’t respond to comment on Wednesday.

The FTC’s concerns go beyond Call of Duty, however, and investigators are trying to determine how Microsoft could use future, unannounced titles to boost its gaming business, according to two people with knowledge of the review.

“Any suggestion that the transaction could lead to competitive effects is completely absurd. This merger will benefit gamers and the US gaming industry, especially as we face increasingly stiffer foreign competition,” said Activision spokesman Joe Christinat. “We are committed to continuing to work with regulators around the world to enable the transaction to proceed, but will not hesitate to fight to defend the transaction if necessary.”

Activision also denies Epic’s allegations. “Epic’s allegations are nonsense,” Christinat said. “We can confirm that Google has never asked, pressured or coerced us not to compete with Google Play – and we have already submitted documents and testimonies to prove this.”

Microsoft spokesman David Cuddy said the company “stands ready to address concerns from regulators, including the FTC, and Sony to ensure the deal is closed with confidence.” We will continue to lag behind Sony and Tencent in the market post-deal, and together Activision and Xbox will benefit gamers and developers and make the industry more competitive.”

The FTC does not have to take any technical action at this point. Regulators in Europe and the UK also recently launched in-depth investigations, meaning the companies couldn’t finalize the deal until spring at the earliest. That is, if the FTC sued, it would likely sue in its own internal administrative court.

The agency typically first charges deals in federal court, blocking them with an injunction pending a trial in its internal court. However, without the threat of enforcement, it would be difficult to obtain an injunction.

The companies have until July next year to finalize the deal without renegotiating the agreement. An administrative lawsuit filed later this year or in January is unlikely to be resolved until July and could potentially force the companies to abandon the transaction.

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