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Ninth Circuit Rules In Favor Of Merging Parties In Microsoft/Activision Appeal
05/13/2025On May 7, 2025, the United States Court of Appeals for the Ninth Circuit affirmed a lower court opinion that denied the Federal Trade Commission’s (“FTC”) motion for a preliminary injunction against Microsoft’s acquisition of Activision Blizzard, Inc. Federal Trade Commission v. Microsoft Corp. and Activision Blizzard, Inc., No. 23-15992 (May 7, 2025).
Microsoft is the manufacturer of both a physical video game platform, the Xbox console, and a variety of “first-party” games for Xbox (i.e., games developed for a particular console by the device manufacturer themselves). Activision Blizzard, a successful independent video developer, created and sold “third-party” games that could be played on Microsoft’s Xbox, as well as PlayStation and Switch consoles. Microsoft announced its plan to acquire Activision for $68.7 billion on January 17, 2022. The FTC filed a complaint challenging the proposed transaction in its administrative court in December 2022. On June 12, 2023, the FTC sought a preliminary injunction in the United States District Court for the North District of California to halt the merger under FTC Act § 13(b). To prevail, the FTC had to make an evidentiary showing that raised “sufficiently serious and substantial questions as to a reasonable probability that the merger will substantially lessen competition in any relevant market” in violation of § 7 of the Clayton Act. Following an evidentiary hearing on July 14, 2023, the district court denied the FTC’s motion for a preliminary injunction, finding that the FTC had not met that burden. The FTC appealed.
Before turning to the merits, the Ninth Circuit evaluated the FTC’s argument that the lower court committed legal error because it identified “conflicting evidence” of the anticompetitive effects of the proposed transaction, but still held the FTC did not meet its “serious and substantial questions” burden required for a preliminary injunction. The Ninth Circuit disagreed, holding that a preliminary injunction is an extraordinary remedy that must be affirmatively justified by the FTC. On those grounds, the FTC’s proposed “construe-everything-my-way standard” was more appropriate for defending against summary judgment dismissal of claims, rather than obtaining preliminary injunctive relief.
The FTC’s primary theory was that the proposed transaction, a vertical merger of a content-platform operator (Microsoft), and content producer (Activision Blizzard), would substantially lessen competition in several relevant “U.S.-based content platform markets,” including “the markets for gaming console devices.” In the lower court, the FTC argued that Microsoft would have both the ability and incentive to make Activision Blizzard’s Call of Duty video game exclusive to Xbox (or release an inferior version for PlayStation), reducing competition in the console market. The lower court found that Microsoft would have the post-merger ability to foreclose rivals, but no incentive to foreclose, because Call of Duty’s financial success depended on customers from many gaming platforms, including PlayStation. The lower court pointed to several factual bases for this determination, including (i) no evidence of Microsoft withdrawing a multiplatform game from rival platforms after prior acquisitions of content producers, (ii) consistent public statements and internal documents that showed no plan to pull Call of Duty from PlayStation, and (iii) potential reputational and financial harm from doing so. In light of that evidence, the Ninth Circuit held that the lower court did not abuse its discretion by ruling that the FTC had not made the requisite showing of a likelihood of success on its claim that Microsoft might make Call of Duty exclusive to Xbox after the merger.
Notably, the lower court did not consider contracts that Microsoft had entered into post-merger that allowed certain Activision Blizzard content to be available on competing platforms for ten years, expressly stating that the existence of these contracts was “not necessary” for its ruling on the preliminary injunction. The Ninth Circuit therefore did not need to address the FTC’s argument that post-merger agreements are “proposed remedies” that should not be considered when assessing the likelihood of success of an underlying Clayton Act § 7 claim in the context of a preliminary injunction hearing under FTC Act § 13(b).
The FTC also raised arguments in the lower court that the merger would reduce competition in the markets for “gaming subscription services” and “gaming cloud-streaming services.” The FTC argued that Microsoft would make Activision Blizzard content exclusive to its subscription service, thereby foreclosing rival services in the “gaming subscription services market.” The lower court disagreed with this contention, and the Ninth Circuit affirmed, finding that because Activision Blizzard had long opposed putting its content on library subscription services, the merger’s effect of making such content available for the first time in the subscription market, even if exclusive to Microsoft, would not substantially lessen competition. In the gaming cloud-streaming services market, the Ninth Circuit recognized that Activision Blizzard had historically refused to license its content to subscription services. Citing to the Supreme Court’s opinion in Brown Shoe, the Ninth Circuit determined that even if Microsoft placed Activision Blizzard’s content exclusively on a cloud-streaming service, it would not foreclose any share of the market that was previously “otherwise open to competitors.” See 380 U.S. 294 (1962).
The merger between Microsoft and Activision closed on October 13, 2023. The Ninth Circuit’s decision underscores the significant burdens U.S. antitrust enforcers face when challenging vertical mergers, especially in the face of a strong factual record developed by the parties that undermines enforcers’ arguments that the parties have the ability and incentive to foreclose.
