The Federal Trade Commission of the US announced that it has filed an antitrust case against Microsoft, claiming that the software company’s attempt to acquire video game publisher Activision Blizzard would violate US law.

Microsoft isn’t dealing with competitive pressure for the first time. In 1998, the United States The Department of Justice filed a broad antitrust case against the company. As a result, Microsoft altered some practices related to its Windows operating system business. The UK Competition Commission is investigating whether the Activision Blizzard acquisition will reduce competition in the country.

In January, Microsoft announced plans to buy Activision Blizzard for $68.7 billion, with the acquisition expected to be completed by June 2023. Microsoft’s gaming competitors, such as Sony, have put pressure on the deal.

Microsoft has stated repeatedly that if the deal is done, it will not be the world’s leading gaming company, and it has vowed to provide popular “Call of Duty” games on gaming platforms other than those owned by Microsoft.

“We continue to believe that this deal will expand competition and create more opportunities for gamers and game developers,” Brad Smith, Microsoft’s vice chair and president, said in a statement. “We have been committed since Day One to addressing competitive concerns, including by offering earlier this week proposed concessions to the FTC. While we believed in giving peace a chance, we have complete confidence in our case and welcome the opportunity to present our case in court.”

The FTC’s commissioners voted 3-1 to pursue the agency’s administrative complaint, which will be heard by the FTC’s internal administrative law judge. After a trial-like proceeding, the ALJ makes an initial decision in that process. The respondent or FTC staff acting as “complaint counsel” may petition the full commission for a vote on the initial decision. Following that, the respondent could still petition a federal appeals court to review the commission’s decision.

“With control of Activision’s content, Microsoft would have the ability and increased incentive to withhold or degrade Activision’s content in ways that substantially lessen competition — including competition on product quality, price, and innovation,” the FTC said in its complaint. “This loss of competition would likely result in significant harm to consumers in multiple markets at a pivotal time for the industry.”

The FTC stated in the statement that Microsoft has a history of buying games and using the moves to suppress competition from other console manufacturers, including its 2021 ZeniMax deal. Microsoft promised European Commission antitrust officials that it would have no incentive to prevent people from playing ZeniMax games on consoles other than the Xbox, but after the European Commission approved the deal, Microsoft announced that it would make ZeniMax games such as Elder Scrolls VI, Redfall, and Starfield exclusives, according to the FTC’s lawsuit.

According to the FTC, Activision Blizzard has brought its games to a variety of devices, regardless of manufacturer, but that could change if Microsoft closes the deal.

According to the agency, Microsoft could adjust prices or degrade the experience on competing hardware such as Sony PlayStation consoles, or prevent Activision Blizzard consoles from reaching consoles other than Microsoft Xbox systems.

Microsoft does offer exclusive titles for the Xbox, and in October, Phil Spencer, Microsoft’s CEO of gaming, noted that Sony has its own set of exclusive franchises, but Microsoft has brought games such as Minecraft to other devices over time. He argued that it is critical that more people, not fewer, play the company’s games.

Microsoft is looking to increase the number of subscribers to its Game Pass service, which provides access to hundreds of games.

People can also play games that stream from Microsoft data centers on a variety of devices, including smartphones, with the Game Pass Ultimate subscription tier.

According to the FTC, the proposed acquisition is “reasonably likely” to reduce competition or create monopolies in the markets for gaming subscription services, cloud gaming, and high-performance consoles.

“We want Call of Duty to be enjoyed by more players around the world. That requires COD being on diverse platforms after the merger of Microsoft + Activision Blizzard,” Lulu Cheng Meservey, Activision’s executive vice president for corporate affairs and communications chief, said in a tweet.

The lawsuit is a significant step forward for FTC Chair Lina Khan, who has long signaled her intention to take aggressive action on technology. While her tenure has included a lawsuit to prevent Facebook owner Meta from acquiring a virtual reality fitness app developer, the lawsuit to prevent the Microsoft-Activision deal is notable for its size, as the largest technology transaction to date.

Khan and her counterpart in the Justice Department’s antitrust division, Jonathan Kanter, have stated that they want the agencies to become more comfortable with taking big swings in court, and that a high win rate likely means they aren’t challenging enough cases.

With the exception of one significant win by the Department of Justice in its case against Penguin Random House’s proposed acquisition of Simon & Schuster, federal enforcers have seen a string of losses in merger challenges in recent months.

The FTC’s administrative law judge dismissed the commission’s challenge to Illumina’s proposed acquisition of Grail in the biotech space, but the FTC has stated that it will appeal that decision. The Antitrust Division has also stated that it is considering or has filed an appeal in three merger cases that it has lost so far: UnitedHealth Group-Change Healthcare, US Sugar-Imperial Sugar, and Booz Allen Hamilton-EverWatch.

Smith foreshadowed Microsoft’s arguments against blocking the deal in an opinion piece published earlier this week in the Wall Street Journal, saying it would be a “huge mistake.”

“Microsoft faces huge challenges in the gaming industry,” Smith wrote, adding that its Xbox console gaming system is in third place behind Sony’s PlayStation and the Nintendo Switch. Microsoft also has “no meaningful presence in the mobile game industry,” he said.

He singled out Apple and Google, claiming that while mobile gaming is a rapidly growing and lucrative industry, the two app store operators take a “significant portion” of the profits through developer fees.

Because of its 2016 acquisition of King, which publishes the Candy Crush Saga game, Activision Blizzard has a presence on mobile devices. According to Activision Blizzard, the Candy Crush franchise has over 200 million monthly active users.

Smith stated that Microsoft’s acquisition of Activision would allow the company to compete effectively in the gaming industry, spurring innovation and assisting customers. He dismissed rivals’ concerns, saying the company is “as excited about this deal as Blockbuster was about the rise of Netflix.”

After the FTC announced its case, Activision Blizzard shares fell to a session low of $73 per share. Microsoft agreed to pay $95 per share in cash.

In a memo to employees, Activision Blizzard CEO Bobby Kotick stated that the assertion that the deal is anti-competitive does not match the facts.

“Simply put, a combined Microsoft-ABK will be good for players, good for employees, good for competition and good for the industry,” he wrote. “Our players want choice, and this gives them exactly that.”

According to Politico, the FTC is likely to try to block the deal.

(Adapted from TheVerge.com)