US FTC argues Microsoft’s deal to buy Activision should be blocked

By David Shepardson

WASHINGTON (Reuters) -The U.S. Federal Trade Commission on Thursday argued in federal court for a preliminary injunction to temporarily block Microsoft (NASDAQ:)’s acquisition of videogame maker Activision Blizzard (NASDAQ:).

“If this deal is completed, the combined company … is likely to have the ability, an incentive, to harm competition in various markets related to consoles, subscription services and the cloud (for gaming),” FTC lawyer James Weingarten (NYSE:) said in the government’s opening arguments in the first day of a five-day evidentiary hearing.

The FTC argues it needs a judge to block Microsoft and Activision Blizzard from closing their $69 billion merger until the agency’s in-house court gets to rule on whether the combination hurts competition in the videogame industry.

The FTC says the combination would give Microsoft’s Xbox videogame console exclusive access to Activision games, leaving Nintendo consoles and Sony (NYSE:) Group Corp’s PlayStation out in the cold.

“I think you will see that every piece of evidence shows that it only makes sense for Xbox to make these Activision games available to as many people on as many platforms as possible,” Microsoft lawyer Beth Wilkinson said in opening arguments, adding that if an injunction is granted it could result in a three-year administrative proceeding that would kill the deal.

Set to testify on Friday are Microsoft Gaming CEO Phil Spencer, senior Microsoft finance director Jamie Lawver, former director of product management for Google (NASDAQ:)’s now shuttered Stadia cloud gaming service Dov Zimring, and Sony Interactive Entertainment CEO Jim Ryan who will appear by video deposition.

Resolving the U.S. lawsuit is one of several key antitrust battles Microsoft and Activision have fought around the world to get the deal finalized. Microsoft’s bid to acquire the “Call of Duty” videogame maker was approved by the European Union in May, but British competition authorities blocked the takeover in April.

The FTC has argued that the deal, which would be the largest for Microsoft and the biggest in the history of the videogame business, would give Microsoft the “ability and increased incentive to withhold or degrade Activision’s content in ways that substantially lessen competition.”

Microsoft has said that the deal would benefit gamers and gaming companies alike, and has offered to sign a legally binding consent decree with the FTC to provide “Call of Duty” games to rivals for a decade.

The hearing is scheduled to proceed through June 29. Microsoft CEO Satya Nadella and Activision CEO Bobby Kotick are among the witnesses for next week.