The US Federal Trade Commission was dealt a major setback when a California federal judge rejected its request to block Microsoft’s $75bn purchase of Activision Blizzard. This decision marked a significant setback in the ambitious efforts made by the regulator to strengthen antitrust enforcement.
Judge Jacqueline Scott Corley decided on Tuesday the FTC failed to prove the megamerger will harm competition in video game industry. Her ruling was centered around whether Microsoft would restrict Sony’s ability to access the blockbuster Call of Duty game from Activision. However, its impact on Washington and corporate America is much wider.
Khan was appointed by President Joe Biden. As a young academic, she rose to prominence with a paper that called for the dissolution of Amazon. She has sparked fear and animosity in corporate America because she is willing to use new legal strategies to crackdown on anti-competitive behavior, even though her efforts have had mixed results.
Khan’s focus has been on preventing US technology giants from expanding their market dominance to new areas. She has also intensified efforts to combat “vertical mergers”, which combine companies with a customer-supplier relationship. They are more difficult to defeat than “horizontal” mergers between direct competitors.
Khan, unlike previous agency heads who have sought to avoid losing in court, has shown a willingness push the boundaries to achieve change. She told CNBC in 2013 that “you lose all the shots that you don’t make”.
A federal judge rejected the FTC’s attempt to block Meta’s acquisition by Within, a virtual reality games company, in February.
This makes Corley’s decision a “major blow” to Khan’s “efforts to extend the frontiers for enforcement”. . . William Kovacic who headed the FTC during Republican President George W Bush said, “[and] zero in acquisitions by dominant technology players to prevent these from using acquisitions as a way to reinforce their position of preeminence”.
He added, “If you are looking for a lasting change in doctrine and policy, you must win cases.”
The FTC sought a preliminary order to stop Microsoft’s acquisition of Activision until the result of a separate lawsuit that will be heard by its own court beginning August 2. After a merger has been completed, it is much more difficult to undo.
The watchdog has until Friday to decide whether it will appeal the Microsoft ruling in the Ninth Circuit. The FTC declined to comment when it lost a similar case, Meta-Within. This time the FTC has taken a more aggressive stance. It said “in the next days, we will be announcing the next step in our fight to protect consumers and preserve competition”.
Legal observers believe that the language used by Judge Corley in his California ruling could be a potential appeal. She stated that the FTC failed to prove the deal would “substantially lessen competition”, whereas the Clayton Antitrust Act on which this ruling is based uses the softer word “may”.
“If the judge assessed the evidence by using the wrong standard of law, then each and every. . . “Any question of law or fact is suspect,” Robert Lande, Professor Emeritus of the University of Baltimore School of Law said.
The Ninth Circuit ruled in 2020 against the FTC, in a case involving mobile chip technology company Qualcomm. This case was about an existing monopoly rather than merger concerns. However, the Ninth Circuit’s decision is indicative of the lack of interest in intervention you may encounter if you appeal to the court.
Michael Carrier, Rutgers University’s law professor, said that while the Microsoft-Activision lawsuit “will play a significant role in defining chairman Khan’s record”, it is still “early to make a final judgment”.
Khan’s FTC is a mixed bag when it comes Big Tech. The FTC declined to contest Amazon’s $3.9bn purchase of healthcare chain One Medical. The agency filed three consumer protection suits against Amazon and is investigating the agreement for Amazon to acquire iRobot – maker of the Roomba robotic vacuum cleaner – as well as Amazon’s acquisition of iRobot.
The FTC did not block Meta’s acquisition of Within but it won a major victory last year against Facebook when a US court refused to dismiss the lawsuit that sought to undo its acquisitions for Instagram and WhatsApp. This case is still ongoing.
Dealmakers have accused Khan of a chilling effect on US mergers and purchases, which her supporters view as a success. However, some legal experts caution that a series of unsuccessful cases could provide companies with tools to overcome antitrust regulators.
Kovacic stated that the FTC would face “skillful opposition” from parties looking to gain an advantage in such cases. “And whether this is good for FTC in the long run is a very serious question.”
Lawyers said that a potential loss in the Microsoft lawsuit is unlikely to curtail Khan’s strict antitrust policy. Charles Rule, partner at Rule Garza Howley, said that Khan’s other losses had not yet affected his antitrust policy.