Microsoft’s $69 billion bid for Activision Faces EU antitrust Investigation
The EU antitrust commission has opened a full-scale investigation into Microsoft’s $69 billion deal to purchase ‘Call of Duty’ creator Activision Blizzard. The commission released the following statement: “The Commission’s preliminary investigation shows that the transaction may significantly reduce competition on the markets for the distribution of console and PC video games”.
Microsoft is pursuing the deal in hopes that Activision’s game portfolio will help increase its ability to compete with market leaders Tencent and Sony, although Sony has publicly criticised the deal. Sony’s PlayStation rivals Microsoft’s Xbox in the console market, and Sony fears that Microsoft will release the latest massively popular, ‘Call of Duty’ game on Xbox before PlayStation, which would be a great disadvantage to Sony. Although Microsoft has shut down these fears stating they are “committed” to releasing the game on both consoles on the same day.
The investigation threatens the entire feasibility of the deal, with the EU antitrust commission stating it will decide by March 2023 whether to clear or block the deal. Microsoft initially declined to offer support and solutions during the preliminary EU review of the deal, but has since said that it will work with the watchdog to address what they accept are valid concerns over the competition in the marketplace.
Microsoft has turned to Simpson Thatcher and Bartlett to advise on the case, while Activision is working with Skadden, Arps, Slate, Meagher and Flom on the deal. The situation represents a classic example of the legal issues massive corporations face when attempting large scale takeovers to increase market control. The UK anti-competition watchdog has also announced that its closely monitoring the situation, increasing the pressure and scrutiny on Microsoft and its team of legal advisers.
For the Microsoft case, it is likely that the ‘Rule of Reason’ will be used to determine whether or not the acquisition is anti-competitive, as it’s a complex case involving the way Microsoft will use and release the games they will inherit through the deal and whether that is a direct increase of their market share. It will certainly be interesting to see the verdict in March.
Key Legal Concepts:
Antitrust Laws – Antitrust laws are regulations that encourage competition between firms by limiting the market power of any individual firm. In this case, the issue arises because of an acquisition that threatens to over-concentrate the market by giving Microsoft huge control over a number of large games. Without these laws, greater market power can lead to increased prices for consumers, less choice and less innovation.
There are three rules in court that rule whether an anticompetitive practice has, is or will take place:
The ‘Per-se’ rule – Restraints analysed under this rule are those that are so inherently anticompetitive and damaging to the market that they require no further inquiry, and warrant immediate condemnation.
The ‘Rule of Reason’ approach – this approach focuses on the state of competition within a well-defined relevant agreement. It requires a full-blown analysis of the effects on the market, with clear definitions of the market, products and firms within it. This is the most common test that antitrust claims are analysed under.
The ‘Quick Look’ Review – This is almost a shortened version of the ‘Rule of Reason’, where the court does not need to conduct a rigorous analysis of the market, only some form of market harm needs to be proven.