Microsoft Responds to FTC Suit Over Activision Deal

“Xbox wants to grow its presence in mobile gaming, and three quarters of Activision’s gamers and more than a third of its revenues come from mobile offerings,” Microsoft said in its response to the FTC lawsuit. “Xbox also believes it is good business to make Activision’s limited portfolio of popular games more accessible to consumers, by putting them on more platforms and making them more affordable.”

Microsoft had signaled it would challenge the antitrust regulator’s case after arguing for months the transaction wouldn’t harm competition in the videogame industry. It offered concessions to the FTC before the lawsuit was filed in a failed attempt to head off a legal battle.

In its suit, the FTC alleged that the acquisition would be illegal because it would give Microsoft the ability to control how consumers access Activision’s games beyond the Redmond, Wash., company’s own Xbox consoles and subscription services. Microsoft could raise prices or degrade Activision’s content for people who don’t use its hardware to access the developer’s games, or even cut off access to the games, the FTC said. 

Microsoft has said it wouldn’t engage in such actions and that it needs Activision’s hit franchises such as “Call of Duty” and “Candy Crush” because it trails its rivals in console sales and has a limited presence in mobile-game development. The company, which values the deal at $68.7 billion after adjusting for Activision’s net cash, has also said it expects the industry to get more competitive with the rise of cloud gaming.

The FTC said Thursday that it will stand by its case.

“This $69 billion acquisition would give Microsoft the means to harm competition in multiple fast-growing gaming markets,” said John Newman, deputy director of the FTC’s bureau of competition in a statement. “We are confident in our case and look forward to presenting it at trial.”

A few days before the FTC sued Microsoft, the company offered to keep “Call of Duty” games accessible to rivals such as PlayStation maker

Sony Group Corp.

through a legally binding consent decree, augmenting a pledge it had made months earlier to keep them accessible for at least 10 years.

“The acquisition of a single game by the third-place console manufacturer cannot upend a highly competitive industry,” Microsoft said in its response. “That is particularly so when the manufacturer has made clear it will not withhold the game.”

European Union and U.K. regulators are also probing the deal, which Microsoft announced nearly a year ago. It has gained approval in some markets, such as Brazil and Saudi Arabia.

On Wednesday, the U.K.’s Competition and Markets Authority said it received an overwhelming majority of emails from the public in favor of the transaction after requesting people’s input between Oct. 14 and Oct. 28. The antitrust watchdog said about three quarters of 2,100 responses it received were in support of the transaction and about one quarter were opposed.

Microsoft’s battle with U.S. regulators is scheduled to take place in the FTC’s administrative court in August, unless a settlement is reached before then. The company has said it would prefer an amicable resolution.

“Even with confidence in our case, we remain committed to creative solutions with regulators that will protect competition, consumers and workers in the tech sector,” Microsoft President

Brad Smith

said. 

Activision CEO

Bobby Kotick

defended the deal in a separate statement. “There is no sensible, legitimate reason for our transaction to be prevented from closing,” he said Thursday. 

The company could offer the FTC commitments on top of its existing “Call of Duty” offer to avoid litigation, legal experts say. Still, they add, such a move might not sway the government because it would have to invest in resources to enforce them. Further, they say the FTC might be concerned that concessions deemed sensible today might not be valid in the future.

The agency faces hurdles in its case, legal experts say, because the deal is for a “vertical merger,” meaning that Microsoft wants to buy a company in its supply chain as opposed to a direct competitor. Legal experts say the FTC could argue that the transaction would indirectly put consumers at risk, such as by enabling the misuse of sensitive competitor information by the combined enterprise. With such information, the new entity could prevent upstarts in videogame distribution from succeeding, they say, leaving consumers with fewer choices.  

The FTC sued even though Microsoft, through Mr. Smith, has been building relationships in the capital for decades. He had helped cultivate an image of the software giant as one of the friendly technology leaders after serving as the company’s legal adviser through bitter antitrust disputes with regulators worldwide in the 1990s.

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Write to Sarah E. Needleman at Sarah.Needleman@wsj.com