Antitrust Law Daily Wrap Up, ACQUISITIONS & MERGERS—9th Cir.: Denial of FTC’s injunction request in Microsoft/Activision merger upheld, (May 7, 2025)

By Peter Reap, J.D., LL.M.

The district court did not abuse its discretion in holding that the agency failed to make a sufficient evidentiary showing to establish the requisite likelihood of success on its Sec. 7 Clayton Act claim.

The Ninth Circuit has affirmed a district court’s 2023 denial of a motion by the FTC for preliminary injunctive relief against Microsoft’s acquisition of video game company Activision Blizzard, Inc. According to the Ninth Circuit, the district court applied the correct legal standards and did not abuse its discretion or rely on incorrect findings in holding that the FTC failed to make a sufficient evidentiary showing to establish the requisite likelihood of success on its Sec. 7 Clayton Act claim. Therefore, the FTC did not raise serious questions regarding whether the merger would likely substantially lessen competition in the relevant markets as alleged. The merger was completed shortly after the FTC’s reply brief was filed before the Ninth Circuit, but an FTC administrative proceeding concerning the merger remains pending before the agency (FTC v. Microsoft Corp., No. 23-15992 (9th Cir. May. 7, 2025)).

Background. In January 2022, Microsoft announced its planned $68.7 billion deal to acquire interactive gaming developer and publisher Activision Blizzard Inc. to augment Microsoft's gaming business. The FTC filed an administrative complaint against the proposed acquisition shortly thereafter, concerned that the deal, if consummated, would posture Microsoft to inhibit competition in the video game industry.

The FTC filed a federal district court complaint on June 13, 2023, seeking a preliminary injunction to stop the proposed acquisition until the FTC's administrative action regarding the proposed merger was completed. The federal district court almost immediately issued a Temporary Restraining Order that froze the consummation of the deal pending the court's decision regarding the grant of the preliminary injunction.

In moving for the preliminary injunction, the FTC argued that (1) resetting to the status quo would be difficult if not impossible in the event that the FTC's pending administrative proceeding results in a decision to block the transaction; and (2) the record, evidence, and documents generated and to be generated in the administrative proceeding would be highly relevant to resolving any court litigation that might ensue regarding the proposed acquisition.

District court decision. The district court denied the FTC's motion for a preliminary injunction in July 2023. The FTC's main focus during the proceedings was Activision's Call of Duty video games, a highly popular product line which would be in Microsoft's hands if the vertical merger were to be consummated. While Microsoft's ability to foreclose competition if in control of the Call of Duty line was beyond dispute, the FTC failed to show that Microsoft had the incentive to so foreclose the market.

The district court reasoned that there was a strong showing that Microsoft in fact lacked the incentive to foreclose the market. The FTC also did not show entitlement to a preliminary injunction against Microsoft including Call of Duty in the Xbox Game Pass library subscription service. The district court found that even if Call of Duty were to be made exclusive, there still would be pro-competitive effects from the wider availability of Call of Duty. The FTC also failed to show that the proposed merger would have anticompetitive effects in the cloud-streaming services market.

European developments, merger closes. The U.K.’s Competition and Markets Authority (CMA), believing that the acquisition would suppress competition in the cloud gaming market, instituted measures to block it in April 2023. The European Commission (EC) conditionally approved the deal in May 2023 after Microsoft made some commitments which, the EC found, sufficiently removed incentive to prevent Activision's products from being played by users of Sony's PlayStation console. In October 2023, The CMA gave the final approval for the acquisition following Microsoft’s concession to divest certain cloud gaming rights of Activision, makers of the popular video game Call of Duty. The merger closed on the same day that the CMA gave its approval, October 13, 2023.

Ninth Circuit ruling. On appeal, the FTC pointed to various phrases that the district court’s used to argue that the district court fundamentally misunderstood the scope of the inquiry in a § 13(b) action seeking a preliminary injunction against an asserted Clayton Act § 7 violation. According to the FTC, rather than focus only on whether the FTC had raised “serious questions” about whether there was a “‘reasonable likelihood’ of a substantial lessening of competition in a relevant market,” the district court instead required the FTC to prove the underlying merits of its § 7 claim—i.e., that competition “would probably be substantially lessened.” The Ninth Circuit rejected this contention.

The appellate court observed that its task was not to “flyspeck, out-of-context, isolated phrases in a comprehensive opinion that was issued only four weeks after the FTC filed its time-sensitive emergency motion and that resolves highly complex issues against the backdrop of a voluminous factual record.” Instead, the appellate court was tasked with viewing the district court’s opinion as a whole, and, in doing so, it was confident that the district court adhered to and applied the correct standard.

Further, the FTC argument that once the district court identified conflicting evidence, it was bound to find serious questions going to the merits and was therefore required to hold that the FTC met its burden of showing the requisite likelihood of success, was also without merit, in the Ninth Circuit’s view. That position of the agency, that every factual dispute should be resolved in its favor when requesting a preliminary injunction under r § 13(b)—ignored the settled principle that a preliminary injunction is an extraordinary and drastic remedy that must be affirmatively justified by the FTC. “The FTC’s proposed construe-everything-my-way standard is more suited for defending against a summary-judgment dismissal of claims than it is for obtaining provisional affirmative injunctive relief,” the appeals court said.

As for whether the lower court abused its discretion or relied on clearly erroneous factual findings, in concluding that the FTC had “not raised serious questions” going to the merits of its § 7 claim, the Ninth Circuit held that the district court correctly concluded that the FTC’s showing as to a likelihood of success on the merits was deficient as to each of the three relevant markets—the console market, the library subscription services market, and the cloud-streaming market.

The FTC’s primary focus was on the high-performance console market, arguing that because of the enormous popularity of Call of Duty, Microsoft would be expected to make it exclusive to Xbox after the merger, thereby causing gamers to defect from PlayStation to Xbox and substantially lessening competition in the console market. Although the district court acknowledged that Microsoft would obviously have the ability to foreclose rivals in that, after the merger, it would own and control the rights to Call of Duty. But the district court was not persuaded that, taking into account the likelihood-of-success standard under § 13(b), the FTC had sufficiently shown that Microsoft had the incentive to foreclose with respect to Call of Duty and that there was a reasonable possibility that Microsoft might do so. According to the appellate court, there was no abuse of discretion in that conclusion and no clear error in the findings that underlay it.

In so finding the Ninth Circuit noted the district court’s finding that Microsoft would be highly unlikely to withdraw Call of Duty from PlayStation, given that “Call of Duty’s cross-platform play is critical to its financial success.” The district court considered the evidence concerning Microsoft’s prior acquisitions of two game publishers. In the most pertinent example, Microsoft’s treatment of Minecraft after acquiring its publisher, Mojang, Microsoft “continued to ship Minecraft on all those same platforms post-acquisition” and did not make it exclusive to Xbox. Further, the district court also noted that the FTC could not identify a “single document which contradicts Microsoft’s publicly-stated commitment to make Call of Duty available on PlayStation (and Nintendo Switch).”

The district court also rejected the FTC’s alternative argument that it had adequately shown that Microsoft would have the incentive to engage in what the FTC characterized as “partial foreclosure” with respect to Call of Duty. There was no abuse of discretion in that holding by the district court. Further, to the extent the FTC argued that Microsoft would have an incentive, after the merger, to make other non-Call of Duty Activision titles exclusive to Xbox, the district court did not abuse its discretion in concluding that the FTC had failed to show that such exclusivity might substantially lessen competition in the console market.

As to the library subscription services market, the district court did not abuse its discretion by holding that the FTC had not made an adequate showing that the merger would substantially lessen competition. Because Activision Blizzard had long opposed putting its content on library subscription services, the merger’s effect of making such content available for the first time in the subscription market, even if exclusive to Microsoft, would not substantially lessen competition. The Ninth Circuit noted that merely showing that some content will be exclusive after a vertical merger does not, without more, establish as a factual matter that competition will be substantially lessened. Because this vertical merger would not be expected to result in “foreclosure” in the traditional sense of that term, the district court properly required the FTC to provide more evidence that it would harm competition. And the lower court did not abuse its discretion or rely on clearly erroneous findings in holding that the FTC did not make that showing.

Last, the district court did not abuse its discretion in similarly finding an insufficient likelihood of success on the FTC’s claim that the merger would substantially lessen competition in the cloud-streaming market, given that the FTC failed to show that Activision Blizzard content would be available to this market in the absence of the merger.

The Case is No. 23-15992.

Judge: Collins, D.

Attorneys: Imad D. Abyad for the FTC. Adam Banks (White & Case, LLP) for Microsoft Corp.

Companies: Microsoft Corp.

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