Wednesday, February 1, 2023

Sony's Jim Ryan, Activision Blizzard's Bobby Kotick SUBPOENAED in so-called gamers' lawsuit in San Francisco: trial witnesses may include Microsoft's Satya Nadella, Brad Smith, Phil Spencer

We're in the middle of a flurry of news concerning regulatory and legal challenges to Microsoft's acquisition of Activision Blizzard King (NASDAQ:ATVI). Before I talk about the latest, here's a list of the five most recent posts on the subject (with certain keywords highlighted only below):

The latest development is now a "joint" case management statement in the Northern District of California, but I put "joint" in quotes because the document effectively contains a pair of widely divergent positions taken by Microsoft (the defendant) and a group of ten plaintiffs. I don't doubt that the plaintiffs are actually gamers (as large parts of the world's population are) but in economic terms this is a lawyers' (not gamers') lawsuit. Here's the filing:

The lawyers seeking to extract legal fees from Microsoft say in the filing that they "have served subpoenas on the following witnesses for depositions":

  • Activision Blizzard, Inc.

  • Nintendo of America Inc.

  • Sony Interactive Entertainment, LLC

  • Robert "Bobby" Kotick, CEO of Activision Blizzard, Inc.

  • Doug Bowser, CEO and President, Nintendo of America Inc.

  • Jim Ryan, President and CEO, Sony Interactive Entertainment, LLC

Elsewhere they declare their intent to call the following witnesses to testify at trial:

  • the three executives mentioned above;

  • themselves (the ten plaintiffs, though no one would even care to testify, much less spend money on legal fees, in a worst-case scenario that is not just unrealistic but even in anyone's wildest dreams doesn't amount to more than having to buy an Xbox and maybe spending a few dollars more on each of a few games);

  • Microsoft CEO Satya Nadella;

  • Microsoft President Brad Smith; and

  • some unnamed-for-now other witnesses such as "[e]mployees and agents of Defendant Microsoft" and potential expert witnesses.

Note that I'm using my own terminology here when trying to explain in clear and simple terms what the case management debate is about, which in the interest of clarity deviates significantly from the words found in the actual document:

Microsoft considers those lawyers' fishing expedition excessive and at least premature. A big topic of discussion at tomorrow's case management hearing--in preparation of which the filing was made about an hour before midnight on Tuesday-- will be whether discovery really has to go forward now or can wait. Microsoft argues that things are in flux due to the ongoing regulatory reviews, which may result in commitments made by Microsoft and/or remedies imposed by regulators that change the picture. In particular, any argument about vertical foreclosure may go away if long-term licenses are extended to the likes of Sony.

Microsoft says that if discovery begins now, but the landscape changes, some of the same witnesses may have to be deposed again. That's why Microsoft proposes to firstly resolve the pending motion for a preliminary injunction, and to let discovery begin at the earliest if and when a PI actually comes down.

The argument about things being very much in flux is also at the heart of certain parts of the motion to dismiss the lawyers' lawsuit that Microsoft brought a few hours prior to the case management statement.

The fee seekers argue that Microsoft is trying to relitigate its motion to stay, which the court denied after a January 19 hearing. But federal judges enjoy some discretion as they manage their dockets, and just like Judge Jacqueline Scott Corley slowed down the case (without formally ordering a stay) last time, she may still tell those lawyers to hold off. The case management statement reveals that Judge Corley had two concerns at the January 19 hearing:

  • She wouldn't want the transaction to close before the plaintiffs get a chance to obtain a PI, but

  • she also noted that the transaction "may change" and, as Microsoft sums it up now, "efforts to shoot at something different from the final transaction may be wasted time."

Microsoft's proposal addresses both of the court's concerns: Microsoft is fine with stipulating on the record at the Thursday hearing not to consummate the transaction before May 1, and to hold a PI hearing one week earlier (April 24), but in the meantime doesn't want the plaintiffs to perform additional discovery beyond materials from the FTC's in-house adjudicative proceeding, which Microsoft is prepared to provide after a protective order has been entered.

What do the class-action lawyers want? For the avoidance of doubt, this here is not formally a class action yet, but economically comes down to one and a damages claim has already been announced for the event the deal goes through.

Incredibly, they request an April 3 trial date. April 3, 2023, that is. And they want a full two weeks. Lest we forget, we're talking about one of the busiest courts in the world...

Microsoft calls that timing "incredibly premature given the outstanding regulatory approvals and FTC litigation" and proposes the following schedule instead (with no trial date to be set now, and without taking a position on the length of a trial yet):

  • 02/17: plaintiffs' opposition to Microsoft's motion to dismiss

  • 02/24: reply in support of motion to dismiss

  • 03/09: hearing on motion to dismiss

  • 03/20: opposition to PI motion (this step and the ones below might be rendered unnecessary if Judge Corley meanwhile dismisses the complaint as a whole or just the prayer for injunctive relief)

  • 04/10: reply in support of PI motion

  • 04/24: PI hearing

As for discovery, Microsoft notes that it has "offered to produce [to the class-action lawyers] 9.5 million pages of documents that it provided to the FTC following the entry of an appropriate protective order" (emphasis added).

Furthermore, Microsoft would be prepared to provide those lawyers with deposition transcripts from the FTC case. But Microsoft does not want them to ask the same questions the FTC already has, wasting senior executives' time.

The parties have not yet agreed on the language of a protective order, meaning that the court will likely have to decide. The class-action lawyers claim that Microsoft made too far-reaching edits compared to the model protective order, but Microsoft points out that what it proposes is simply consistent with what those class-action lawyers accepted in a different case (a vaping antitrust litigation they proudly mention on their website, by the way).

Based on the joint case management statement and my experience with such discussions, I believe the class-action lawyers made a totally overreaching demand by requesting an April trial as well as immediate and unfettered discovery, and I doubt that Judge Corley will consider their positions reasonable.

Third parties like Activision Blizzard, Sony, and Nintendo may move to quash or limit any subpoenas, and will (or should) also have an interest in not letting discovery go forward right away in that Northern California case. In the FTC's in-house litigation, Sony is very reluctant to provide documents and/or fact witnesses. Sony has a deadline today (Wednesday) to move to quash or limit Microsoft's subpoena, and I guess we will see something, though the FTC may upload it to its website only the next day. For as much as Sony wants to delay or preferably derail Microsoft's purchase of Activision Blizzard, wide-ranging discovery in those highly public U.S. proceedings is not in the PlayStation maker's interest.