Thursday, February 2, 2023

Thankless Sony is unwilling to comply with Federal Trade Commission's subpoena over Microsoft-ActivisionBlizzard merger, at least in its original form

This is counterintuitive. One would think that Sony's PlayStation chief Jim Ryan has a Lina Khan poster above his bed because the Federal Trade Commission (FTC) is doing him the favor of acting almost like a wholly-owned subsidiary of Sony Interactive Entertainment with respect to Microsoft's acquisition of Activision Blizzard King (NASDAQ:ATVI). At minimum, one would expect Sony to jump when the FTC asks for documents and testimony in connection with that merger case. Not so:

On Wednesday, Sony filed a motion--which it says the FTC does not oppose--for an extension of time (PDF). Instead of meeting the production date for documents requested by the FTC, which was supposed to be February 10, the PlayStation maker wants to have until February 15 "to move to limit or quash or otherwise respond to the subpoena served on [Sony Interactive Entertainment] by the United States of America Federal Trade Commission."

Let that sink in:

This is the same Sony that has been telling the FTC (and other regulators) that the transaction has to be blocked "because Call of Duty." They're the only vocal complainer. The FTC brought that in-house lawsuit, which is exactly what Sony wanted, and served a subpoena on Sony (which according to the motion happened on January 20). That is possibly the first thing that the FTC has done in this entire context that a Sony subsidiary would not have done.

Instead of hearing the proverbial call of duty and readily handing over all the documents requested by the government agency, Sony is now negotiating the scope of discovery and reserving its right to "move to limit or quash" the FTC's subpoena. That's not being cooperative...

In a way I anticipated the obvious: Sony doesn't like to find itself on the receiving end of discovery requests because its own content-centric business strategy and dealings with game makers would have to be debated in public--the very practices that Sony engages in like no one else and accuses Microsoft of planning to engage in with respect to Call of Duty. Therefore, it came as no surprise that Sony took issue with Microsoft's subpoena. It had a deadline yesterday to move to limit or quash that one, but the FTC sometimes has a delay or one or more days before a document gets uploaded, so I don't know whether Sony and Microsoft worked it out. Anyway, both Sony and Microsoft are private parties, and disagreements between them are one thing, but being uncooperative when a government agency requests material in a case that it brought because of Sony's constant complaining is another.

What I find really puzzling is that Sony not only reserves the right to limit the subpoena but even to "quash" it in its entirety. Sony may refuse to cooperate at all.

Sony can't claim that somebody is dragging it into that merger case because Sony instigated it all and is even playing fast and loose with the truth.

The FTC and other competition enforcers (for example, the European Commission issued a Statement of Objections) can see now that Sony wants to have its cake and eat it. It wants government agencies to do the job of delaying (or, preferably from Sony's perspective, derailing) a transaction--but it doesn't want to make its contribution by putting all relevant facts on the table. Sony may be afraid of some of its own practices giving rise to competition enforcement--and of being exposed as a hypocrite, which is bad enough in its own right.

The FTC may, however, be more concerned now about its own reputation. It just suffered a major defeat as a federal judge declined to extend a temporary restraining order against Meta over its acquisition of Within (I'm waiting for the public version of the order so I can comment more specifically). The FTC's track record under Chair Khan is not looking good. Will the agency ever get tired of losing?

As long as those merger cases (the one in the FTC's in-house court and the one in the Northern District of California) are pending, Sony and others have to expect that some of their strategies and practices will be discussed in public. Nvidia is in talks with Activision Blizzard over the scope of the latter's discovery request. Nvidia is not nearly as aggressive as Sony, but it appears to be opportunistically seeking a license it doesn't have and wouldn't otherwise get.

The FTC's in-house lawsuit has spawned a class-action-style (more action than class) case in the Northern District of California, the district in which the FTC just lost against Meta. Those San Francisco proceedings will be even more public unless the complaint gets dismissed. The class-action lawyers who brought it would like Sony's Jim Ryan, Nintendo's Doug Bowser, and Activision Blizzard's Bobby Kotick to testify (and have subpoenaed those three)--in addition to, of course, Microsoft's leadership. Games Radar picked up this story, too (The console war reaches new heights as random gamers ask Sony and Nintendo CEOs to testify over Microsoft Activision deal). Sony's lawyers may already be preparing the next "motion to limit or quash."