Competition Appeal Tribunal's role in keeping UK open for business is vastly underestimated: Microsoft's acquisition of Activision Blizzard may now be cleared on modified basis

Yesterday the UK Competition & Markets Authority closed the original Microsoft-ActivisionBlizzard merger decision by issuing a final order based on its April 26 blocking decision, but simultaneously opened a new investigation of a modified version of the deal with a Phase 1 deadline on October 18 (which is also--and not coincidentally--the last day of the extended term of the merger agreement). The title of the new investigation is Microsoft / Activision Blizzard (ex-cloud streaming rights) merger inquiry. The long form of the parenthesis is "excluding Activision Blizzard, Inc.’s non-EEA cloud streaming rights."

The stock market views that announcement, taken together with public statements by the CMA's CEO, as a sign that the deal is now very likely to close. The spread is at its lowest. And Bloomberg is already describing this merger as (potentially) "one of the biggest comeback stories in the history of mergers" (which is an underestimated as it will indisputably be the biggest merger story ever).

This post--which may in fact be the last one on that merger before (all going well) some final comments on the closing of the deal--has three parts. In the first two parts, I want to talk about who and what is not getting enough credit so far for having--if Wall Street is right--very likely resolved an incredibly delicate situation. The third part serves the purpose of explaining more specifically what is known about the modified transaction and why I believe it should put the matter to rest, though I believe there is no legal basis for any regulator to request any behavioral or structural remedies given that this deal doesn't even get close to what a court of law--as opposed to political institutions overleveraging their hold-up powers--would consider to raise competition concerns. There are only fake concerns. Made-up stuff that is a miscarriage of justice. Most competition authorities cleared the deal unconditionally. Those regulators got it right because they faithfully and honorably applied the law, which is too much to ask for in the U.S., the EU, and the UK when a Big Tech company makes an acquisition these days...

If you wish to go straight to the part that explains the modified deal, click here.

1. Underappreciated: the Competition Appeal Tribunal's decisive action and guidance

It really annoys me to see the CATribunal (or just CAT) underestimated every step of the way. When the CMA issued its Apri 26 merger blocking decision, so-called experts described the appeal (which Microsoft announced immediately after the decision) as futile. They said that the Judicial Review standard--the applicable standard of appellate review in the UK for government agency decisions--presented an insurmountable hurdle. They said the CMA would ultimately avoid an "irrationality" holding if it just throws all sorts of "there could be an issue there" conclusions into a decision, with the CAT then supposedly being unable to find that if the CMA identified smoke in all sorts of places, it was irrational to see a 50% likelihood of fire. They said the CAT would--and allegedly (which is at least debatable) even had to--remand any decision to the CMA for further consideration, causing not only major delay but also leading to the same outcome anyway.

In this particular case here, I believe the CAT would likely have thrown out the CMA decision in such a way that it could either have found that a remand was pointless or, if it had remanded anyway, there would have been no wiggle room left for the CMA. That would have proven those "experts" wrong. They were lucky to avoid this because it appears that a solution has been found that will obviate the need for further litigation over this merger in the UK.

The CMA engaged in stalling because it wanted to avoid not only a CAT ruling but also a multi-day hearing, which I believe would have been a nightmare for the agency.

Some people wrongly believed that the CMA became interested in a constructive solution because the FTC lost its bid for a preliminary injunction. In reality, that was the expected outcome. In the other event, the merger would have been abandoned in all likelihood, and then there wouldn't have been a point in a new UK investigation of a modified deal. But if there was one thing in connection with this whole merger that definitely won't have shocked the CMA, it was the FTC's defeat in court.

The CAT clearly made its presence felt. And when the CMA and Microsoft agreed to stay the appeal of the April decision (shortly before a hearing was going to take place), the CAT's president, Mr Justice Marcus Smith, summoned both sides' counsel to his courtroom to discuss at a case management conference whether there was a good-faith basis for putting the UK appeal on hold. The day before that hearing, Microsoft announced a 10-year Call of Duty deal with Sony (obviously subject to the condition precedent of this acquisition being consummated), which Mr Justice Smith read about and suggested as a basis for clearing the merger now on the basis of a major change of circumstance (MCC).

I was live-tweeting about that hearing, and instantly supported the court's proposal. I was disappointed that counsel (on both sides) was unreceptive to that idea. But then, toward the end of July, Microsoft actually did make a filing that formally asked the CMA to clear the original deal (without a divestiture of streaming rights) in light of the Sony agreement and other key facts and developments. In my opinion, the CMA's April 26 decision was wrong, and yesterday's rejection of that MCC argument was also wrong. But I can see the CMA's institutional interests here:

They faced a dilemma. They may have realized that their April decision was completely wrong, and they must know how isolated they are on the world stage (with the greatest respect for Australia and Canada, those jurisdictions would not be able to prevent the deal from closing, especially not at this stage). There was and still is a debate over whether the UK's regulatory environment is hostile to business and a turn-off for foreign direct investment. So it would have been good in some ways for the CMA to just clear the deal yesterday.

But they also had another consideration here: their sacrosanct procedures. It is an oddity that the final report (which in this case was rendered in April) is the final "decision" (and can be appealed), but is followed by an interim order and, subsequently to that one, a final order, which is like a regulatory injunction. The final order is meant to be consistent with the final report except under the most egregious of circumstances. They just didn't want to act in a way that might encourage the parties to future merger reviews to take certain measures (such as restructuring a deal) only between the final decision and the final report. I have no doubt that this was the decisive consideration, as the CMA's CEO said in one of her interviews yesterday that what's happening here shows to merging parties that they should propose certain solutions early in the process.

If the CMA clears the deal on its modified basis, there may still be some discussion over whether the CMA is a liability for the prosperity of the UK, but it won't be too bad. Timing is also a consideration. The UK's prime minister gave the CMA a strategic steer that stressed, among other things, the need to make swift decisions so as not to hold up business. There must be due process, but they should be able to wrap up that Phase 1 investigation of the modified deal way ahead of schedule. In some other major jurisdictions, the Phase 1 timeline is closer to one month while in the UK it's closer to two.

The UK merger reform situation should be reformed in any event. There are issues. It's an opaque process, which makes it particularly unfair. The CMA should not always get a second bite at the apple when the CAT overrules it. And even though I believe the CMA's errors in this case could have been corrected even under the UK's exacting Judicial Review standard, that one should change. Even in connection with the DMCC Bill, which is the UK's equivalent of the Digital Markets Act, I believe the CMA's decisions should be subject to a full appellate review (as opposed to just "legal error" and "irrationality"). And I'm saying that even though I'm an outspoken critic of Apple and Google's app store duopoly.

If Microsoft's acquisition of Activision Blizzard is consummated in the end, the CAT will have played a key role, though in a world of two-second attention spans and "experts" who don't know what they're talking about, it would have taken a more binary outcome (such as a CAT ruling that would have quashed the CMA decision on multiple grounds) for more people to realize it. I look not only at binary outcomes but also at the first or second derivative, and that's why I think the CAT has been great here, even though it may never have to rule on the case.

2. Undervalued but (hopefully) ultimately rewarded: Microsoft's tireless dealmaking

Besides the important role that the CAT played, there is another factor here that is often overlooked. Even when many people (also including most merger arbitrageurs) deemed the deal dead, Microsoft never stopped trying to work out solutions with other market actors, including the only vocal merger opponent, Sony. And now the Ubisoft deal that creates a new merger situation.

Many other companies would have had a "fight or flight" instinct. They'd either have decided to bet on litigation ("fight"), or they'd have given up ("flight"). Microsoft was appealing the UK decision, but never stopped trying to find constructive solutions. They held on to their vision of bringing more games to more gamers through more channels.

I don't know if any acquirer has ever made such a Herculean effort on the dealmaking front to get a deal cleared--and in this case, we're talking about a deal that was legally above board regardless of any remedial agreements or other concessions.

In such dealmaking processes, there are unsung heroes. Those negotiations do not take place in public. The results speak for themselves.

A Microsoft-internal email has been leaked to the press. Microsoft Gaming CEO Phil Spencer reportedly credited Xbox VP Sarah Bond for her "exceptional leadership throughout this process." I saw her testimony at the San Francisco federal courthouse (very convincing), and I follow her on X (Twitter). We'll never know what exactly Mr. Spencer was referring to, but chances are that Mrs. Bond achieved major breakthroughs on the dealmaking front that paved the way for regulatory clearance.

3. New deal: Ubisoft acquires Activision Blizzard streaming rights

What the CMA and Microsoft announced yesterday was just a high-level summary of what makes the new merger situation different from the original one. What we know is that Ubisoft will acquire the streaming rights to all existing Activision Blizzard PC and console games as well as all the ones to be released during a period of 15 years following the closing of the deal. Whatever falls under that capture clause is then perpetually available to Ubisoft, though customer demand will obviously shift to newer games, such as new sequels.

This will not limit Microsoft's ability to offer Activision Blizzard titles as part of its Game Pass subscription service, and Microsoft will be able to stream those games on its xCloud service. However, Ubisoft will also have all of those games, and it will apparently be able to sublicense them as well. So there is simply no such thing as a foreclosure risk then.

It is an academic question of semantics whether this is a structural or behavioral remedy. There are strong arguments for it being structural as it is an acquisition: Ubisoft buys something and is then in charge. And while there is a time limit, a 15-year capture clause and perpetual rights to whatever falls under the capture clause should satisfy even the most demanding regulator.

Ubisoft is a well-resourced, sophisticated market actor. And the company has been independence for decades (it belongs to its founders, the Guillemot family).

One of the problems the CMA would have faced in the CAT is the question of comity (respecting other jurisdictions). It is unfortunate that the Microsoft-Ubisoft deal is global as opposed to UK-specific. I don't think UK politicians want the CMA to act as the world's policeman for mergers. It doesn't reflect favorably on the UK from a foreign investment point of view. It suggests that serious reform is needed. But if it allows the merger to be consummated, then so be it.

The Microsoft-Ubisoft agreement has a carve-out for the European Economic Area (which is the UK plus Norway, Iceland, and Liechtenstein). That's because Microsoft had made a remedy commitment to the European Commission. While I disagree with the bogus concerns the European Commission raised in its (meanwhile published) decision, those royalty-free streaming rights were appreciated by gamers worldwide. The Microsoft-Ubisoft deal, according to what was announced, keeps that type of remedy intact for the European Economic Area. That benefits such companies as Nvidia and Boosteroid.

The EC now has to think about whether this requires a formal new merger notification. And if the conclusion was that a new review was formally necessary, I still don't anticipate major problems. In the end, all that matters is that there will be more choice and competition than otherwise. Ubisoft is not going to monopolize cloud gaming, and it is a French company, which the European Commission couldn't officially consider a reason for clearance but politically it will play a role.

All of this is unnecessarily complex, and I hope it will be over soon--with a positive outcome. The CMA's concern was all about Microsoft leveraging Activision Blizzard's games to dominate cloud gaming. The mere fact that Microsoft is now prepared to enter this deal shows that there were and are indeed other priorities (above all, mobile gaming).

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UK Competition & Markets Authority rightly declines to support Apple, auto industry efforts to devalue standard-essential patents and legitimize collective holdout through licensing negotiation groups

The Competition & Markets Authority (CMA) of the United Kingdom has recently been in the news primarily for its stance on mergers, particularly Microsoft's acquisition of Activision Blizzard (the final order deadline is only eight days away). Horizontal cooperation agreements are actually closer to merger control than any other field of competition law. Major jurisdictions now have more specific rules governing merger reviews (such as the HSR Act in the U.S., certaion sections of the UK Enterprise Act, and the EU Merger Regulation). But a merger is just the ultimate form of cooperation.

It would have been somewhat inconsistent for the CMA to hold merging parties to a high standard while condoning cartels, though Apple--which effectively made three submissions to the CMA on its draft horizontal guidance, one of which amounts to deceptive lobbying--and its allies, such as certain automotive industry players, would have liked it to happen. Market forces are not a bad thing only because some companies believe they could otherwise save money (on patent license fees).

What Apple (along with its allies and astroturfers) wanted would also have created a potential conflict between the CMA and UK Intellectual Property Office (IPO). The UK IPO, which is the country's patent and trademark office, correctly notes that SEP licensing is a field in which any potential intervention must be approached with caution, which contrasts nicely with the regulatory activism exhibited by the European Commission's Directorate-General for the Internal Market (DG GROW).

In late January, the CMA published its draft guidance on horizontal agreements and launched a public consultation. In the section on purchasing agreements, there was the following passage that became a bone of contention and has, fortunately, been deleted (final version):

"Groups of potential licensees may seek to jointly negotiate licensing agreements for standard essential patents with licensors in view of incorporating that technology in their products (sometimes referred to as licensing negotiation groups)."

LNGs are a bad idea. I agree with the Qualcomm executive who said that everyone involved with LNGs should go to jail. About two years ago I posted a series of articles (1, 2, and 3) on the subject, which I was happy to see referenced by Acer in a U.S. patent infringement complaint against Volkswagen.

Yet there are some who continue to lobby for the permission to form LNGs regardless of market share. I wouldn't have a problem with a couple of startups cooperating within reason. But an alliance of, say, Volkswagen-Stellantis-Toyota would go too far. Way too far. The risk of group boycott clearly outweighs any purported efficiency gains.

Apple basically made three submissions to the CMA on its draft horizontal guidelines: one in its own name, one through the Fair Standards Alliance (which is at least reasonably transparent), and one through its astroturfing operation named ACT | The App(le) Association. When I reached out to the UK IPO about ACT's lobbying, they acknowledged the ACT-Apple link. The CMA is presumably aware of it as well. Not only is it obvious that (small) app developers have no SEP licensing issues but the CMA also understands the problems app makers have with Apple and Google's mobile app store duopoly. ACT consistently supports Apple against--but falsely claims to defend the interests of--app developers.

Just last month, a Politico Europe newsletter reported on a partial victory scored by watchdog NGOs Corporate Europe Observatory (CEO) and LobbyControl.

While the EU Transparency Register's secretariat deemed a complaint over ACT inadmissible, it nevertheless got ACT to adjust its register entry. And the following statement by ACT's head of communications, Karen Groppe, is hilarious:

"We do receive approximately half of our support from Apple in the EU. By accepting sponsorship from companies and organizations, we can keep membership from our small business members cost-free."

Again, the CMA is aware of the fundamental conflict between virtually all app developers (case in point, not a single app developer testified for Apple at the Epic Games trial two years ago) and Apple. It's an insult to human intelligence to suggest that a largely Apple-funded organization (and "approximately half" is most likely a gross understatement) would actually represent app makers against the heavyhanded and highly abusive monopolist.

Cleary Gottlieb, a firm with Google and Sony ties, also supported the idea of endorsing LNGs. However, Cleary would have preferred for the CMA to consider LNGs an intellectual property-specific topic as opposed to a joint purchasing agreement. Cleary's argument is that joint purchasing agreements are about physical goods, not non-material property rights. However, that doesn't convince me, given that joint purchasing of IP (such as copyrighted works) is common. The CMA made the best choice anyway by dropping LNGs from its guidelines altogether.

Even if the CMA had indicated that SEP LNGs might be acceptable, the proponents of that collective hold-out vehicle would still have been far from ready to proceed with their plan: it just takes one major jurisdiction to keep such licensing cartels illegal. And right now there isn't a single major jurisdiction, at least in the Western hemisphere, that is prepared to allow LNGs.

But the lobbying effort will continue. Deceptive lobbying included.

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U.S. judiciary endorses EU antitrust chief Margrethe Vestager's solution-oriented approach to merger reviews while UK CMA keeps its own--but also constructive--profile

At this stage the question does not appear to be whether but when--Monday, Tuesday, or in August--Microsoft will consummate the acquisition of Activision Blizzard King. There were signs of ABK being delisted from NASDAQ or at least removed from the NASDAQ-100 index as early as tomorrow.

Even a commercial agreement between Sony and Microsoft to keep Call of Duty on the former's PlayStation has fallen into place. Sony was the only vocal deal critic, though Google was lobbying against the transaction as well.

The contractual target date for closing is Tuesday, July 18. There have been media reports of a potential extension since the UK Competition & Markets Authority (CMA) opened a new investigation in light of a new proposed deal structure, with a late-August deadline and the plan to wrap up ahead of schedule (PDF). The Financial Times wrote:

"[A]fter this week’s legal victory in the US courts and a potential lifeline in the UK, people close to the companies say they are likely to agree an extension to the deal early next week.

"'Things are moving quite quickly,' said one person close to the negotiations."

There's been a flurry of news recently. On Tuesday, Judge Jacqueline Scott Corley of the United States District Court for the Northern District of California denied (PDF) a motion by the Federal Trade Commission (FTC) for a preliminary injunction that would have blocked the transaction. That was the outcome I predicted in my previous post on that topic. Just as I already observed when I attended the five-day PI hearing in person, the FTC failed to meet multiple requirements for a merger PI.

Between that decision and the Ninth Circuit's denial of an emergency motion by the FTC, various gamers reported that my name became a trending topic on Twitter for that community. But I'd rather talk now about the actual decision makers and the key institutions, and what the current situation means for them and their regulatory philosophies:

DG COMP showed the way

In the wake of the U.S. court rulings, a very thoughtful gamer and developer active on social media as EverbornSaga--who made various great contributions to my recent Twitter Spaces (basically, talk shows via Twitter)--declared the European Commission's Executive Vice President Margrethe Vestager "[t]he True Hero of this Story":

The True Hero of this Story… pic.twitter.com/DlHuwRqsIx

— Everborn Saga (@EverbornSaga) July 15, 2023

Everborn has a point.

Judge Corley started the final part of her PI denial order ("Conclusion") with the following observation:

"Microsoft’s acquisition of Activision has been described as the largest in tech history. It deserves scrutiny. That scrutiny has paid off: Microsoft has committed in writing, in public, and in court to keep Call of Duty on PlayStation for 10 years on parity with Xbox. It made an agreement with Nintendo to bring Call of Duty to Switch. And it entered several agreements to for the first time bring Activision’s content to several cloud gaming services."

That paragraph was just a more formal version of something she said at the PI hearing about those commitments and agreements:

"In many ways you [the regulators] won."

The FTC's trial counsel rejected that notion. They just wanted to block the merger. They wanted both the district court and the appeals court to turn a blind eye to the remedies that were already in place and constituted market realities. But Judge Corley was right--and is even more right now that Sony--albeit at long last--accepted an offer by Microsoft.

In a speech I called "historic" on Twitter and in various interviews, EVP Vestager stressed the need to focus on how regulators can bring about results that benefit the competitive process and consumers. She opposed the idea of--in my words--a hawkishness contest between regulators.

I still believe that actually the regulators who cleared the transaction unconditionally--most recently the Turkish competition authority--got it right. In fact, the Brazilian and Chilean decisions were my favorite ones, and in Chile they even conducted a survey among gamers to get an idea of whether vertical input foreclosure would work. But as Judge Corley wrote, the size of the deal warranted scrutiny, and that's why I don't blame regulators for launching a Phase II investigation. Still, I think that the most that a regulator could reasonably have expected here--given that the deal raises no competition concerns if analyzed competently and viewed rationally--would have been some public statements prior to clearance. Enforceable remedies with an independent monitor just seem unnecessary to me. Be that as it may, the European Commission received extremely positive feedback from gamers for clearing the deal on the basis of consumer-oriented formal remedies.

The U.S. judiciary has, by extension, endorsed EVP Vestager's regulatory philosophy.

FTC should drop its "case" now

As someone who spent far more time in court supporting (in 2019) than criticizing (in 2023) the FTC, I'm disappointed. The FTC's emergency motion with the Ninth Circuit was disingenuous in various ways. And it failed miserably.

The FTC's in-house trial is scheduled to start on August 2, and as per the Ninth Circuit's normal schedule (which can always be extended) for PI appeals, it has until August 9 to file an opening brief. The only logical thing now would be to seek an extension from the Ninth Circuit (easy, especially as I'm sure it would be unopposed) and to postpone that trial to conserve resources. And to drop the "case" after the deal has closed, as the FTC has historically always done.

Will this FTC make a rational decision? Maybe today's annoncement of an agreement between Microsoft and Sony makes it easier.

UK CMA still an outlier, but now a solution-oriented one

I stand by my harsh criticism of the UK CMA's April 26 decision and last year's issues statement. The blocking decision was all the more disappointing as I actually thought they were on the right track when they dropped their console market theory of harm in late March. Now I see that a lot of gamers are not really trusting the CMA anymore, though I encourage them to appreciate the fact that the CMA is willing to evaluate a new deal structure.

According to rumors in the media, that new deal structure would involve the divestiture of Microsoft's UK cloud gaming business to British Telecom subsidiary EE, which already had a 10-year agreement in place with Microsoft for Activision's titles.

If the CMA now approves the deal, it will have maintained the integrity of its processes, avoided a decision by the UK Competition Appeal Tribunal (which will hold a case management conference tomorrow in light of the parties' motion to stay the proceedings), and remained consistent with its position that non-divestiture remedies are disfavored even for vertical mergers.

That makes the CMA a winner, too. The question is now whether a solution can be found that enables the closing of the deal in the days ahead while also allowing the new merger review to go forward. My personal opinion is that if the CMA is philosophically inclined to clear the deal based on a UK-specific divestiture remedy, they could make an exception here and let the deal close for the time being. This merger review process is unlike any other, and therefore not really precedent-setting. Today's announcement of the agreement between Microsoft and Sony could make a major difference now.

There are serious issues in the tech industry, and arguably some even bigger problems that the world is facing in other respects. I've always said I want those regulators to emerge stronger. The FTC under its current chair has lost all four of its merger challenges. And the way they lose does not really suggest that they contribute to the evolution of U.S. merger case law or build an argument for legislative intervention, though I personally would actually consider it a good idea to make U.S. antitrust enforcement stronger if some problems (such as the FTC's in-house adjudicative proceedings, where the commissioners can ultimately just vote in favor of their own complaints) are addressed.

In the UK, the DMCC Bill will give the CMA's Digital Markets Unit more powers, and as an app maker I like that, too, though after this experience with the Microsoft-Activision case I believe a robust judicial review by the Competition Appeal Tribunal is key. Is the current framework good enough? Clearly, the CATribunal (or just CAT) is a winner here. It recognized the importance of this case, went out of its way to enable swift adjudication, and is clearly force to be reckoned with while a lot of "experts" suggested the CMA could basically do whatever it wants as the CAT would have to rubberstamp its decisions (not true) and always remand the cases anyway (not certain as the CAT itself interprets the relevant statute, which is not strictly limiting, and if the CAT effectively resolves a substantive question, a remand can be reduced to a mere notarization of a CAT decision).

I have great respect for the CMA's willingness to reevaluate the transaction in light of a new proposed deal structure, and I am hopeful that solutions will be found. Ideally also a provisional one that enables the closing of the deal in the days ahead.

As of now, prior to a new CMA decision and a New Zealand ruling that may come down in a matter of hours, the transaction can be closed with respect to 41 countries with 2.8 billion inhabitants and representing about two thirds of the global economy. With more to come.

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UPDATED TIMELINE: U.S. court to hear FTC request for preliminary injunction against Microsoft-ActivisionBlizzard next week, merger technically can't close in June but on track for July

By the end of next week, the UK Competition & Markets Authority (CMA) will probably have lost its only ally against Microsoft's purchase of Activision Blizzard: the U.S. Federal Trade Commission (FTC) may still be against the deal, but I believe it will have lost decisively. I consider it highly likely that the United States District Court for the Northern District of California will deny the FTC's motion for a preliminary injunction (PI) that was filed on Monday. A temporary restraining order (TRO) has issued (unsurprisingly), and a two-day PI hearing will be held in about a week (Thursday, June 22, and Friday, June 23). The court will probably rule at the end of the hearing, or very shortly thereafter.

Against that backdrop, the earliest closing date--if Microsoft is prepared to close over the CMA's objection--will be Monday, July 3, which means that two weeks would still be left under the existing merger agreement to find middle ground with the CMA, which presumably knows that its April 26 decision is indefensible on appeal.

Here's my updated timeline chart (click on the image to zoom in and make it look crisper):

Now let's talk about the latest developments since yesterday's post. You can find my real-time commentary on this rapidly-evolving merger topic on Twitter, so for my Twitter followers some of the below is not new.

First, FTC v. Microsoft & Activision was related (i.e., merged for procedural purposes) with the class-action-style lawsuit in the same district, and the same judge--United States District Judge Jacqueline Scott Corley--is now presiding over the proceedings, particularly also next week's PI hearing. She recently denied a PI that was requested by the "gamers" who act as plaintiffs for the lawyers who are the driving force (and have received at least some logistical support from Sony).

The basis on which the PI was denied in the private action was that even if the court had agreed with the class-action lawyers on irreparable harm (negative consequences for consumers from the consummation of the merger), such hypothetical harm would not have been immediate. The likelihood of success on the merits (i.e., the question of whether those plaintiffs could prevail after a full trial) was never reached. In fact, the PI hearing was purely about irreparable harm and its non-immediacy.

In the FTC case, the focus will be very much on the likelihood of success on the merits. In the equitable analysis, it could--and in my view should--still weigh against the grant of the PI that any of the alleged effects of the merger are far-fetched and (even if they were--as they are not--realistic) far off. The balance of hardships here comes down to the FTC seeking to kill a merger that has a July 18 closing date while any of the hypothetical effects on competition would not materialize for quite some time to come, especially in light of the fact that Microsoft offered contractual commitments for 10 years. That 10-year period would be more than enough for the case to be litigated (even for the exhaustion of all appeals) and Microsoft theoretically being forced to divest some or all of the acquired assets at that stage.

The FTC chose to bring a complaint before its in-house Administrative Law Judge (ALJ), which is constitutionally controversial. In light of the Supreme Court's recent Axon decision, it is even harder for the FTC to explain why it didn't sue in federal court. Now the FTC runs to the court in San Francisco and wants it to kill a $70B deal, while the only reasonable venue choice would have been to start a federal lawsuit in December.

At one of the hearings in the private lawsuit, Judge Corley made reference to her colleague Judge Edward Davila's denial of a PI that the FTC was seeking against Meta's acquisition of virtual reality fitness app maker Within. I discussed the Meta-Within decision in early February. That case was, relatively speaking, a stronger one for the FTC than its opposition to the acquisition of Activision Blizzard King (ABK). The substantive issues are different, but there is an abstract parallel here in the sense that the FTC espouses some wild theories without any hard facts to back them up.

Realistically the FTC won't have any "smoking gun" to present at the PI hearing. They will presumably just serve a lot of weak tea on those two days. The FTC's console theory of harm has been rejected by the regulators in charge of 40 countries (even the CMA dropped it). It also raised cloud gaming, which was more of an afterthought in the beginning but will probably be put front and center now because of the CMA decision. As you can also tell from my timeline chart, the CMA decision came down a few weeks prior to the mid-May PI hearing in the private lawsuit, but the clearance decisions by the European Commission, China's SAMR, and South Korea's KFTC were announced only subsequently (second half of May). The CMA and the FTC are outliers, and it can be inferred from the public redacted version of the FTC's filings that Microsoft and ABK essentially forced the FTC's hand by saying they might close the deal as early as this week's Friday, triggering the proceedings in federal court that I believe will simply take the FTC out of the game, isolating the CMA.

There may be some discussion of the CMA decision now, but the fact of the matter is that the United States District Court for the Northern District of California is not the appeals court for the CMA: the UK Competition Appeal Tribunal has jurisdiction over appeals from CMA decisions, and the CAT will hold its appellate hearing in late July and early August (as my timeline chart also shows). I was in London earlier this week for a conference (where I was invited--on very short notice--to speak) and seized the opportunity to attend a CAT hearing in person. I must admit I'm honored and humbled by the fact that Mr Justice Marcus Smith, the President of the CAT, stayed at that conference even after his AI-centric keynote speech and listened to the panel session to which I made my little contribution. I had a good time there, and the UK in general seems to be very much open for business, but the CMA's antics are one of the issues that must be addressed there.

I believe it won't be hard for Judge Corley to see that the CMA decision is unlikely to stand. For just one example of many, even the class-action lawyers alleged a Microsoft cloud gaming market share of "only" 40%, while the CMA arrived at a 70% figure, which is not only an exaggeration but a lunacy. The combination of the CMA decision being obviously flawed and the global picture--approximately 40 countries in favor--is dynamite.

On Tuesday, Judge Edward J. Davila--the Meta-Within judge--helped out Judge Corley by entering a TRO:

Federal Trade Commission v. Microsoft and Activision Blizzard (case no. 23-cv-2880-JSC, N.D. Cal.): Order Re: Temporary Restraining Order and Preliminary Injunction

A few hours earlier I had tweeted (while waiting for a flight at Heathrow Airport) the following:

The hurdle for a temporary restraining order is low but it also wouldn't solve the problem the FTC is facing: they need a preliminary injunction.

Judge Corley knows the merger, could deny TRO but again, a merger TRO wouldn't mean much. At the latest, FTC will fail to get a PI.

— Florian Mueller (@FOSSpatents) June 13, 2023

The FTC almost always gets a TRO, but the current FTC also loses almost every merger case when it really matters.

Given that Judge Corley is already familiar with this merger and that the FTC's complaint is egregiously weak, this case could have become an exception to the rule that the FTC always gets a TRO. But given the size of the transaction and all the publicity surrounding this merger, it's easy to see why the court didn't want to humiliate the FTC by denying a TRO. The FTC's TRO motion mentioned that most defendants even stipulate to a TRO, and given that Judge Davila entered the order even before Microsoft or Activision Blizzard had made any filing (other than lawyers signing up), we don't even know how much resistance the merging parties would have mounted.

The TRO order does not address the merits in the slightest. It's purely procedural. It's just a scheduling order. Microsoft and ABK will file their opposition briefs on Friday (and they can take until right before midnight Pacific Time). The FTC will reply by noon Pacific Time on Tuesday.

The TRO will be in place after the PI decision. Assuming that the court rules at the end of the PI hearing and throws out the motion (which is my prediction), that means the end of Friday, June 30. Practically that makes Monday, July 3, the earliest practical closing date. The next day is Independence Day.

The additional time after the PI decision would theoretically enable the FTC to appeal a denial to the United States Court of Appeals for the Ninth Circuit, and to seek emergency relief there.

There will be more than two weeks left between the PI hearing and the contractual closing date. I won't give up hope that a solution can be worked out between Microsoft and the CMA. Otherwise, after the FTC is defeated in federal court, "closing over" is obviously a possibility, though the parties in that scenario should not find it hard to agree on a short extension to await a CAT decision.

The merger is on the right track, and I continue to believe that it will consummate.

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FTC wants federal court to enjoin Microsoft-ActivisionBlizzard over theory rejected by regulators in charge of 40 countries; UK appeal progressing fast

While a few regulatory decisions are still outstanding, the Microsoft-ActivisionBlizzard merger review process now comes down to the United Kingdom and the United States. There were important events in both jurisdictions, and I commented in real time on Twitter. That's why I'll keep this post relatively short and mostly just show some documents.

I attended the first part, and watched via livestream the remainder, of yesterday's 2nd case management conference in Microsoft v. Competition & Markets Authority. The UK Competition Appeal Tribunal (CATribunal, or just CAT) is moving amazingly fast. The hearing will start in late July. Microsoft proposed Friday, July 28, as the start date. The parties thought that four days would be sufficient, but it looks like it will more likely be five or six.

Some expert evidence (particularly economic evidence regarding market definition) will be accepted by the court on what appears to be a de bene esse basis, meaning that the court could still declare such evidence inadmissible if it is not really deemed helpful at the time of the hearing. Lord Pannick KC (for Activision Blizzard) made a de bene esse fallback argument.

I had originally intended to watch the livestream of the CAT hearing, but a short-notice invitation to a Concurrences and King's College London event taking place today (which I mentioned in a recent post) resulted in a change of plans. That was fortunate because Mr Justice Marcus Smith, the President of the CAT, suspended the livestream for the first couple of hours. The reason for that decision was that some angry gamers who disagree (as do I) with the CMA decision used material from the livestream (screenshots) to mock CMA lawyers. I never did any of that and, in fact, discouraged it by calling on my many Twitter followers twice (here and here) to consider that it's illegal and that we can't even know where a given CMA person stands (some may personally consider the decision just as absurd as we do). Yesterday I also called on my followers to refrain from insulting FTC chair Lina Khan.

I was the second of about 20 participants to leave the speakers' dinner because of the Federal Trade Commission's federal lawsuit, in which the agency is now seeking a preliminary injunction (PI) and a temporary restraining order (TRO). Back at the hotel, I downloaded the complaint (the TRO motion was filed a little later).

The FTC case places the emphasis on a vertical input foreclosure theory relating to videogame consoles. That one has been rejected by the regulators in charge of 40 countries. Even the UK CMA dropped that one after it made a mathematical mistake that was quite unbelievable and doomed that theory of harm.

The FTC complaint does also mention cloud gaming, so the FTC will try to somehow convince the United States District Court for the Northern District of California that the CMA decision weighs in favor of a TRO and a PI. But cloud gaming as more of an afterthought in the FTC's original December 2022 complaint, and they now had to bring a federal complaint consistent with the one they filed with their in-house court.

What the FTC told the district court yesterday shows that Microsoft and Activision Blizzard indicated they might close the deal as early as Friday (June 16). The FTC now asks for a TRO to issue before 9 PM Pacific Time on Thursday, which is midnight on Friday by Eastern Time (the merger agreement is based on Eastern Time because that's the time zone for New York).

The FTC most often gets a TRO, but has a poor track record winning PIs. Here, even a TRO should be denied in my view, but even if the FTC won a TRO, it would face a higher hurdle for a PI, where the likelihood of success on the merits will become key.

I assume the case will be deemed as related to the private class-action-style lawsuit in San Francisco and assigned to United States District Judge Jacqueline Scott Corley.

The FTC and the CMA tried to deadlock the merger--under the merger agreement, the deal must be closed by July 18--by creating a situation where either one could point to the fact that a second regulator was blocking, or trying to block, the deal. Procedurally there is a key difference: the FTC needs help from a court to prevent the deal from closing, while in the UK it either takes a successful appeal of the CMA ruling or Microsoft has to "close over" the CMA's objections. Given that the CMA ruling is so obviously flawed, that is also an option.

Finally, here are the complaint, the motion for a TRO, and the declaration in support of the TRO along with the public exhibits:

Federal Trade Commission v. Microsoft & Activision Blizzard (case no. 3:23-cv-2880, N.D. Cal.): Complaint for a Temporary Restraining Order and Preliminary Injunction Pursuant to Section 13(b) of the Federal Trade Commission Act

Federal Trade Commission v. Microsoft & Activision Blizzard (case no. 3:23-cv-2880, N.D. Cal.): FTC's Motion for a Temporary Restraining Order

Federal Trade Commission v. Microsoft & Activision Blizzard (case no. 3:23-cv-2880, N.D. Cal.): Declaration in Support of FTC's Motion for a Temporary Restraining Order

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Make games not war: protecting competition & markets would preserve the CMA's authority after its outlier ruling on Microsoft's purchase of Activision Blizzard

The UK part of the Microsoft-ActivisionBlizzard merger process is standing at a crossroads (click on the image to enlarge):

There has been news in recent days concerning each of the three ways forward:

• The President of the Competition Appeal Tribunal (CATribunal or just CAT) of the United Kingdom, Mr Justice Marcus Smith, conducted an initial case management conference on Tuesday.

• The possibility of Microsoft and Activision Blizzard closing the deal over the Competition & Market Authority's objection was already recommended last month by Macquarie, one of the world's largest investment banks. On Thursday, MLex reported that Microsoft has an external legal team (or a team of teams) analyzing strategies for consummating the transaction despite the CMA block. The short term for that option is "closing over [the CMA]".

• On Friday, Bloomberg also obtained confirmation of "closing over" being contemplated, but what's more important, Microsoft's president will meet with the UK's Chancellor of the Exchequer and CMA officials next week:

  Microsoft President Brad Smith meets UK Chancellor Jeremy Hunt next week to vent his frustration at Britain's veto of the $69 billion takeover of Activision https://t.co/X5cHqct0y6

  — Bloomberg UK (@BloombergUK) June 2, 2023

  In a CNN interview on Wednesday, Mr. Smith said Microsoft was "determined" to make the acquisition work, and focused on finding solutions. To me that means the deal will go through, but it should go through on the most positive basis.

The current merger agreement expires on July 18. That's only about six weeks from now. The parties couldn't appear more committed to this transaction, but at some point there must be closure. As a litigation watcher, I'd love the parties to take the left turn (CAT) or to "close over" (which would--as Bloomberg also notes--almost inevitably give rise to even more, and more protracted, litigation). The "ABK" (for Activision Blizzard King) topic has grown my Twitter follower base from 13K to 23K in only a few months, and growth has recently even accelerated. But as an app maker and as a consumer, I keep my fingers crossed for the high-level talks in London that will hopefully yield a good result for everyone other than those opposing the deal for anticompetitive reasons.

Let's take a quick look at the three options and relevant new developments:

• Amicable resolution

  The two key benefits of a settlement of the pending appeal would be (a) that resources would be freed up immediately for other things and (b) that there wouldn't be a winner and a loser. The only question would be how all stakeholders--including (but not limited to) consumers, cloud-streaming companies, and app developers--would benefit.

  If a positive outcome was achieved, who would even care about whether the CMA or the European Commission or anyone else was right about market definition and different companies' market shares? All those questions would become merely academic.

  What I've been observing on Twitter is that the EC is now very popular among gamers. When I mentioned that the deal was a case for unconditional clearance and that I preferred the Brazilian and Chilean decisions, someone responded:

  i find the EC one with remedies being the best for Gamers

  The minority of consumers who celebrated the CMA block don't actually fear that the acquisition would result in less competition. They are "console warriors" who'd like Microsoft's Xbox to disappear without even thinking about how the removal of that competitive constraint would affect Sony's pricing and product decisions.

  The CMA's competition concern is narrow. It's all about how Microsoft might leverage ABK's games, particularly Call of Duty, to strengthen its cloud gaming service (xCloud). Into that sole remaining theory of harm, the CMA imported its previously withdrawn ones (a conglomerate theory involving Azure, Windows, and the Xbox, as well as its console gaming services ToH by arguing that some cloud-gaming business models may not be compatible with a Bring Your Own Game approach).

  I just can't see why it shouldn't be possible for the CMA and Microsoft--even more so with the most powerful minister of the current UK government moderating the talks--to figure out a win-win-win-win-win for the agency, the merging parties, gamers, cloud streaming companies, and game makers.

  The EU remedies are a natural starting point. While I believe those already go beyond what can be reasonably expected and feel that the outcome shouldn't make the EU result appear grossly suboptimal, the CMA and Microsoft may come up with something that complements them and will benefit stakeholders. Obviously that part is in the eye of the beholder. If you ask me as an app maker, I'd ask Microsoft for a firm commitment to creating a universal mobile app store as soon as possible in a relevant jurisdiction (here, the UK, where a digital markets law named DMCC Bill--crafted largely by the CMA's current CEO--may be passed into law in the near term). I was not only disappointed that the CMA's final Microsoft-ABK report discounted the procompetitive potential of such an app store but even bewildered, given that the CMA--even on the very same day--published a document that linked the DMCC Bill to the merger ruling. If there is any connection, it's that particular procompetitive justification.

  That is just one example. It's really up to the parties to work it out. A constructive solution will also go a long way toward reassuring investors of the UK not being a jurisdiction in which regulatory excess gets in the way of business. For instance, on Friday, SharePrices.com published an Alliance News article on analysts describing the UK as "less accomodating" for big business, and the negative impact that perception has on UK company valuations. On Monday, an opinion piece in the Financial Times warned that the CMA "risks undermining business dynamism" and argued that it was time for an independent review of the direction in which the CMA has been drifting over time.

• Appellate Proceedings

  Mr Justice Smith keeps pressing ahead. Since the Tuesday hearing, the court has shortened the time (as discussed there) for interventions (PDF). As a result, only those petitions for intervention that were filed before close of business on Friday will be considered. And the panel is now complete, with Professor Anthony Neuberger and the court's chairman Ben Tidswell joining Mr Justice Smith. I commented on the addition of those two high-profile members on Twitter.

  The next case management conference will be held on Monday, June 12. I didn't like the CMA's attempt to slow-roll the proceedings, which even runs counter to the current UK government's strategic steer that urges the CMA to resolve matters expeditiously in the interest of the economy. I hope they'll do better on June 12. The CMA's outside counsel, Rob Williams KC, found it extremely difficult to come up with excuses for delay. As a result, he stuttered a lot. I mentioned that fact in my live Twitter coverage because I want my audience there to hear not only what happens in strictly formal terms but also get some "color." Obviously, that wasn't meant to denigrate him as a person, and when the focus shifts from case management to the actual issues, he may perform a lot better. I'd rather not underestimate him, but can't see how the CMA could realistically avoid that its decision will be quashed--except if the matter never comes to judgment.

• Closing over

  According to the MLex story I mentioned, which was corroborated by Bloomberg, the options that are being contemplated to close the deal despite the UK situation include, but may not be limited to, closing the deal anyway and defending it in court, in which case Microsoft would argue that the CMA decision was unlawful to begin with (which is also my view), and an alternative approach where Activision Blizzard would withdraw from the UK market in order to avoid the CMA's jurisdiction and open the door to the consummation of the transaction. Activision could still serve the market through UK distributors, but would not have a presence or sell directly to UK customers.

  In a recent post I expressed concern that some regulators' disregard for the legal bounds of merger control may result in more appeals and in more Illumina-Grail-style case where deals get closed without even awaiting the outcome of a merger review.

  The stakes would be high for the CMA as its inability to prevent this deal from closing would weaken it in the eyes of future acquirers of companies. And the worst-case scenario would then be for the CMA to lose the appeal.

  Also, UK gamers would be adversely affected. Some choices available to consumers in other jurisdictions might not exist in the UK, or prices could be higher as a result of intermediaries maximizing their margins. Countless gamers might complain to Members of Parliament about the CMA if that happened.

  This acquisition is way more important to Microsoft than Giphy was to Meta--and while the Meta-Giphy decision was also debatable, it was far easier to defend than the Microsoft-ABK block.

  Until about eight days ago, I'd have been totally in favor of closing over. At this point I would prefer for the CAT to rule, given that I'm very optimistic the decision will be a bloodbath from which the CMA would not be able to recover--not in this case, and not with respect to other cases in the next few years. It's not just the appellate ruling: the hearing itself has the potential to become a nightmare for the CMA and its leadership. The assertion that Microsoft has a 70% market share in cloud gaming is so unbelievably indefensible that the CMA will look very bad if that appellate hearing goes forward.

  The CMA needs to become more reasonable, but a generally weakened CMA would not even be in my interest as an app maker. I'd like them to implement the DMCC Bill (once enacted) forcefully and relentlessly. But they must now preserve the agency's credibility and assert their authority in a constructive way.

U.S. update

In other Microsoft-ActivisionBlizzard news, the Sony-supported class-action lawyers behind the private lawsuit in San Francisco have given notice of an appeal to the United States Court of Appeals for the Ninth Circuit of the denial of their motion for a preliminary injunction. I've commented on that one in a tweet. The short version is that the appeal is most likely not even going to be heard by the court (much less decided) before the deal is closed (or, in a hypothetical alternative, abandoned).

The Federal Trade Commission (FTC) appears very afraid of losing its in-house case over the Microsoft-ABK merger. The trial will begin in less than two months. The commissioners already had (and in the Illumina-Grail case exercised) the ability to overrule the agency's Administrative Law Judge (ALJ), and now they want it to be routine procedure that the commissioners decide, downgrading the ALJ ruling to a "recommended" as opposed to "initial" decision. I commented on that one on Twitter, too. In light of the Supreme Court's Axon decision, the FTC appears to be almost literally begging for more unconstitutionality challenges.

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CMA's appalling stalling can't prevent courtroom disaster, reinforces 'closed for business' narrative -- Justice Marcus Smith moves forward swiftly and is unconvinced of agency's market definition

Mr Justice Marcus Smith--the UK's top antitrust-specialized judge (President of the Competition Appeal Tribunal (CATribunal or just CAT)) as well as a technically savvy patent judge--has indeed assigned the highest possible priority to the adjudication of Microsoft's appeal of the Competition & Markets Authority's (CMA) attempt to block Microsoft's acquisition of Activision Blizzard King (ABK, NASDAQ:ATVI). In my previous post I already said that this case--the biggest and highest-profile one in the history of the UK and one of the most important antitrust cases the world has ever seen--could further delay the Optis Wireless v. Apple standard-essential patent (SEP) ruling.

But the CMA is thankless for that effort beyond the call of duty. Much to the contrary, the agency continues to lose credibility at a worrying pace. At yesterday's initial case management conference, the CMA came across as the opposite of a responsible and trustworthy regulator. The CMA is digging itself an ever bigger hole instead of finding a way out of the mess it created because Mr Justice Smith isn't having any of that.

The term "case management conference" is almost a misnomer. Yesterday's court hearing lasted almost four hours, which I covered live in a 128-part Twitter thread. The first tweet of that thread has already been viewed about 200K times. You can click on it and work your way down to find my live commentary, or you can go to a web page generated by the ThreadReader app (though the final tweet of that thread is not shown in full there).

For the CMA and its counsel, it was a total disaster. They should be concerned for institutional reasons, and their lead appellate counsel, Rob Williams KC, not only underperformed his world-class counterparts (Daniel Beard KC for Microsoft and Lord Grabiner KC for Activision (which is seeking, and obviously can't be denied the right, to intervene): Mr. Williams's performance was as abysmal as the insane merger ruling he is trying to defend. He was literally stuttering, and it was not attributable to ab speech disorder (otherwise I wouldn't have mentioned it), but close to one.

What's most shocking is actually the CMA's political insensitivity. They didn't get the law, the technology, and the economics right in the Microsoft-ABK case because they were biased. But now it looks like they can't even read the writing on the political walls. There is that well-founded concern over the UK appearing to be "closed for business" as a result of regulatory hubris and arbitrary excess. Politicians have expressed concerns over the CMA's decision, and Prime Minister Rishi Sunak himself told the CMA via a LinkedIn post that generally addressed the issue of overregulation but also through a formal "strategic steer" document that they should make their decisions reasonably fast because businesses are impacted by protracted uncertainty. And what are they doing now? Stalling. It was unbelievable. There was practically zero substance in what the CMA's counsel said. It was all just about excuses, evasions, and pretexts for slow-rolling the proceedings, in a transparent attempt to buy the U.S. FTC time and betting on a hypothetical failure of Microsoft and Activision to agree on an extension of the merger agreement (the current one expires on July 18).

After 13 years of watching litigations of this kind, I can easily identify stalling. The CMA behaved like companies that know they infringe intellectual property rights and just hope to delay the proceedings to avoid the inevitable. The CMA wants to be saved by the bell, and Mr Justice Smith diplomatically reproached them by saying that he assumes the CMA wants to be a responsible regulator and also do its part so this matter gets resolved swiftly.

The image that the CMA projects on the UK's business environment is terrible. If politicians were concerned just based on the decision, they have even more reasons to be concerned after the CMA's litigation conduct came to light yesterday. Their excuses are ridiculous. For instance, despite the fact that Microsoft announced its intent to appeal the decision right after the decision on April 26, Mr. Williams claimed to have had only a couple of days to familiarize himself with the matter.

The CMA knows that even the wide latitude it enjoys due to the deferential Judicial Review standard won't help in the end. Its decision is not defensible. It is a general rule that lawyers will argue the facts if good for them, otherwise the law, and if neither the facts nor the law are on their side, they'll emphasize policy. The CMA's legal argument appears to come down to nothing more than how deferential the standard of review is (in other words, it's not about right or wrong, but that they believe they can get away even with wrong decisions). The facts are totally against them, and Mr Justice Smith, who has previously shown that he can understand far more complex technical questions just based on reading a patent specification, has already read the decision more than once and still can't see how the CMA arrived at the conclusion that cloud gaming was a market (as opposed to the delivery method that industry players say it is). The CMA can't make a policy argument either, other than big being bad. So it resorts to stalling.

The CMA issued that convoluted ruling in late April hoping that if there's a whole lot of factual stuff in there, the appeals court might just not dare to reverse them. They wanted to create a situation where an appellant would have to raise not just a dozen issues but possibly hundreds. And they wanted to plant so many trees that it would be impossible to see the forest. But that isn't working here, with second-to-none lawyers who know how to identify the weakest links of the chain and how to explain the issues to a court--and a presiding judge who sees through the smokescreens. He appears already to have identified that there is no reason (unless the CMA comes up with a surprise argument) why gamers couldn't just install games locally instead of relying exclusively on cloud streaming.

The other two members of the CATribunal panel have "yet to be appointed" according to Mr Justice Smith. He said that either one of the panel members would be an economist, or if none of the three was an economist, they would be assisted by one of the CAT's economists.

How could the CMA possibly shoot itself in the foot by feeding the "closed for business" narrative with its outrageous stalling tactics?

It is a mystery. On Twitter, someone gave one of the reasons: they just haven't previously been held accountable in court the way they are now, as others abandoned their mergers instead of appealing.

To be honest, this is the first time the CMA has really been challenged like this, Sainsburys/ASDA & Farelogix/Sabre both abandoned thier deal following CMA reports

Following Brexit, the new position the CMA find themselves in, is proving an issues to our international partners

— BigGeordieGeek@warhammer.social (@BigGeordieGeek) May 31, 2023

The CMA tried to deny the obvious, which is that its decision--and not the FTC's resistance, given that the FTC would need a preliminary injunction from a federal district court--is the only reason the deal can't close. Daniel Beard KC explained yesterday that in Canada an investigation is still ongoing, but enough time has passed that Microsoft could close the deal without breaking the law there by now. Mr Justice Marcus Smith can obviously see that the CMA is an outlier (I'll talk about the latest clearance decision further below) and wasn't impressed with the CMA's attempts to stall. He has set another case management conference for June 12, and while Microsoft would have preferred to start the hearing even earlier, it is definitely impressive that the CAT currently plans to hear the case in late July and early August (weeks of July 24 and 31). What they'll discuss on June 12 is, among other things, whether Microsoft may have to forgo some of the opportunities to rely on expert evidence in order to keep the schedule.

The CATribunal will hand down a judgment in the summer. It's hard to see how the CMA could avoid a potentially humiliating defeat. The best they can do now is find an exit from all of this.

I had to update my timeline chart twice yesterday. First there was news from South Korea, with the Korea Fair Trade Commission (KFTC) granting unconditional approval to the purchase. This means the deal has been approved by the regulators in charge of 39 countries with a collective population size of more than 2.4 billion people (more than 36 times the size of the UK) and an aggregative GDP of $44 trillion (14 times the size of the British economy). And then I also wanted to reflect Mr Justice Smith's case management plans. It's interesting that the FTC trial and the CAT hearing may overlap (click on the image to enlarge):

Since the CMA made its absurd decision on April 26, there's only been good news for the transaction. The week in which the EU cleared at the beginning and China toward the end was remarkable, but so was yesterday when the Korean clearance decision was followed by a CAT hearing that was dreadful for the CMA.

The CMA is now basically being a ghost driver who thinks that all the other cars coming in the opposite direction are on the wrong side of the street. It's high time they turned around.

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Optis v. Apple FRAND ruling could be delayed by Justice Marcus Smith's new merger case (Microsoft-ActivisionBlizzard); GenghisComm sues Toyota over SEPs; updates on Nokia-OPPO, KPN-Ericsson

This is a roundup post that discusses four different standard-essential patent (SEP) disputes and multiple jurisdictions. Quick links:

1. Optis v. Apple FRAND ruling could be delayed by Justice Marcus Smith's new merger case (Microsoft-ActivisionBlizzard)

2. GenghisComm (not an Avanci licensor) sues Avanci licensee Toyota over SEPs

3. Nokia invalidated OPPO patent-in-suit

4. KPN defended one of patents-in-suit against Ericsson earlier this month

1. Optis v. Apple FRAND ruling could be delayed by Justice Marcus Smith's new merger case (Microsoft-ActivisionBlizzard)

It's been almost a year since the Optis Wireless v. Apple trial in the High Court of Justice in London, but no decision has come down yet. In a similar case, InterDigital v. Lenovo, it took Justice Mellor similarly long as those FRAND (fair, reasonable, and non-discriminatory) rate-setting cases are incredibly labor-intensive for the courts adjudicating them.

The judge presiding over the FRAND part of the Optis v. Apple case is Mr Justice Marcus Smith, whose reputation extends not only to patent but also competition law: he is the President of the Competition Appeal Tribunal (CATribunal, or just CAT) of the United Kingdom.

It is not unusual for judges to divide their time between two courts. In fact, numerous European patent judges are doing so now between national courts and the Unified Patent Court (UPC). Since a few days ago, Mr Justice Smith is presiding over an antitrust case that is by far the biggest in the CAT's history, not only in terms of what's at stake (Microsoft's $68.7 billion purchase of Activision Blizzard) but also the enormous public and media attention--and on top of all of that, it's a matter that the UK's Prime Minister (who stressed the CMA's responsibility for growth and investment), Chancellor of the Exchequer, and its Parliament's Business and Trade Committee are concerned about.

Microsoft filed its appeal of a Competition & Markets Authority (CMA) merger-blocking decision on Wednesday evening UK time. Mr Justice Smith published the summary of the grounds of appeal (PDF) approximately 48 hours later and scheduled a case management conference for Tuesday (May 30). I already predicted at the beginning of this month that he would personally preside over that ultra-high-profile appeal. After yesterday's publication of the summary of the appeal, I commented on the grounds of appeal in a 40-part Twitter thread and added some further commentary on the comity part.

I'll live-tweet about the case management conference on Tuesday.

The deal has been cleared by the regulators who decided the matter for 38 countries (30 of them European Economic Area member states), with a collective population of 2.4 billion and aggregate GDP of $45 trillion, so if not for the CMA's absurd ruling, the deal could actually close now. But the CMA's leadership would like their agency--which the CAT has to overrule fairly often if one considers the deferential standard of review called Judicial Review--to be the world's policeman for major mergers, especially major tech mergers. There is profound concern in the UK over the CMA's eccentricities and regulatory overreach, and the CAT is now called upon to restore sanity and curb megalomania.

The CMA is now an outlier on the global stage. The only regulator to agree with them is the FTC, which under its current leadership opposes virtually any merger it gets to review and openly admits it doesn't care about losing in court all the time. The CMA decision is so clearly biased and incorrect that more and more people are wondering whether the reason is not just regulatory hubris or a lack of understanding of the technology markets involved, but whether it is even attributable (at least in part) to bad faith. My personal opinion is that a good-faith merger decision where the regulator looks at all of the evidence with an open mind and strives faithfully to apply the law to the facts definitely looks different.

There are mistakes that can be adequately explained with a lack of diligence (the CMA totally embarrassed not only itself but the UK and its government when the provisional findings--the equivalent of the Statement of Objections in the EU--subtracted only one year of costs from five years of benefits. The CMA corrected that mistake after Microsoft pointed it out, and revised the provisional findings. That was almost certainly just a lack of diligence. But the final decision just showed that before the merger review even started in earnest they must have been hellbent on blocking the merger. After they had to give up their primary theory of harm (vertical foreclosure affecting Sony in the videogame console market) and even prior to that realized they had to drop a "conglomerate" theory (involving Windows (an open platform), Azure (an easily substitutable commodity), the Xbox, and Activision Blizzard's games), they simply shoehorned those failed theories of harm into a "cloud gaming" theory of harm.

Weeks before Microsoft filed its appeal, the gamer community had already identified and discussed plenty of issues on Twitter and discussion boards. The decision is not just flawed or extremely wrong. It's a lot worse than that.

Against that background, gamers and other observers of the process can't be blamed for asking questions about the impartiality of the person who according to what a reporter from a major news agency told me "basically made the decision for the CMA": the agency's Senior Director of Mergers, Colin Raftery. Only because I wanted my many Twitter followers with an interest in that merger topic to understand that an unbalanced panel might respond to a historic speech by EU antitrust chief Magrethe Vestager on the same day, I mentioned--and proved based on a LinkedIn screenshot--that Mr. Rafferty started his career and spent seven years at Cleary Gottlieb Steen & Hamilton, a firm that has been consistently adverse to Microsoft for decades and is representing the most vocal critic of the Activision deal--Sony Interactive Entertainment--in its worldwide complaints, also in the UK. Cleary also advises Google, the other (and less vocal) complainant, but not in this context it seems. That factoid was picked up by Windows Central, and other media reported as well. On social media (Twitter, TikTok etc.) there was widespread outrage. My personal opinion is that none of us knows what Mr. Raftery's personal relationship with the Cleary lawyers opposing the deal on Sony's behalf--and with Sony's executives--is, so the truth could be anything from reassuring to mildly disconcerting to problematic.

It turned out that Mr. Raftery was previously instrumental to a merger-blocking decision that favored a former client. And it doesn't look good that the CMA takes an extreme position on a vertical merger now (Microsoft-ActivisionBlizzard) while it allowed Sony to make a horizontal acquisition of particular relevance to the UK market.

It now befalls Mr Justice Smith and his CATribunal to ensure a legally correct outcome and to restore the general public's confidence in the UK regulatory process. The fact that the first case management conference already takes place a few days later suggests that he wants to adjudicate the matter as swiftly as possible, which is in everyone's interest except Cleary and two of its clients, and CMA officials who may hope that the merger will be abandoned before their mistakes and their abuse of power won't be exposed.

People are already talking about a novelization or a documentary about that merger, given that some of what has happened here amounts to truth being stranger than fiction. I guess some of my blog posts and tweets about the case will come in handy if and when that happens. Those of you who have practiced law before Mr Justice Smith, or know him as a colleague, can already think about which Hollywood actor might play him.

2. GenghisComm (not an Avanci licensor) sues Avanci licensee Toyota over SEPs

There isn't much happening anymore in terms of automotive SEP litigation. Avanci has licensed the vast majority of car makers, Continental finally gave up its U.S. federal antitrust litigation against Avanci and some of its licensors (continuing only its Delaware state law action against Nokia), and Telit dropped a lawsuit that had been brought by Thales in Munich against Avanci and Nokia.

While the European Commission doesn't seem to appreciate the contribution of patent pools to the licensing process the way it used to do, Avanci's success has made it part of the solution. Recently even Samsung--one of the world's largest implementers of cellular standards--joined Avanci as a licensor at no extra cost to licensees.

A few SEP holders--some of which are non-practicing entities--still aren't Avanci licensors. One such company is GenghisComm Holdings, which on Wednesday filed a SEP infringement lawsuit in the Eastern District of Texas against Toyota:

When it comes to comparable licenses, Toyota will be able to point to the license it has taken from Avanci, paying $15 per car for the vast majority of 4G SEPs. GenghisComm is presumably suing for the purpose of extracting a substantially higher royalty rate relatieve to the strength of its portfolio. Maybe the plan is to benefit from the unpredictability of patent damages verdicts.

3. Nokia invalidated OPPO patent-in-suit

About two weeks ago I reported on the (appealable) revocation of two Nokia patents as a result of OPPO's challenges. For the sake of complete reporting, I'd like to add that this month a written decision (PDF) also came down in an opposition proceeding in which Nokia has achieved the (equally appealable) revocation of an OPPO patent-in-suit: EP3563600 on "separate configuration of numerology-associated resources." the oral hearing took place on March 23.

4. KPN defended one of its patents-in-suit against Ericsson earlier this month

Here's a follow-up to the post of a few days ago on Ericsson obtaining the invalidation (by the USPTO's PTAB) of one of KPN's patents-in-suit. I hadn't previously commented on that dispute, so now I'd like to provide a bit more context.

Of the three patents-in-suit from KPN's first case against Ericsson in the Eastern District of Texas,

• one (RE'089) was invalidated as I reported,

• one was never challenged through an IPR petition (U.S. Patent No. 8,881,235 on "service-based authentication to a network"), and

• a third one, U.S. Patent No. 9,253,637 on a "telecommunications network and method for time-based network access", was deemed valid by the PTAB in a May 12, 2023 decision (IPR2022-00069).

A second KPN v. Ericsson case is also pending in the same district (i.e., before Judge Rodney Gilstrap):

Koninklijke KPN N.V. v. Telefonaktiebolaget LM Ericsson and Ericsson Inc. (case no. 2:22-cv-282-JRG): July 25, 2022 complaint

According to the docket, the trial will begin on April 1, 2024 with jury selection.

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As of today, Microsoft could consummate the Activision Blizzard purchase without fear of sanctions from a U.S. court: investment bank Macquarie recommends going ahead

Today--Monday, May 22--is a very important day for Microsoft's acquisition of Activision Blizzard King (ABK). This is the earliest legally possible closing date from a U.S. perspective. The U.S. situation is so key because, as Illumina's acquisition of Grail proved, the only 100% reliable way to prevent a U.S.-U.S. merger is a U.S. court order (even Illumina said they'd abide by one, but didn't care about the world's regulators). That's because violating a prohibition by a U.S. court can result in criminal sanctions.

As of today, Microsoft is free to close the deal. Not free without financial, political, and reputational risks. But, to put it bluntly, no one will go to jail over it.

I'm not saying Microsoft will initiate the closing process today--not because they couldn't, but because there still is time under the current merger agreement: well over a month to make further headway and minimize those financial, political, and reputational risks. And they have momentum now, suggesting there'll be further good news. Still, let's not underestimate the significance of this date. Since the announcement of the merger in January 2022, this is now the first day on which the decision makers at Microsoft go to work and they have an important choice. It's just their decision whether or not to trigger the deal-closing process--as Macquarie, one of the world's largest investment banks (Wikipedia page), officially recommends--or to take more time because it appears prudent.

So let's look at where things stand, with last week having been incredibly eventful, and at what's next (click on the image to enlarge):

With the European Commission as well as China's State Administration for Market Regulation (SAMR) having cleared the transaction last week, the deal has been approved by 38 countries with a total population of 2.37 billion people and an aggregate Gross Domestic Product of US$42 trillion, with a caveat concerning South Africa that's also reflected in my timeline chart (the regulator recommended unconditional clearance, and normally that's the outcome, but formally it's a two-step process like in Brazil and the final procedural step is scheduled for June 21).

The aggregate population size of those countries is more than 35 times that of the United Kingdom, and the aggregate GDP is more than 13 times that of the UK.

Not only is the South African process technically still ongoing, but so are a few other regulatory processes. Countries from which we may hear in the days and weeks ahead include, but are not necessarily limited to, New Zealand (deadline: June 9), South Korea, Canada, and Turkey. In Australia the process is currently on hold, but the clock will at some point be restarted.

In fact, the process is technically still open in the UK: as I reported on Twitter, the final decision has not been made yet because the absurdity that they put out on April 26 was just a final report. The CMA is now accepting feedback until June 19 to its draft final decision. While this would normally just represent a formality, the CMA may in the meantime realize that a decision based on the Inquiry Group's irrational report would not be defensible in court, and I also see political dynamics in the UK that suggest the CMA needs an exit strategy. The CMA's leadership got a rough ride in a parliamentary committee, where the CMA's chair readily acknowledged that "the government has levers" if the CMA ignores government policy. The next day, the UK's Chancellor of the Exchequer (arguably the #2 person in the UK government) took a "dig" at the CMA according to the Times (a newspaper that has partly given anti-corporate extremists a platform to comment on this deal). Also, City A.M., the leading financial daily for the London area (as opposed to the Financial Times, which is London-based but an international publication), published an opinion piece that harshly criticizes the CMA.

Losing the appeal in this high-profile case would be the worst scenario for the CMA's leadership, but prior to that the CMA cannot possibly be interested in taking its chances that the deal will be closed regardless.

In a note to clients, Macquarie wrote that closing the deal now over the CMA's objection "would result in a legal battle with the CMA but one we think worth fighting as it is precedent-setting for an acquisitive company to allow one country to block a $75 billion deal."

In financial terms, the hypothetical risk would be in the tens of billions, but any fines would have to be proportionate to the conduct in question, and if the CMA's decision is quashed, there is no basis for anything, at least not for a major fine. So far, the CMA's record fine was $50 million (imposed on Meta for not keeping an acquired company sufficiently separate). By contrast, the breakup fee under the merger agreement with Activision Blizzard is $3 billion, and there are activist investors who would like ABK to collect that one. Also, it's impossible to know today what ABK's shareholders would expect in exchange for an extension of the merger agreement.

It's not just about money, and that's why Macquarie also looks at the downside holistically: if Microsoft abandons the deal, it pays $3 billion, and will find it hard to make any other major acquisition until the regulatory tide in some places turns. I would add another issue: it would look as if Microsoft had tried to make an acquisition for anticompetitive purposes, and seemingly brave regulators thwarted the plan. In reality, it's a procompetitive deal that spurs competition between large corporations in some markets, to the benefit of consumers, workers, and small companies (game makers and other app developers, streaming companies like Nvidia and Boosteroid that are totally in favor of the deal though the CMA claims to understand their market better than they do).

Another negative effect of "caving" would be that Microsoft would make itself a "soft target" for zealous regulators not only in merger but also unilateral conduct cases.

Regulators can't just demand that acquirers respect the law, but they must do so in the first place. We live in times where some regulators go too far. Obviously, despite the valid reasons for which Macquarie suggests closing the deal over the CMA's objection, Microsoft would not want to come across as lawless, and wouldn't want to burn bridges forever with regulators.

The timeline chart I showed further above indicates that there still is time to make further headway and to potentially work out a solution with the CMA. With the FTC, it looks like there is no near-term chance to make it work. According to MLex, Microsoft again offered behavioral remedies to the FTC (after the EU decision), but in vain. I shared my thoughts on that on Twitter. It's possible that Microsoft knew the FTC wasn't going to be receptive, but had to give it a try with a view to the next steps.

What about the U.S.?

It is much more of a psychological-political issue than a legal one that the FTC didn't clear the deal. The FTC is now against any major merger, filing lawsuit after lawsuit, and losing all the time. But the FTC and the CMA are trying to give each other cover: the CMA tells UK politicians that it's not alone in this because the FTC is suing to block the deal, and the FTC can say in the U.S. that an overseas regulators also opposes the transaction.

If the CMA's Inquiry Group had not recommended a prohibition decision, the deal-closing process might already be triggered today or the FTC would already have filed a motion for a temporary restraining order and preliminary injunction last week after EU clearance. No regulator likes to be the last one standing, but it's important to understand the difference between the FTC's lawsuit and the CMA's final report: the FTC would most likely fail to win a preliminary injunction, and then the deal could close, though the FTC could keep on fighting and theoretically, after several years, there might be a forced divestiture. The CMA could already (based on an interim order) impose fines now if the deal was closed over its objection.

On Friday, Judge Jacqueline Scott Corley of the United States District Court for the Northern District of California denied a preliminary injunction that class-action lawyers were seeking. In order to give the court enough time to adjudicate that motion, Microsoft had made a commitment not to close the deal before today (May 22). Microsoft acknowledged at a May 12 hearing that it would have been very difficult to close then, but didn't commit to an extension either (and after that hearing, the EU and China cleared the deal). Judge Corley handed down her decision late on Friday, the last business day before the earliest possible closing date.

So if Microsoft told the FTC now that the closing of the deal is imminent, the FTC would have to request a court order that would prevent the deal from closing. It would point to the CMA decision, but that would not be very persuasive. I don't believe the FTC would win a preliminary injunction. But if a judge who is not yet familiar with the matter had to make a decision on a temporary restraining order (TRO) within a few hours, then there is a possibility of the status quo being preserved for another two weeks (after which a TRO either has to be replaced by a PI or it goes away, absent the enjoined party's consent to being enjoined for longer than that).

That's why my timeline chart indicates a potential TRO window: given the Fourth of July holiday, I believe Microsoft would have to trigger the process in late June so that the court would have two weeks to decide if necessary. Otherwise a TRO could extend beyond the closing date in the current merger agreement.

Of course, the parties could also extend that agreement. That would give them enough time to defeat the CMA in the Competition Appeal Tribunal (the standard of review is exacting, but not an insurmountable hurdle, and on remand the CMA would have to decide in accordance with the CAT's guidance). They could also try to defend themselves in the FTC's in-house court, which is statistically not a level playing field to put it mildly. Given how weak the FTC's arguments are, it could be one of those rare cases in which the FTC loses before its own judge, but it could also be yet another case in which the FTC wins in its own court only because it's not an independent court. Also, even if the FTC loses in its own court, the commissioners--the same ones who decided to bring that lawsuit--could decide to block the deal anyway. That process is controversial, and the Supreme Court opened the door to constitutional challenges in federal court with its recent Axon ruling.

If Microsoft does not close the deal by mid July and first awaits a decision by the CAT, there would be a significant risk of a "deadlock" for an extended period of time. It would take time until a CAT ruling, then the CMA could take its time on remand, and if they had to wait for a federal appeals court in the U.S. to overrule a final FTC decision, that could take until late 2024 if not longer. There could be a window for closing the deal before the U.S. process concludes, but there is no guarantee.

Looking at all of the risks for everyone involved, this is a clear case for an agreement between Microsoft and the CMA. For the CMA, a scenario in which it would attempt--but practically fail--to block a merger, and then likely lose in court later, would be terrible. Even if the deal wasn't closed now, but Microsoft and ABK at least take the time to get a CAT decision, the CMA would stand to lose a lot of credibility and influence. Imagine a future parliamentary oversight hearing where the CMA's leadership would have to defend its actions--creating a situation in which the EU and China are more open for business than the UK--after having been proven to have been wrong.

The deal could close any day now, but in a month from now, Microsoft's position will likely be even stronger. At that point, however, they'll be approaching the potential TRO window you can see in my timeline chart further above. The next few weeks will be interesting, but in a month from now things could really heat up--unless the parties prefer to extend the merger agreement and prove the CMA wrong in the CAT before closing the deal.

While a British media report suggested a few weeks ago that the appeal was going to be filed within a matter of days, it hasn't shown up on the court's website nor has there been any announcement.

The CMA revised its provisional findings after a clear mistake was flagged. Maybe the feedback and input that the CMA will receive in the weeks ahead will open the door to a correct decision and constructive solution. If not, I'd like to see Microsoft do what Macquarie considers a perfectly rational choice. That's just my personal preference.

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