So, Federal Judge Jacqueline Scott Corley (A Biden appointee, ICYMI) just just ruled against the FTC's request for an injunction against the Microsoft—Activision deal, even though her son works for Microsoft.
In December 2022, the Federal Trade Commission sued to block Microsoft’s $68.7 billion acquisition of Activision-Blizzard, a merger that would combine two of the largest game developers in the world. Activision — thanks to a merger with Blizzard in 2008 — publishes some of the world’s most popular AAA game titles. Already, Microsoft is the third largest game developer globally, owning around 30 gaming studios and the Xbox gaming platform.
Today, Judge Jacqueline Scott Corley of the Northern District Court of California denied the Federal Trade Commission’s request for a preliminary injunction, which would have halted the deal until the FTC could review it in full later this year. Here’s why the judge’s opinion is flawed, and why the FTC was right to block this merger and should continue its administrative case against Microsoft’s ambitions to monopolize the future of gaming.
(Emphasis Original)
Yeah, the ruling is basically, "Microsoft double pinkie sweared it would be good." It sucked.
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Judge Corley ignores this salient evidence and makes the following errors:
- Judge Corley deviates from the text of the Clayton Act and decades of controlling precedent prohibiting mergers that “may substantially lessen competition” – instead adopting a “will probably substantially lessen competition” standard that is a higher bar than the statute allows.
- Judge Corley dismisses extensive evidence proffered by the FTC that, even absent exclusivity, Microsoft has a clear incentive to “partially foreclose” access on competing consoles, including by degrading game functionality.
- Judge Corley dismisses ample evidence that Microsoft has acquired game developers in the past only to quickly convert their games to exclusive Xbox content.
- The FTC introduced bombshell evidence including emails from top Microsoft executives explicitly detailing their monopoly ambitions and intent to “spend Sony out of existence” – and Judge Corley completely ignores it.
- Judge Corley misunderstands the nature of vertical mergers on content platforms, refusing to engage with ample evidence and academic research that differentiated content is not replaceable – and that anticompetitive effects are more pronounced.
- Judge Corley improperly places the burden on the FTC of demonstrating the adequacy of Microsoft’s behavioral remedies (e.g., side agreements with other consoles) in its initial prima facie
- Judge Corley finds that it does not make financial sense for Microsoft to pull Call of Duty from competing consoles, ignoring that Microsoft can afford to take short-term positions that advance their longer-term monopoly ambitions.
- Judge Corley improperly narrows the FTC’s complaint to concerns about Call of Duty, even though the FTC’s complaint includes other Activision-Blizzard AAA games like Diablo and Overwatch. In doing so, she also rubber stamps Microsoft’s side agreements with other consoles as to Call of Duty only, with no analysis of the anticompetitive harm posed by foreclosure to Activision-Blizzard’s many other offerings.
And about her kid, The Revolving Door Project, has written a letter which notes that Microsoft is in the middle of mass layoffs, so even if the kid does not work in gaming, it clearly produces a situation, "In which the judge’s impartiality might reasonably be questioned," and , "This relationship may violate Canons 2 and 3 of the Code of Conduct for US Judges."
I strongly recommend Matt Stoller's piece, which goes into the legal fictions to which much of the federal judiciary subscribes to.
As opposed to the first analysis, this one goes back to first principles, which is something that I favor:
Today’s piece is about a judge’s decision to rule against the Federal Trade Commission and let the biggest tech merger of all time proceed.
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This administration has enacted many important policies to promote fair competition. I was just in Best Buy a few days ago, and saw cheap hearing aids on sale over the counter, which is something the White House fostered. But one disastrous area is the administration’s choices on judges, which are picked from the rarefied legal elite world and filled with corporate lawyers. Twenty percent of Biden’s judicial picks to the circuit court come from two firms - Skadden Arps and Wilson Sonsini - both of which are Google’s law firms. At this point, many non-corporate judges, steeped in that social world, are disdainful of government attempts to thwart consolidation, seeing expert bodies charged with upholding the public interest as obnoxious and meddling.
We can see this dynamic quite clearly today because Judge Jacqueline Scott Corley, a recent Biden appointee, authored a decision denying the Federal Trade Commission’s case to block the $69 billion merger between Microsoft and Activision. For the last five years, there’s been substantial policy discourse around the problem of corporate power, especially in tech markets. But what is increasingly clear is that this policy discourse simply isn’t penetrating the judiciary. Corley’s decision is quite a stunner, and I very much hope the Federal Trade Commission appeals, not just to save the video game industry, but because Corley is actually helping to shape the law in very dangerous ways.
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To understand why this case should be appealed, however, it’s important to focus on her interpretation of the Clayton Act, the anti-merger law which states mergers that “may substantially lessen competition or to tend to create a monopoly” are unlawful. This sentence has some looseness to it, but Congress was very clear in 1950 when it last updated the law. “The purpose of the proposed bill, H. R. 2734, is to limit future increases in the level of economic concentration resulting from corporate mergers and acquisitions,” said the Senate Judiciary report on the bill. On those very grounds, a $69 billion takeover of Activision by the second largest corporation in the world, Microsoft, should be presumptively unlawful. So how did a judge get to a place where the deal became legal?
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Yet, here’s the judge’s summary of the FTC’s argument: “The gist of the FTC’s complaint… is that Microsoft is probably going to foreclose [Call of Duty] from its rivals for its own economic benefit to consumers’ detriment.” So the judge decided that the largest tech merger of all time would hinge on whether the FTC could prove that Microsoft would pull one video game from the Sony Playstation.
After narrowing the stakes, the judge then rewrote the law. She did this in two ways. The first is obvious, in that she simply redid the statutory text. The Clayton Act reads that mergers that “may substantially lessen competition” are unlawful. Judge Corley re-wrote this as, “the FTC must show the merger will probably substantially lessen competition.” It’s nice she was this blatant about rewriting statute, because it makes an appeal much cleaner. (I bolded the words to show the change.)
The second is less obvious. Judge Corley did what Bork sought, which is to turn the Clayton Act into purely a pure question of economics. “The core question in antitrust is output,” she wrote, rejecting how Congress originally saw the law, as a restraint on corporate power. To Corley, Congress, rather than singling out big mergers as a policy problem, wrote the law to encourage big mergers, especially when a large firm is subsidizing the consumer experience temporarily so as to capture market power on the backend. “The merger,” she wrote, “has the pro-competitive effect of expanding access to Call of Duty” because it will give “consumers a new, lower cost way to play the game.” Mergers, in other words, are good. Robert Bork couldn’t have done a better job in representing his philosophy. But it’s a flat-out contradiction of the statutory text.
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I have watched a bunch of antitrust trials, and while there are often bad decisions, I am rarely offended by the attitude of a judge. But in this case, I actually was. Corley, aside from being totally unconcerned with her son’s financial interest in Microsoft, simply didn’t take video gaming seriously. “‘All of this is for a shooter videogame,” she commented in the midst of the trial. She also wondered why anyone would need a video game console, considering, and I’m not kidding, that during the pandemic "everyone did their work from home" and "nobody did it on a bargain basement PC." Talk about out of touch! (If you want another good analysis, antitrust lawyer Lee Hepner tweeted out an excellent list of legal and factual problems with the judge’s decision, and put out a short document on the matter as well.)
So the decision is not only morally bankrupt, but it appears to be legally bankrupt as well.
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