Update: FTC Drops In-House Challenge of Microsoft’s Activision Acquisition After Ninth Circuit Affirms Denial of Preliminary Injunction

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After years of litigating its attempt to block Microsoft’s $68.7 billion acquisition of Activision, the Federal Trade Commission (“FTC”) recently dropped its in-house challenge following the Ninth Circuit’s decision affirming the denial of the FTC’s motion for a preliminary injunction. Fed. Trade Comm’n v. Microsoft Corp., No. 23-15992, ECF. No 127 (9th Cir. May 7, 2025) (“Opinion”) (Collins, J.). See our previous coverage of the Northern District of California’s 2023 order here. Fed. Trade Comm’n v. Microsoft Corp., 681 F. Supp. 3d 1069 (N.D. Cal. 2023) (“District Court Opinion”).

In denying the FTC’s motion for a preliminary injunction, the Ninth Circuit held that the FTC failed to make an “adequate showing as to its likelihood of success on the merits as to any of its theories” to block the merger. Opinion at 38. This allows the merged company to continue, since the acquisition was completed on October 13, 2023.

Background

In 2024, U.S. consumers spent $58.7 billion on video games. This sum includes sales of video games created by game developers, consoles that play games, and in-game transactions. Three primary manufactures create consoles: Microsoft, Sony, and Nintendo. Beyond consoles, consumers can play games on their computers, mobile devices, and tablets. The three primary console manufactures are vertically integrated. They create both games and consoles, while many more companies only develop games for consoles and non-consoles. For example, Microsoft manufactures its Xbox console that operates games created by both Microsoft and other developers. In contrast, Activision only develops games, such as the Call of Duty franchise, which is played on multiple consoles, including Xbox, Sony’s PlayStation, and other non-console platforms. The Call of Duty franchise has been the highest-selling game in every year but one since 2014.

Traditionally, game developers and console manufacturers generated revenue when selling physical copies of games or consoles. The three primary console manufactures often differentiated themselves by exclusively offering games on its console. Historically, consumers could only play multiplayer games with others playing on the same console.

Today’s video game market is more fluid. Many games, such as the Call of Duty franchise, offer cross-console gaming—i.e., a consumer playing Call of Duty on Xbox could play with another Call of Duty gamer on PlayStation. A new “library subscription” model has emerged, in which gamers pay a subscription fee to access a catalogue of games instead of individually purchasing each game. Some game developers also generate revenue through in-game micro-transactions.

In July 2023, Judge Corley of the Northern District of California denied the FTC’s bid for a preliminary injunction to stop the merger, holding that the merger was not “likely to substantially lessen competition.” District Court Opinion at 51. Judge Corley rejected the FTC’s theory that Microsoft would foreclose access to Call of Duty to its competitors and found that the “evidence points to more [as opposed to less] consumer access to Call of Duty and other Activision content.” Id. at 53. Judge Corley reasoned that consumers’ ability to play Call of Duty across multiple consoles “is critical to its financial success.” Id. at 36.

The Ninth Circuit Denies The FTC’s Appeal

The Ninth Circuit denied the FTC’s emergency motion for an injunction on July 14, 2023 and Microsoft officially completed the merger with Activision in October 13, 2023. See Fed. Trade Comm’n v. Microsoft Corp., No. 23-15992, ECF No. 25 (9th Cir. July 14, 2023).

In May 2025, a panel of the Ninth Circuit affirmed Judge Corley’s decision to deny the preliminary injunction. Opinion at 38.

In brief, as before the district court, the FTC argued that if Microsoft acquired Activision’s gaming content, including the Call of Duty franchise, it would foreclose Activision’s content to competitors, substantially reducing competition. Opinion at 24. According to the FTC, that would violate Section 7 of the Clayton Act (15 U.S.C. § 18), which requires showing that the acquisition “may substantially . . . lessen competition, or . . . tend to create a monopoly” in the relevant market, which is determined by product and geography. Id.

The Ninth Circuit rejected this argument, affirming the district court’s finding that the FTC failed to show it was likely to succeed on the merits of its Clayton Act claim, as required for an injunction. The district court had not abused its discretion, the panel found, because Call of Duty’s cross-console gameplay is central to its success; indeed, the record showed that Microsoft’s revenue from Call of Duty gameplay on its competitors’ console (PlayStation) was about double the revenue from the gameplay on Microsoft’s own console (Xbox). Further, the Ninth Circuit cited Judge Corley’s finding that cross-console multiplayer gameplay is wildly popular, and that Microsoft has a disincentive to limit Call of Duty to only Xbox players or it would risk financial and reputational harm from stripping access from millions of gamers of the nation’s most popular gaming franchise. The Ninth Circuit stressed that the FTC had not identified any instance in which an established multiplayer, cross-console game has been withdrawn from millions of active gamers. Opinion at 25.

The Ninth Circuit also highlighted Microsoft and Activision’s concessions throughout the years of this, and other, litigation. Since the merger was announced in 2022, Microsoft entered into agreements making the Call of Duty franchise available to its primary competitors—Sony and Nintendo. Id. at 15, 26-27. Microsoft also entered agreements with other competitors to bring Activision’s gaming content to platforms where it had been previously unavailable. Id. at 15. Further, in the mobile/tablet market, Activision divested its rights in non-European jurisdictions and granted its rights to a competitor game developer for all past games and all future games for the next fifteen years. Id. at 16. As such, Activision’s U.S.-based mobile/tablet games would be directly controlled by its competitor. Id. at 16.

The Ninth Circuit further rejected the FTC’s claim that the acquisition would lessen competition in the new “library subscription” market. The FTC again argued that Microsoft would foreclose access to Activision’s gaming content to its competitors in this market. Id. at 32. The Ninth Circuit disagreed, finding that Activision had long opposed offering its content in the library subscription market. Id. at 32-33. The Ninth Circuit further reasoned that foreclosing some access to competitors “after a vertical merger does not, without more, establish . . . that competition will be substantially lessened” as prohibited by the Clayton Act. Id. at 33; 15 U.S.C. § 18.

Accordingly, the Ninth Circuit held that the “FTC fail[ed] to make an adequate showing as to its likelihood of success on the merits as to any of its theories” and therefore “the district court properly denied the FTC’s motion for a preliminary injunction on that basis.” Id. at 38.

The FTC Drops In-House Challenge Following Its Unsuccessful Appeal

Just fifteen days after the Ninth Circuit issued its Opinion, the FTC dismissed its administrative proceedings against Microsoft on May 22, 2025. The FTC’s three-sentence order provides “that the public interest is best served by dismissing the administrative litigation in this case.” That dismissal follows the October 14, 2024 settlement of a private parallel class action challenging the merger.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations. Attorney Advertising.

© Patterson Belknap Webb & Tyler LLP 2025

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