EU approval means nothing if Microsoft-Activision Blizzard fails to win UK appeal

May 17, 2023

Simone Del Rosario Business Correspondent

By Simone Del Rosario (Business Correspondent), Brent Jabbour (Producer), Emma Stoltzfus (Editor)

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European Union regulators have given the green light to the hotly-contested Microsoft acquisition of gaming giant Activision Blizzard. The regulatory approval stands in contrast to its U.K. counterparts, which blocked the $69 billion deal less than a month ago.

Microsoft has vowed to appeal the U.K. decision, while it still faces regulatory scrutiny in the U.S. later this year.

Straight Arrow News Business Correspondent Simone Del Rosario spoke with Eleanor Fox about the regulatory hurdles Microsoft is facing. Fox is the Walter J. Derenberg Professor of Trade Regulation Emerita at New York University School of Law.

Question: This is a deal that has been challenged across three different jurisdictions. Is there any way that the deal works without approval from all three, the U.S., EU and U.K.?

Eleanor Fox: As a matter of fact, the deal doesn’t work if any one jurisdiction blocks it. So if the U.K. block stands and unless the U.K. wants the companies to pull out of the U.K., the merger just doesn’t go through.

Question: What is the U.K. issue with this merger?

Eleanor Fox: First of all, let me say that both the U.K. and the EU found the merger illegal. And the problem is about remedies. Microsoft owns one of the big PC operating systems, the biggest. It also owns consoles that show the content that Activision Blizzard makes and has cloud streaming.

The big issue in the case is whether Microsoft, after the acquisition, would use its leverage to make the most popular games exclusive to itself. And a related issue is Microsoft’s position in the whole gaming market, which is growing. And this related idea — and it relates to all of the Big Tech firms — is whether each one is solidifying a kind of ecosystem where it is in charge and owns all the pieces. It was the first element, though, that both agencies relied on, to worry about the fact that Microsoft will have too much control over the content of gaming, which gets streamed online.

Question: But the EU said that based off of the concessions that Microsoft is willing to make in the cloud space, they’re okay with green lighting this. Does Brexit have anything to do with this? Without it, would the U.K. have had the authority to challenge this separately from the EU?

Eleanor Fox: Of course Brexit does. Before Brexit, the U.K. was part of the EU and the EU law would stand. Since Brexit, we’re seeing the U.K. authority being very aggressive against mergers. And let me just drill into the question you’re asking because the question you’re asking is about remedies. And why is it that the U.K. found the offer of remedies not okay, and the EU found it okay? In all of these cases, when the agency finds the merger illegal, the companies will come forward — sometimes they come forward even before it is found illegal — and they say, ‘We will promise to do these various things. And if we do these various things, we think that we have satisfied you that the merger will not be anticompetitive anymore.’ This is called a fix.

In this particular case, it’s Microsoft’s promises to license its content, especially of the big blockbusters such as Call of Duty, so it can be streamed on any device and any console. Microsoft says this cures the problem.

The same promises were offered to the U.K. The U.K. went through each promise and it has a very detailed opinion as to why they’re still worried. The promises are supposed to last for 10 years. In the end, the U.K. is saying, ‘We really need an open market. We don’t want to trust Microsoft, we want the market to be open, not to rely on Microsoft’s promise that it will clear licenses.’

This kind of issue is coming up all the time now, whether agencies should accept fix-it promises of companies or whether they should just enjoin anticompetitive acquisitions. So in this one, the U.K. said we don’t trust the promises and the EU said yes, we do.

Question: Do you think that Microsoft has a chance with its appeal in the U.K. or do you think the U.K. is pretty steadfast in that decision? I know they have a different appeals process over there.

Eleanor Fox: They do, and there are various issues. There are issues of jurisdiction as well as all the issues of substance. I do not want to give a judgment on the chances of appeal. I know Microsoft is appealing and these cases are very, very complex. The U.K. decision, incidentally, is more than 400 pages long. It’s very careful. There are many ways in which a decision can be vulnerable and I’m not sure of all the ways.

Question: The U.S. issue has yet to be addressed. If the U.K. makes its final decision following the appeal and it’s still a no, is there even a reason for Microsoft to continue trying to pursue this deal? If the U.K. upholds its block of the deal, is that it for Microsoft-Activision Blizzard?

Eleanor Fox: That’s right. If the U.K. judgment against the merger stands, that’s it and Microsoft would then fold.

This interview has been edited for clarity.

Tags: Activision Blizzard, European Union, Microsoft, United Kingdom

SIMONE DEL ROSARIO: The hotly contested $69 billion merger between Microsoft and gaming giant Activision Blizzard gets the green light. In the EU at least it makes the acquisition all the more complicated considering less than a month ago, the UK blocked the deal. Microsoft is appealing. So where does it go from here? Joining me now is Eleanor Fox, Professor of trade regulation emerita at NYU Law, professor, very glad that you’re here to help us break this down. This is a deal that has been challenged across three different jurisdictions. Is there any way that the deal works without approval from all three, the US, EU and UK?

ELEANOR FOX: Well, and as a matter of fact, the deal doesn’t work if any one jurisdiction blocks it. So it’s the UK block stands and unless the UK wants the companies to pull out of the UK, the merger just doesn’t go through.

SIMONE DEL ROSARIO: What is the UK issue with this merger?

ELEANOR FOX: So first of all, let me say that both the UK and the EU found the merger illegal. And the problem is about remedies. And it was very significant that they both found it illegal. So Microsoft, of course, owns one of the big PC operating systems, the biggest. And also it owns consoles that show the content that Activision Blizzard makes, and also it has cloud streaming. The big issue in the case is whether Microsoft after the acquisition would use its leverage to make the most popular games exclusive to itself. And a related issue is Microsoft’s position in the whole gaming market, which is growing. And this related idea is, and it relates to all of the big tech firms, whether each one is solidifying a kind of ecosystem where it is in charge and owns all the pieces. It was the first element though, that both agencies relied on, to worry about the fact that Microsoft will have too much control over the content of gaming, which gets streamed online.

SIMONE DEL ROSARIO: But the EU has said that based off of the concessions that Microsoft is willing to make in the cloud space, they’re okay with greenlighting this. I know that the UK is digging in here and saying, we stand by our decision. I’m curious, does Brexit have anything to do with this? Without it, would the UK have had the authority to challenge this separately from the EU?

ELEANOR FOX: Yeah, so of course Brexit does. Before Brexit, UK was part of the EU and the EU law would stand. Since Brexit, we’re seeing the UK authority being very aggressive against mergers. And let me just drill into the question you’re asking because the question you’re asking is about remedies. And why is it that the UK found the offer of remedies not okay, and the EU found it okay. So in all of these cases, when the agency finds the merger illegal, the companies will come forward, and sometimes they come forward even before it is found illegal, and they say, We will promise to do these various things. And if we do these various things, we think that we have satisfied you that the merger will not be anticompetitive anymore. This is called a fix. In this particular case, it’s Microsoft’s promises to license its content, especially of the big blockbusters such as Call of Duty, they license it so it can be streamed on any device and any console. And Microsoft says this cures the problem. The same promises were offered to the UK, the UK went through each promise, and it has a very detailed opinion as to why they’re still worried and the promises are supposed to last for 10 years. And the UK goes through the promises and promises to cost them out. And in the end, it is saying, We really need an open market, we don’t want to trust Microsoft, we want the market to be open, not to rely on Microsoft’s promise that it will clear licenses. This kind of issue is coming up all the time now, the fix-it problems, whether agencies should accept fix-it promises of the companies, or whether they should just enjoin anticompetitive acquisitions. So in this one, the UK said, we don’t trust the promises and the E.U. said, yes, we do.

SIMONE DEL ROSARIO: Do you think that Microsoft has a chance with its appeal in the UK? Or do you think the UK is pretty steadfast in that decision? I know they have sort of a different appeals process over there.

ELEANOR FOX: They do. And there are various issues, there are issues of jurisdiction, as well, as well as all the issues of substance. And I do not want to give a judgment on the chances of appeal. I know Microsoft is appealing. And these cases are very, very complex. And the UK decision, incidentally, is more than 400 pages long. It’s very careful. There are many ways in which a decision can be vulnerable. And I’m not sure of all the ways.

SIMONE DEL ROSARIO: And I know that the US issue still has yet to be addressed. I think that’s going to be going to court in August. If the UK makes their final decision following the appeal, and it’s still a no, is there even a reason for Microsoft to continue trying to pursue this deal. Or if the UK says we’re sticking by our guns and this deal isn’t happening, that’s it for Microsoft, Activision.

ELEANOR FOX: That’s right. If the UK judgment against the merger stands, that’s it and Microsoft would then fold.

SIMONE DEL ROSARIO: Professor Eleanor Fox, thank you so much for your time today. We really appreciate you breaking that down.

ELEANOR FOX: Thank you so much. Bye.