Two writers who cover antitrust issues asked me to comment on a Northern District of California judge’s July 11th ruling that the Federal Trade Commission hadn’t met its burden of proving grounds for a preliminary injunction against Microsoft’s $69 billion deal to buy Activision Blizzard. The deal promised to catapult Microsoft into second place in the U.S. video game market behind Sony.

To prepare for the interviews, I wrote down my main thoughts about the ruling. Below I share them with you.

  1. The court’s approach to the case—the legal standard it applied and the merger-friendly way it framed the underlying factual story—determined the outcome.
  2. Its approach to the law rejected the FTC’s positions and adopted Microsoft’s. The court interpreted the Clayton Act’s key language–“may be substantially to lessen competition”–to mean “will probably substantially lessen competition”. It also ruled that, to meet the “will probably” test, the FTC had to prove both that Microsoft would have the “ability” to foreclose competition in a relevant market and that it would have the “incentive” to foreclose it. 
  3. The court also accepted Microsoft’s framing of the dispute and version of the facts. The court started by allowing Microsoft to continue changing deal terms after the FTC developed painstaking economic evidence focusing on the original deal terms. That enabled Microsoft to control the narrative of the case. It also put the FTC in the position of constantly adjusting its economic analysis to take account of the changes.
  4. Controlling the narrative mattered enormously. Without the shifting of deal terms, the government would have told a story about preventing a merger that aimed to further enlarge an already huge company for the purpose of entrenching it in consolidating markets. But because of the court’s indulgence, Microsoft could change the story into one of an aspiring competitor selflessly willing to pay even more out of a desire to go toe to toe with archenemy Sony, the biggest player.
  5. Microsoft could thus spring a case different from the one the FTC had prepared to try. The resulting need for the FTC to make late-breaking updates to its proof–especially its economic modeling–likely explains the court’s surprising testiness about the FTC’s arguments (the court’s opinion said “the FTC insists” 10 times but “Defendants insist” only once).
  6. The dynamic may also have put the court in the position of viewing its job not as deciding whether to block a potentially anticompetitive combination but as helping Microsoft find a way to make the same deal meet legal standards.
  7. The court’s analysis appears to reflect a background assumption, common since Robert Bork’s The Antitrust Paradox came out in 1978, that increasing aggregations of economic power, without more, has no bad consequences that antitrust law has any proper concern with. 
  8. A court’s preexisting belief that big companies’ acquisitions have only benign effects on competition may explain its inclination to hold enforcers to higher standards of proof.

The FTC has filed a notice of appeal of the decision to the Ninth Circuit, which has docketed the case under no. 23-15992.