EU SEP Regulation and potential rate-setting cartels: soft law and conflicting rules are not enough to eliminate serious risks in different jurisdictions

In the paper I mentioned yesterday, Dr. Justus Baron flags a number of issues relating to the aggregate royalty setting part of the EU SEP Regulation. Besides many of his points being valid, what makes that paper significant is that he is an actual researcher as opposed to some corporate representatives that were also retained by the EC in the SEP Regulation context but have commercial interests such as selling services to licensors and licensees or getting paid by the EC later on to set up and run an EU SEP Register (in the latter scenario, the Court of Auditors should investigate).

I'd like to follow up on one thing that is not central to Dr. Baron's latest paper but worth commenting on in its own right. In connection with current practice he notes that maximum aggregate royalty rates are rarely announced by SEP holders despite "existing guidance from the EU Commission [which] makes it clear that joint announcements of maximum aggregate royalties by groups of SEP holders do not, in principle, violate EU competition law." A footnote then points to para. 474 of the EC's Horizontal Cooperation Guidance, which I'll quote now:

474. Standard development agreements providing for the ex ante disclosure of the most restrictive licensing terms for standard-essential patents by individual IPR holders or of a maximum accumulated royalty rate by all IPR holders [emphasis added] will not, in principle, restrict competition within the meaning of Article 101(1). In that regard, it is important that parties involved in the selection of a standard be fully informed, not only as to the available technical options and the associated IPR, but also as to the likely cost of that IPR. Therefore, should an SDO’s IPR policy choose to provide for IPR holders to disclose prior to the adoption of the standard their most restrictive licensing terms, including the maximum royalty rates or maximum accumulated royalty rate to be charged, this will generally not lead to a restriction of competition within the meaning of Article 101(1). Such ex ante unilateral disclosures of the most restrictive licensing terms or maximum accumulated royalty rate would be one way to enable the parties involved in the development of a standard to take an informed decision based on the disadvantages and advantages of various alternative technologies. [emphases added]

The above does not--and presumably was not deemed by Dr. Baron to--dispel cartel concerns over the aggregate royalty determination part of the proposed regulation:

• Art. 18 of the proposed EU SEP Regulation (unlike Art. 15-17, which are the other articles relating to aggregate royalty rates) opens the conciliation process for aggregate royalties to implementers. The paper raises various policy issues concerning the participation of licensees. The Horizontal Guidelines allow ex ante announcements of royalty rates (with the limitations I'll discuss in the next bullet points), but they do not allow licensee negotiation groups (by the way, the UK Competition &: Market Authority doesn't condone LNGs either). The following paragraph from Dr. Baron's paper, referencing Dr. Igor Nikolic, discusses what could go wrong from a cartel law point of view when licensees gang up on licensors during such a process:

  "Instead, net licensees have an incentive to use the process for problematic concerted action. They may for instance exchange competitively sensitive price information. More immediately, licensees may use the process for a concerted push to depress royalty levels. If major net licensees agree among themselves not to pay more than a certain amount, SEP licensors may find it difficult to build market acceptance for their FRAND licensing offers. Such negotiations among net licensees on maximum rates resemble a buyer[s'] cartel, and are clearly concerning from an antitrust perspective (Nikolic, 2023)."

• Even for licensors, there is no real safe harbor. The language of the Horizontal Guidelines has its limitations, but it's also just soft law. I struggled to decide with which of those two limitations to begin (that it's not binding on courts or that the wording isn't hard and fast). I'll start with the language:

  If something is "in principle" or "generally" acceptable, that is far from a safe harbor. One can have a debate over whether it is a presumption of legality or, possibly, just the negation of a presumption of liability ("it's not a per se violation"). Whatever it may be, it relates only to joint announcements of that kind, with participation being either voluntary or required by a standard-setting organization.

  Through limiting words like "generally", the guideline explicitly leaves room for potential misconduct surrounding such announcements. The simplest and clearest example would be that the relevant parties might agree not only on a maximum but also on a minimum rate (potentially both being the same). While it is easy to say that it's generally unharmful if some companies they say they're not going to ask for more than a specified amount, it's a rather different analysis when they say it's not going to be less than a certain number. Another example is that there might be patent holders with partly congruent and partly incongruent interests. They might engage in horse trades like "we'll support low royalties with respect to a particular codec if you guys support higher royalties for 5G." In the EU Council that happens all the time, but that's politics and not a potential cartel.

• The Horizontal Guidelines are just a Commission communication. That's soft law. It means DG COMP itself will investigate the conduct surrounding such maximum aggregate rate announcements only under the most egregious of circumstances. But even without para. 474 of the Horizontal Guidelines, the Commission will find it hard to go after anyone abiding by a regulation it proposed (though lawmakers have the final say). That is, in fact, another reason for which the EU's legislative bodies must be careful because the Commission has already limited, for political reasons, its ability to curb abuse in that context (should the proposal be adopted in that form or a materially consistent one).

• The EU courts are not bound by it, but very often side with the Commission.

• The national courts of EU member states won't necessarily be impressed with a non-legislative document from Brussels, and even less so in cases where there is a reasonable (though not necessarily a very strong) argument that the challenged conduct is related--but not inherent--to the announcement of the maximum aggregate rate.

• And like in some other contexts, the EU SEP Regulation is not well-thought-out with a view to what will happen in other jurisdictions. If the combination of the Horizontal Guidelines and the EU SEP Regulation matters in the EU, why should a court outside the EU care? There could be investigations by regulators or private enforcement actions against the participants in a rate-setting cartel in some non-EU countries where no EU law, hard or soft, will serve as an excuse if those markets are impacted (and they will be, as the EU wants those rates to be global).

All I wanted to do with this post is explain why the idea of aggregate royalty determinations based on potential agreements between SEP holders could get companies into trouble. In a world in which at least one automotive supplier sued a patent pool that does not preclude its licensors from entering into bilateral agreements (with that supplier still litigating against one such licensor in Delaware state court), there is always the risk of someone arguing that even an announcement of a maximum rate (hypothetical worst case for implemeneters) was unlawful, maybe not per se but in light of case-specific facts or circumstances. And implementers, too, would have to be careful so they don't end up forming a buyers' cartel.

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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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European Commission focuses on consumers, approves Microsoft's acquisition of Activision Blizzard--subject to commitments--while UK CMA won't be able to defend its miscarriage of justice

As predicted by Reuters and Bloomberg, the European Commission's antitrust division under Executive Vice President Margrethe Vestager has just announced--one week ahead of schedule--its decision to approve Microsoft's acquisition of Activision Blizzard King (ABK) subject to conditions.

Sony's console market theory of harm has been rejected: not a single regulator (other than the FTC) has so far seen any foreclosure risk there. The European Commission has now cleared the transaction based on Microsoft offering free streaming licenses to end users of Activision Blizzard console games and PC games. Technically those are two remedies (one for PC, one for console games), but this is totally consistent with what Microsoft offered to the UK CMA.

Previously, regulators in seven other jurisdictions cleared the transaction unconditionally (in chronological order: Saudia Arabia, Brazil, Serbia, Chile, Japan, South Africa, Ukraine). In late April, an outlier agency--the UK Competition & Markets Authority (CMA)--issued a prohibition decision that goes against the law, the facts, and common sense. Also, the U.S. Federal Trade Commission (FTC) filed a meritless lawsuit in December, but it can't prevent the consummation of the deal without a court order that it realistically won't be able to obtain.

Let's look at the EU ruling first and then discuss what this outcome means in the multijurisdictional scheme of things, particularly with a view to the UK. From here on out, there are various paths to the closing of the deal. If you wish, you can go directly to that part.

EU Commission decision: clearance based on commitments that benefit consumers

The EC's Directorate-General for Competition (DG COMP) conducted a very thorough investigation of the biggest tech acquisition in history. Today's decision is prudent, not paranoid:

After looking at the potential effects of the acquisition on certain markets, the Commission determined that consumers would lose significant benefits if the deal was blocked. In the Commission's assessment, any potential concerns by Microsoft's competitors are more than satisfactorily addressed by Microsoft's commitments, which the EU's competition regulator therefore accepted. That's pragmatic.

In my personal opinion, the seven antitrust authorities that cleared the transaction without requiring any commitments simply got it right. There just is no credible theory of harm here. The games market is and remains highly fragmented. In consoles, Sony is the undisputed market leader and its PlayStation console has several times more exclusive titles than Microsoft's Xbox. Cloud gaming is a means of playing games, and if one wanted to deem it a market, it would at best be a nascent market, a niche for the foreseeable future, and highly dynamic with major new entrants all the time.

But in merger reviews, regulators have one major leverage: time. Even if a blocking decision could be reversed, the closing deadlines typically found in merger agreements cannot be met if additional time is required for an appeal (short of an agreement on an extension).

The commitments that the Commission extracted from Microsoft don't appear onerous. Given that all companies prefer to retain a maximum degree of flexibility, it would be an overstatement to say that DG COMP walked through an open door. That said, those commitments are consistent with Microsoft's public statements about its post-merger intention of bringing more games to more gamers (as opposed to withdrawing games from platforms or withholding them from cloud-gaming services).

What does this mean in the multijurisdictional scheme of things? And particularly for the CMA?

It's hard to overstate the significance of the EU decision. The European Union with its roughly 450 million inhabitants is the third-largest economy in the world (after the U.S. and China), representing approximately one sixth of the global economy. It's about five times as large as the UK economy.

The UK CMA has been investigating such "Texas-size" mergers only for a couple of years (prior to Brexit, the big cases were all handeld in Brussels) while the Commission has been doing so for decades. Another important difference is that DG COMP has multiple industry-focused merger units (org chart (PDF)), one of which (COMP.C.5) focuses on IT, communication, and media industry mergers, while the members of the CMA's Microsoft-ABK inquiry group have zero tech industry background (if anything, they're experts in the financial services industry) and investigate mergers in a wide range of industries.

Experience and expertise clearly make the EU decision a more likely "lodestar" for regulators in other jurisdictions than the one taken by the CMA. The decisions also speak for themselves. The EU ruling reflects pragmatism, a consumer focus, and an open mind. The CMA decision is flawed in law and evidence, biased, arrives at a totally implausible market share for Microsoft in cloud gaming of 70% (even the extremely aggressive class-action lawyers suing Microsoft in San Francisco over this deal did not dare, for fear of sanctions, to claim more than a 40% share). The only beneficiaries of the CMA's unreasonableness are competitors (specifically, complainants Sony and Google) seeking to be shielded from competition.

The European Commission asserts its thought leadership among the world's top three competition watchdogs with today's decision. While the FTC rushed to court in December (hoping to dissuade the EC from working out an agreement with Microsoft) and the CMA issued a blocking decision that won't stand (despite the highly deferential standard of review in the UK), DG COMP has focused on what's the best outcome for competition and innovation. It has demonstrated that if a forceful but constructive regulator negotiates with a constructive acquirer, solutions can be found. The FTC and the CMA try to be part of the problem while the EC strives to be part of the solution.

The Commission is being diplomatic about the EU-UK divergence.

In the build-up to this decision, Mrs. Vestager mentioned at least twice that different jurisdictions could arrive at different conclusions, and she hinted at market-specific differences as a potential reason. But that's just because competition authorities rarely criticize each other's decisions in public. The argument that FIFA Soccer is a particularly popular game in Europe applies to the UK as well.

The net effect is that the CMA looks bad. Extremely bad.

The CMA decision has been--and continues to be--criticized.

There will be even more criticism now that the EU Commission has determined that Microsoft's free-streaming remedy offer is a good one that benefits consumers and protects competition. By contrast, the CMA just wanted to block no matter what and was more focused on competitors with their partly ridiculous claims than on the competitive process (which would actually be its job).

The CMA said it wanted to protect competition in the cloud-gaming market, but companies competing with Microsoft's xCloud in that field would actually like the merger to happen. Nvidia, which is the cloud-gaming market leader with its GeForce NOW service, said after the CMA decision that "cloud gaming providers stand to gain an even deeper catalog of games if Microsoft’s acquisition of Activision is completed." Boosteroid, a European cloud-gaming company, disagrees with the CMA's underlying assumption that Activision Blizzard would make its games widely available on cloud serivces anytime soon and says the CMA is actually slowing innovation.

In a Twitter poll asking gamers who they thought was in the best position to make a legally, economically, and technically accurate decision on this merger, EVP Vestager received 6.5 times as many votes as the CMA's CEO and 7 times as many as the FTC's chair.

I've even lost track of the numerous commentaries in U.S. and UK publications. One article I would like to point to here was written by lawyers from McDermott Will & Emery, a major law firm that is not involved with the case. According to that commentary, the CMA ruling only looks like a traditional foreclosure theory of harm, but in reality it is "the expression of more novel and overall, rather vague concerns over the strengthening of a digital ecosystem" and, above all, "reveals a worrisome stance on behavioral remedies, which have traditionally played an important role in removing vertical concerns."

The real players do not see themselves protected by the CMA decision. The CMA ruling adversely impacts them, resulting in less competition and less consumer choice.

The CMA's approach is met with growing skepticism in the UK.

Reasonable competition enforcement can strengthen an economy. Regulatory excess does the opposite. For instance, for venture investments the most common exit strategy is to sell companies, and the acquirers are often sizable tech companies. Even if they operate internationally, startups tend to have a higher market share in their domestic market, and if you then have a regulator that makes unpredictable and irrational blocking decisions, it's bad for business. Venture investment in London-based companies fell more sharply in the first quarter of this year than in comparable economies:

In the first three months of this year, VC investment in London 🇬🇧 fell 79% to $2.1 billion, according to Dealroom.

Soon UK will be officially closed for business, Thanks to #CMA .#UnblockABK @FOSSpatents #Microsoft #ActivisionBlizzard pic.twitter.com/7FdjGt0fxD

— WolfOfDarkness® (@WolfOfDarknesss) April 30, 2023

Public complaints over the CMA's occasional regulatory overreach were voiced by companies like Motorola Solutions and Deliveroo even before the Microsoft-Activision decision. On Friday, the UK's Prime Minister mentioned the CMA in the wider context of the need for "a regulatory system in the UK that doesn’t get in the way" as British businesses seek to thrive. PM Rishi Sunak said so on LinkedIn, a platform acquired by Microsoft and an example of "Big Tech acquisitions" not necessarily being bad for users.

The "draft strategic steer to the Competition and Markets Authority, 2023" obviously does not allude to particular cases, but the government wouldn't have written it up in the first place if the CMA's leadership had always set the right priorities for Britain's economy. The Sunak Administration wants the CMA to "prioritise outcomes that promote competition, investment, innovation and boost economic growth." Enforcement should focus on markets where there isn't enough competition (obviously a non-issue in gaming) and on "action that addresses cost of living challenges."

Tomorrow (Tuesday) morning, CMA chair Marcus Bokkerink and CEO Sarah Cardell will have to testify before the Business and Trade Committee of the UK Parliament on the CMA's work. I will watch the public part of the meeting and comment on it. Oversight is important, especially when an agency makes aggressive decisions that look like it's out of control. It will be interesting to see how the CMA seeks to justify its outlier decision in the Microsoft-ABK case if questions are asked about that one. It's hard to imagine that the CMA's most controversial decision at the moment would not come up during that hearing.

If that case is indeed mentioned, the CMA can only hope that no one will demand justifications for the unbelievable mistake the agency made in the provisional findings (subtracting only one year of costs from five years of benefits, a mistake the CMA then had to correct by amending its provisional findings). That was an embarrassment not only for the CMA but for the entire UK government: in one of its most important documents ever, a key government agency made a mistake that many eighth-graders would be ashamed of. And after they recognized it, all they did was to import their previously failed theories of harm (a conglomerate/ecosystem theory and a "console gaming services" theory) into the cloud-gaming theory: the epitome of unfairness and irrationality.

It shouldn't take long before the Competition Appeal Tribunal (CATribunal or just CAT) will publish a summary of Microsoft's and Activision Blizzard's appeals.

Microsoft's lead counsel on appeal will be Daniel Beard KC, who has previously defeated the CMA in court, such as in the landmark "Compare the Market" case, where the CMA lost on all grounds but one.

Activision has retained Lord David Pannick KC, a lawyer who represented Queen Elizabeth II and former Prime Minister Boris Johnson ("partygate" scandal). And as The Lawyer reports, Lord Pannick will be supported by Slaughter & May, the firm of which CMA CEO Sarah Cardell used to be a partner.

Presumably the President of the CAT, Sir Justice Marcus Smith (who is also a patent judge), will preside over the appellate proceedings.

I see a very high probability of the CMA decision being quashed on irrationality grounds. It is an irrational decision not only in terms of that being the legal standard for the non-procedural parts of CMA appeals but even in a literal sense. Statistically, the CMA wins 67% of all merger appeals, which means that it does not win the other 33%. Neither is this the average case nor are average lawyers at work. Many merger decisions don't get appealed, or the appeals at least don't reach the decision stage. Regulatory resistance often results in parties changing plans. Here, however, both parties have made unequivocal statements and their actions (the lawyers they've hired) speak louder than words. If they have to extend the merger agreement, they will presumably do so.

There are huge issues with the CMA decisions, and the lawyers representing the appellants are the best in the entire United Kingdom. The CAT will probably overrule the CMA on multiple substantive grounds, in which case it won't even be able to rebuild its (only) theory of harm, given that the CMA cannot ignore the CAT ruling on remand but must heed it. When there are purely procedural decisions, the CMA can arrive at the same result; not so when the issues are substantive and serious.

If the CMA were to act unreasonably on remand, the government could easily overrule it without having to fear the slightest backlash. The CMA is just a government agency. It is not as independent as a court of law.

The EU decision--and the long list of jurisdictions that cleared the merger even unconditionally--won't be precedential for the CAT, but psychologically and politically, it hurts the CMA to be an extremist outlier that claimed to protect competition in cloud gaming but Microsoft's competitors in that field want the CMA decision overturned and the transaction to be consummated.

There are many things that could happen, and many permutations of different scenarios in different jurisdictions, but an isolated CMA is not going to prevent the transaction from consummating. If the CMA had approved the transaction, then after today's EU decision we'd probably have been at a point now where the FTC would have had to seek a preliminary injunction from a federal district court. As Microsoft's U.S. lead counsel acknowledged at a Friday hearing in a class-action-style private litigation, "at this point it would be very difficult to close." She explained to the federal judge that the priority was to get an appellate hearing date. But as jurisdiction after jurisdiction clears the transaction, it's getting lonely around the CMA and its only ally (the FTC).

The CMA can join the competition enforcement mainstream. It can look for an exit strategy. In the alternative, the agency would effectively be working against the Prime Minister's agenda--and the primary beneficiary if companies are scared out of investing in the UK will be the EU. UK politicians are not going to let the CMA's leadership do (more) damage to the country.

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After EU merger hearing, Microsoft announces 10-year deal with Nvidia for GeForce NOW that will also cover Activision's Call of Duty: it's getting lonely around Sony

As expected, Microsoft and Sony met at the European Commission's merger hearing today. Sony even got twice as much time as any other third party to make its case against Microsoft's acquisition of Activision Blizzard King. Shortly before the hearing, I posted a thread of 18 tweets.

The most significant news of the day was neither the hearing (what really matters is what will come out of subsequent remedy discussions) nor Microsoft's announcement (right before the hearing) of the signing of a 10-year Call of Duty license agreement with Nintendo, given that Microsoft and Nintendo had already announced a principal understanding in early December. The most important announcement was made at Microsoft's post-hearing press conference, simultaneously with which Nvidia put out a press release:

Microsoft and NVIDIA Announce Expansive New Gaming Deal

Partnership will bring blockbuster lineup of Xbox games, including 'Minecraft' and Activision titles like 'Call of Duty,' to NVIDIA GeForce NOW cloud gaming service

On Twitter a number of people were wondering how such agreements can be signed before Microsoft formally owns Activision Blizzard. The legally savvy part of this blog's readership obviously knows the answer: condition precedent (a condition that must be met for a contractual commitment to enter into force at all).

This means Sony is left with only one co-complainer: Google. Short of the fruity Evil Empire, that's about the worst ally to have in a context like this--especially in light of Google's $360M "Project Hug" deal with Activision Blizzard King.

Nvidia was not a "complainer-complainer" before: the message was that they were not against the deal per se, but wanted to ensure access to content, which I described as being "opportunistic". That strategy worked out: with the agreement announced today, Nvidia is happy, Microsoft builds momentum for its licensing-based approach, Sony feels lonely, and competition regulators face the choice between

• clearing a transaction that has positive effects for Nintendo's and Nvidia's numerous customers

  and

• trying to block the deal because the undisputed market leader in video game consoles might see its market share "plummet" from, say, 66% to 64%--which is doubtful enough, and at any rate could be avoided by taking a license deal.

What makes the second choice even less appealing is that regulators like the EC and the UK CMA need to turn merger law on its head to write a blocking decision. It's easy to forget this simple fact: if Sony were to lose a little bit of market share, that would--under the law--actually be an argument for, not against the deal.

I understand that unnamed "sources" who may be more or less Sony-aligned tell competition-specialized reporters that licensing wouldn't work reliably. It would be too hard to contractualize the total parity commitment offered by Microsoft and to enforce it later. The problem for Sony and any regulators it seeks to co-opt is this: there would have to be what is called a market test. Market participants would be asked to comment on the effectiveness of a proposed remedy. Sony's answer is predictable. Short of Microsoft offering Sony a majority of the voting rights in Activision Blizzard King, Sony will be against anything. But with respect to Nintendo and Nvidia, there's no more need for a market test: there already is empirical evidence that such sophisticated organizations see their concerns (if they ever had any) satisfactorily addressed by clear-cut, long-term commercial agreements.

Then there's Valve, which publicly stated that Microsoft offered such a deal but they said they didn't take it because they knew they could rely on Microsoft anyway.

Who's more credible? Sony, which simply seeks to exploit its walled garden and to harm a challenger, or the combination of Nintendo, Nvidia, and Valve?

Sony has countless license deals with game makers in place, and without knowing their content we can be sure that there are all sorts of complicated provisions in them, compared to which a parity commitment is easily enforceable.

Here's the most important sentence from Nvidia's press release:

"NVIDIA therefore is offering its full support for regulatory approval of the acquisition."

In other Microsoft-ActivisionBlizzard news, someone must have subpoenaed Valve as counsel for that company entered an appearance in the FTC's in-house litigation. Microsoft and Google are negotiating the scope of the former's discovery request and have agreed on another extension of the filing deadline for a potential motion to quash (now Friday, February 24).

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Sony, Microsoft to clash at European Commission's Activision Blizzard merger hearing on Tuesday, February 21: PaRR found out about hearing date

The Policy and Regulatory Report (PaRR) has just informed me that "[t]he European Commission (EC) will hold an oral hearing next week as part of its market investigation into Microsoft’s [NASDAQ:MSFT] acquisition of Activision Blizzard [NASDAQ:ATVI]" and refers to confirmation by "a spokesperson for Microsoft." The exact date is Tuesday, February 21. The venue will be one of the Commission buildings in Brussels. A courtroom-style clash between Microsoft and Sony is virtually certain to happen on that occasion.

It became known two weeks ago that the European Commission's Directorate-General for Competition (DG COMP) had sent Microsoft a Statement of Objections (SO) over its proposed acquisition of Activision Blizzard King.

An SO is a preliminary antitrust ruling. Reporters often refer to an SO as an "antitrust warning" that can come down in different categories of competition cases. For instance, about two years ago the EC issued an SO against Apple's abuse of App Store market power against Spotify and other music streaming services, but an actual decision has yet to be made in that unilateral conduct case.

In the Microsoft-ABK merger case, there is a clear deadline: April 11, 2023. After an SO, a party gets access to the case file and can--as Microsoft apparently did--request a merger hearing in Brussels. This means Microsoft will be able to read--and respond to--Sony's submissions to the EU Commission. Sony could request that some or all of its submissions be kept confidential, but the Commission could not rely on confidential facts in its decision (and any potential appeal of such a decision to the Court of Justice of the EU).

As PaRR notes, such merger hearings are attended not only by the Commission's case team working on a merger but also by other Commission officials and third parties.

I have no doubt that Sony--which is fighting Microsoft's subpoena in the U.S. FTC proceeding--will participate, and the question is whether Google and/or Nvidia will do so as well. Sony is the only vocal complainer, and Nvidia is not a complainer in a strict sense (as its position is not that the merger should be prohibited) but merely seeks to opportunistically benefit from those merger review processes in the form of a license deal that might benefit its GeForce NOW cloud gaming service.

I attended an EC merger hearing in 2009 (Oracle-Sun Microsystems) as a complainant, so I know how those hearings go. The case team presents its theories of harm, the parties get to respond, and third parties can intervene (as Sony undoubtedly will) to urge the Commission to block the deal or insist on drastic remedies.

The EC officials who attend such hearings include representatives of other DGs (directorates-general), who may or may not agree with the case team. Close aides to the competition commissioner are also present. I can't imagine that European Commission EVP (and antitrust chief) Margrethe Vestager won't send a member of her cabinet. Given the high profile of this case, even Mrs. Vestager's Chef de Cabinet Stina Soewarta may attend the hearing in whole or in part. Again, this is all speculation based on my own past experience with how those merger hearings work.

Third parties who wish to attend will now have to reach out to one of the EC's Hearing Officers and explain why they believe they have a right to be heard.

Representatives of national competition authorities of EU member states, such as Germany's Bundeskartellamt (BKartA, Federal Cartel Office) or the French Autorité de la concurrence (Adlc), also have the right to attend.

A merger hearing is very similar to a trial, but it is not public. A decision is not announced immediately, but the case team working on this particular merger review may state its recommendation (such as whether the deal should be cleared unconditionally, with conditions, or not at all) at the end of the day.

After the hearing, negotiations between the Commission and the acquirer typically continue.

Microsoft has repeatedly and consistently stated its interest in addressing any potential competition concerns and finding solutions. Working out an agreement with the European Commission--one of the world's most well-respected antitrust enforcers--could be an inflection point and lead to settlements in other jurisdictions.

The Competition & Markets Authority (CMA) of the United Kingdom may soon hold a similar hearing. Last Wednesday, the CMA issued its provisional findings, which are the UK equivalent of a DG COMP SO (initial reaction, observations on full 277-page document, and further analysis of the remedies notice). According to its administrative timetable, the CMA will hold "[r]esponse hearings (if required)" in late February or early March. Whether such hearings will indeed take place has not been announced yet, and that's why the exact date is unknown.

I have updated my timeline chart to reflect the EC merger hearing (click on the image to enlarge):

Other changes since the previous version of that chart include that I have grayed out the motion process for the protective order (i.e., rules for the protection of confidential documents) in the Northern District of California, given that the parties recently submitted a negotiated proposal.

Here's a table of the key acronyms:

N.D. Cal.	United States District Court for the Northern District of California
MTD	(Microsoft's) motion to dismiss (the so-called gamers' lawsuit)
prot order	protective order (i.e., protection of confidential business information)
PI	preliminary injunction
FTC	(United States) Federal Trade Commission
CMA	(UK) Competition & Markets Authority
DG COMP	(European Commission's) Directorate General for Competition
NZ ComCom	Commerce Commission of New Zealand

Note that all of this is in flux and some of those events may not (have to) happen. For instance, if the motion to dismiss is granted in California, even if only in part, this may have implications for the preliminary injunction (possibly even obviating any PI hearing).

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European Commission hands down Statement of Objections against Microsoft's purchase of Activision Blizzard King: MLex

MLex reports that the European Commission has sent Microsoft a Statement of Objections (SO) over the acquisition of Activision Blizzard King (NASDAQ:ATVI). The MLex report also contains a quote from Microsoft, which is neither a confirmation nor a denial of the SO. I don't doubt what MLex says, so the SO has come down and the EC will probably confirm it soon.

The week before the SO, the European Commission's Executive Vice President Margrethe Vestager met with Sony's PlayStation chief Jim Ryan. Microsoft subsequently accused Sony of having lied to "people in Brussels" (which may or may not include the EC) about the parity aspect of the ten-year Call of Duty license it is offering.

The global set of Microsoft-ActivisionBlizzard merger review processes may be approaching an inflection point now in the positive sense of going around the final curve and entering into the home stretch. MLex found out earlier that the EC's Directorate General for Competition (DG COMP) and Microsoft are talking about what a clearance decision conditioned upon specific commitments could look like, but that an SO would come prior to a potential agreement that would be the EU equivalent of a U.S. consent decree. Similarly, the UK Competition & Markets Authority (CMA) will publish its provisional findings these days. Those were scheduled for late January or early February, and January is already over in the UK as I write this post. The EU SO and the UK provisional findings may just be necessary milestones.

Not long after MLex reported on the SO, Microsoft said in a U.S. court filing that the deal will not consummate before May 1 at the earliest, but no reference is made to the SO.

As long as the Commission and Microsoft haven't agreed, anything can happen, from unconditional clearance to conditional clearance all the way to a blocking decision that Microsoft would have to appeal to the EU General Court. But the situation in Europe may indeed be different from the state of affairs in the U.S., where at a recent hearing the Federal Trade Commission said there were no substantive settlement talks going on. And Bloomberg quoted a former U.S. antitrust official who claims that the FTC rushed to court in order to discourage the EC from striking an agreement with Microsoft. I can't verify that claim, nor is it wholly implausible. There was a time, though, when it would have been counterintuitive for the U.S. government to torpedo a U.S.-U.S. merger that strengthens the U.S. economy vis-à-vis large Asian rivals. Should that story be true, it would serve to show that the FTC will come under serious settlement pressure once the EU has approved the transaction.

The DG COMP-FTC difference in constructiveness is most likely attributable to different levels of risk aversion:

Some observers believe the FTC may not give a damn about losing in court, and may even consider it a sacrifice they just have to make in order to "reset" merger laws, though I have my doubts that such a strategy of running into surefire defeats will impress Congress all that much.

Not only the FTC but also the current DOJ never appears to get tired of losing. The FTC and DOJ's guiding principle these days--including this month's new United States et al. v. Google antitrust lawsuit, which is to some extent an "undo merger" case--reminds me of two quotes:

"The possible has been tried and failed. Now it's time to try the impossible."

"You have to try the impossible to achieve the possible."

By contrast, Mrs. Vestager, who is in charge of antitrust enforcement as well as digital industry policy, does not appear to have an appetite for losing. The sole exception may be the Apple-Ireland tax case, where she identified a real issue but tried to shoehorn it into state aid law, which the EUGC flatly rejected in a ruling that the European Court of Justice (ECJ) will probably affirm. The Apple tax case raised an issue that must be solved at the political level, and the "state aid" case served to draw attention to a structural problem that hasn't really been solved but at least Mrs. Vestager tried.

When it comes to merger, cartel, and unilateral conduct cases, however, Mrs. Vestager does not run into surefire defeats. For instance, after the EUGC reversed DG COMP's Qualcomm decision last year, the Commission refrained from appealing the case to the ECJ. When I saw the EUGC's Qualcomm decision, I also found it hard to see how the Commission could have raised a material question of law with the top EU court.

The Microsoft-ActivisionBlizzard SO, in and of itself, does not pose any risk to DG COMP's track record. What the Commission achieves this way are two things:

• DG COMP shows that the times of waving Big Tech's acquisitions through are over. This will discourage other such deals. Potential acquirers feel the strong headwinds. The shareholders of potential acquisition targets will prefer strategic alternatives that don't get delayed and potentially derailed by regulators.

• The Commission also demonstrates that it is not "softer" than the FTC and DOJ (and, potentially, the UK Competition & Markets Authority, whose comparable procedural milestone--called provisional findings--is also around the corner). Maybe more solution-oriented, but still pretty tough.

As I said in my post on the New Zealand Commerce Commission's postponement of its decision, a certain group of competition enforcers may now be trying to synchronize their proceedings. That doesn't mean to walk in complete lockstep, but to align schedules to some degree and to take similar procedural steps. Some other antitrust agencies, most recently Chile's FNE, have not had qualms over granting unconditional clearance to this transaction, which is the legally sound thing to do (and at least the Brazilian and Chilean decisions were definitely well-reasoned; in fact, they resembled what U.S. and EU competition authorities would have done five or ten years ago if presented with the same set of facts, and it's not the law that has changed, but politics).

There are no serious issues, so the SO is more of a statement than there can be serious objections:

• There will still be plenty of competition--as opposed to massive concentration--in the highly fragmented games business. And there will always be new major game makers of the kind no one even knows today.

• In the console market, Sony is and will remain the market leader. Merger reviews are not meant to cement someone's market leadership, but even if that were the name of the game, it wouldn't matter:

  • Most Call of Duty gamers would rather switch games than consoles if they had to, but they wouldn't have to because

    • Microsoft has no incentive for such a foreclosure strategy and, at any rate,

    • has offered Sony a ten-year license as everyone knows.

  • Even if--in an alternative universe--foreclosure occurred and everyone who plays CoD on a PlayStation today switched to the Xbox, Sony would still be the market leader (by far).

• The cloud gaming market is new. Some have entered, some are preparing to enter, some (such as Google, a company no third party could trust to really be committed to anything other than its search engine business and maybe its cloud platform) have left. In any event, the ten-year license offer includes subscription services.

• Windows is an open platform where anybody can offer anything. No app review like on the mobile platforms; no app tax.

• In light of the foregoing, no procompetitive justifications are needed, but there really is a procompetitive aspect here that I--as an app developer who formally complained to DG COMP and others over the Apple-Google duopoly's app distribution terms and policies--care about: Microsoft's plans for a universal (cross-platform) app store. In order for the European Union's Digital Markets Act (DMA) to make an actual impact on the market, it takes not only the law but also serious challenges to the Goopple duopoly. That's where apps like Candy Crush come in.

• The sole vocal complainer is Sony, and there are clear signs now of its reluctance to put all the facts (concerning its own content-centric strategy) on the table.

The facts being what they are, the question is not whether regulators can on a legally defensible basis object to the consummation of this transaction. It's only a question of whether or not a given regulator is happy to lose in court.

There was a time when U.S. policy makers, competition enforcers, academics, lawyers, and companies accused the EU of stretching the envelope of competition law. The EU now has the opportunity to become the first major jurisdiction to play hard but fair, to make a strong statement as it has with the SO, but to work it out. (Let me nuance "first major jurisdiction", though: as I made clear before, I have a lot of respect for the work done by Brazil's CADE and Chile's FNE on this matter, and believe they are rising stars in antitrust enforcement, but the U.S. is and historically will remain the cradle of antitrust enforcement, the EU often leads the way in digital market regulation, and the UK CMA has become very important as a result of Brexit.)

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Spotify, other app makers, and media companies urge EU antitrust chief Margrethe Vestager to take decisive action against Apple, other digital gatekeepers

Politico's Samuel Stolton reported today (here's a LinkedIn post that contains a link to the actual Politico Pro article) on a letter by several companies and industry associations to European Commission EVP Magrethe Vestager. The subject of the letter, dated January 17, 2023, is "Call for swift and decisive action against anticompetitive practices by digital gatekeepers".

The corporate CEOs among the signatories are:

• Basecamp (online collaboration) co-owner David Heinemeier Hansson

• Deezer (music streaming) CEO Jeronimo Folgueira

• Proton (encrypted email and personal information) CEO Andy Yen

• Schibsted ("family of digital brands ... across media, online marketplaces and technology ventures") CEO Kristin Skogen Lund

• Spotify (music streaming) CEO Daniel Ek

The following industry associations also signed the letter:

• European Publishers Council

• France Digitale (which also brought a data privacy complaint in France that recently resulted in Apple being fined)

• News Media Europe

The letter particularly focuses on Apple, which it says "has imposed unfair restrictions on [the signatories'] businesses" that "hamper [their] development and harm European consumers." The signatories generally urge the EU to act against Apple and other digital gatekeepers, also by enforcing as soon as possible the Digital Markets Act (DMA). But what appears to be the most immediate priority here is a call for "a rapid decision in the competition case against Apple for its illegal, anti competitive behaviour involving music streaming services."

As the letter notes, the Statement of Objections (SO) in the Spotify case is "nearly two years old" (it came down right before the Epic Games v. Apple trial in the Northern District of California).

Here's my take:

It is indeed unusual that almost two years after an SO, no decision has been handed down. Normally it takes about a year or less.

The letter correctly notes that Apple's conduct causes problems every day.

That said, no victim of those practices--neither Spotify nor its co-signatories or third-party app makers like me--would benefit from a DG COMP ruling that Apple gets annulled by the Court of Justice of the EU. Apple has vast resources and will exhaust all appeals. The Commission has lost some cases for (partly) procedural reasons. It's key to ensure that Apple cannot make a meritorious argument centered around a violation of its rights of defense and/or on the substance of the case.

According to media reports, EU antitrust chief Margrethe Vestager met with Spotify CEO Daniel Ek a few months ago. For now, I have no reason to believe that the case is going nowhere, but I would agree that things are a bit slow.

Epic Games--represented by Clifford Chance in the EU just like Spotify--brought its own antitrust complaint about two years ago, and its counsel told a reporter that Epic was "joining" the Spotify case. In formal terms, however, that is not the case, and the question is what the Commission is going to do about Epic's complaint.

Clifford Chance's EU antitrust practice needs a new success story, and needs it badly. They brought those high-profile complaints over Apple's conduct, but neither has resulted in a ruling and one has not even given rise to full-blown investigations. Then they're behind that European Superleague Company case, where the Advocate General clearly disagrees with Clifford Chance on the most important questions (such as Clifford's "conflict of interest" mantra), and the way the firm is attempting to litigate the case via conferences is not necessarily advisable.

The letter is a bit premature with respect to the DMA. There will be important things happening this year (designation of core platforms etc.), but actual DMA enforcement won't begin before next year. It appears to me that the letter just tries to put the Spotify-Apple case into a wider context.

The signatories--all of whom are European (at least at the personal level)--are a pretty good group, but I'm not blown away. They're long-standing complainants over Apple's App Store practices. A big part of the problem is that for fear of retaliation, many app makers don't dare to speak out, and that even includes large companies.

I'm underwhelmed by the letter for stylistic reasons as well. For example, the letter twice mentions "softwares", which Wiktionary describes as "[g]enerally an error made by non-native speakers" (it's an uncountable noun).

The open app markets movement is fighting the good fight, but it has room for improvement in various respects.

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European Games Developer Federation supports Microsoft's purchase of Activision Blizzard: position paper is as authentic as it gets

In these times where self-declared app developer associations are often just astroturfers on the payroll of the likes of Apple, it is reassuring that genuine developer representatives still exist and speak out on the issues.

Yesterday, Jari-Pekka Kaleva, the managing director of the European Games Developer Federation (EGDF), published a summary of his organization's observations on Microsoft's acquisition of Activision Blizzard King (NASDAQ:ATVI). The blog post links to a December 23 three-page PDF document on the same subject.

The EGDF credibly claims to represent, through its 23 member associations that are national trade groups, more than 2,500 of approximatley 5,000 game developer studios in 22 European countries. The EGDF's German member is GAME, which organizes "the world's largest games event": gamescom.

My first observation on the EGDF's observations is that they're perfectly independent from Microsoft. One cannot conclude otherwise: the statement, while ultimately supportive of the transaction in question, says things that Microsoft undoubtedly disagrees with. The EGDF "acknowledges that Microsoft has the ability for anti-competitive market behaviour and has not in the past consistently respected assurances it has given to continue making games published by companies that it has acquired available on rival platforms." The second part must relate to the ZeniMax (Bethesda) acquisition, and to the best of my knowledge, no promises were broken there. Also, the EGDF calls on Microsoft to "compete on content by lowering its 30% platform fee on [its] Xbox."

Furthermore, the EGDF's position paper "calls upon the European Commission" to closely monitor Microsoft's implementation of the EU Digital Markets Act on its Windows operating system and cross-platform Microsoft Store, and to back up the continued availability of Activision Blizzard games on rival consoles and subscriptions "with rigorous compliance and enforcement mechanisms." The EGDF supports the EU Commission's in-depth investigation, but on the bottom line believes the upside outweighs the potential downside:

• The EGDF says something I've also been saying for a while, which is that this deal is key to Microsoft's ability to challenge Apple's and Google's mobile app stores. I agree with the EGDF that "Microsoft is paving the way also for European game industry SMEs [small and medium-sized enterprises] that do not have sufficient financial resources for the upcoming legal fight to defend their new rights against Apple and Google." In October, I was first to highlight a passage from a Microsoft filing with the UK Competition & Markets Authority (CMA) that revealed plans to "shift consumers away from the Google Play Store and [Apple] App Store."

• The EGDF also considers it necessary to have a strong competitor to Apple's "emerging cloud gaming / game subscription service" offerings.

• The EGDF would also like to see Microsoft challenge Tencent as the world's leading game developer and publisher.

It may not be a coincidence that the EGDF drew attention to its December 2022 position paper on the day the European Commission's intent to hand down a Statement of Objections (SO) became known. My interpretation of the Reuters artice is that there still is hope for a constructive solution in the EU. The SO is an important procedural step and a show of force. If it comes down, it will serve as a stern warning to Big Tech companies that their major acquisitions may face stiff resistance. But an SO is not the end of the world either when there are clear procompetitive benefits (such as the ones highlighted by the EGDF) and a will to offer meaningful and justiciable remedies.

I consider the EGDF statement rather significant, but let's not forget about the outcome of a survey of Call of Duty gamers by Chile's competition authority: 61% of CoD players would rather switch games than consoles.

It's more instructive to listen to gamers and small and medium-sized game developers than to Sony.

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CHART: Key deadlines in Microsoft-ActivisionBlizzard merger reviews in U.S., UK, EU, New Zealand between now and late April

A picture is sometimes worth a thousand words when looking at complex multi-jurisdictional matters, which is why I occasionally draw up battlemaps or other charts. Here's a chart that I've just created to show the key deadlines coming up between now and late April in the ongoing reviews of (and litigations over) Microsoft's acquisition of Activision Blizzard (NASDAQ:ATVI) in four jurisdictions (United States, United Kingdom, European Union, and New Zealand) (click on the image to enlarge; it will also look at lot better if you do):

In my previous post on this topic, I provided an update on the so-called gamers' lawsuit (which is actually a lawyers' lawsuit) in the Northern District of California, which has been reassigned to United States District Judge Jacqueline Scott Corley. While only a sideshow, that piggybacking case has the potential to repeatedly make news in the months ahead by virtue of the high degree of transparency of federal civil litigation in the United States (and especially in that district).

In the FTC's in-house case (wouldn't we all like the luxury to put our cases before our own judges?), Administrative Law Judge (ALJ) D. Michael Chappell issued a scheduling order on January 4, but it was yesterday that I first spotted the order on the FTC's website. It was previously known that the trial would be held in August, subsequently to which it can take a number of months for a decision to come down. But if Microsoft and Activision Blizzard King are otherwise ready to close the deal, the FTC will have to move for a preliminary injunction in federal court, as it acknowledged at least week's case management hearing. The class-action lawyers in California are already seeking a PI, but the originally scheduled PI hearing (February 16) has been vacated and I believe the most likely date is March 23, the day for which Judge Corley has scheduled a case management conference.

The UK Competition & Markets Authority (CMA) has not stated precise dates for the various milestones between now and the final decision deadline (April 26). For instance, the publication of its findings has been slated for late January or early February, which is kind of vague.

In the EU, the key question is whether--and if so, when--a Statement of Objections would come down. An SO is a key requirement for due process reasons. Subsequently, the notifying parties get some time to file a written response (with the benefit of access to DG COMP's case file), and are entitled to a hearing. Given that certain minimum amounts of time are necessary for all of that, an SO has to issue about two months to two and a half prior to a decision deadline. The deadline here has been extended once, and could be extended again. I've seen reports that expect a hypothetical SO to be handed down in January, but I've also heard from a third-party Brussels source that the EU merger review should reach that key milestone only next month. Microsoft told ALJ Chappell that the plan was to resolve the matter in the EU and the UK based on specific commitments, which would then be proposed to the FTC. This also makes a further postponement of the EU deadline a possibility (DG COMP gets more time when commitments are offered late in the game).

There has been speculation in the media that an SO would issue prior to an agreement on remedies, but again, that is just speculation.

In merger reviews, deadlines are not always exhausted. For example, when the UK CMA gave notice of a recent extension, it explicitly stated that the objective was to reach a conclusion sooner. That's why the above chart just reflects what is publicly known today. Things can change any moment, be it because of postponements or decisions being made sooner.

The transaction has already been cleared in four jurisdictions, most recently Chile.

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To counter Apple's devious ATT money and power grab, the European Commission should allow Deutsche Telekom, Orange, Telefónica, and Vodafone to form their proposed ad network joint venture

Last week, Apple was fined for privacy violations in France, making it clearer than ever--if any more clarity had been needed--that App Tracking Transparency (ATT) is nothing but an abusive money and power grab by an aftermarket monopolist. The macroeconomic damage is huge, and entire product categories such as hypercasual games are on the verge of extinction as a result of Apple's actions and the impact on the Android ecosystem.

I'm no fan of cartels as I've made abundantly clear in the Licensing Negotiation Group (LNG) and Journalism Competition and Preservation Act (JCPA) contexts. However, it's a question that must be answered case by case, and on Friday the European Commission was notified of a proposed joint venture between four major European mobile carriers that I believe should be cleared because its procompetitive effects will benefit the EU economy and European consumers.

Deutsche Telekom, Orange, Telefónica, and Vodafone have told the European Commission's Directorate General for Competition (DG COMP) that they "plan to create a jointly controlled [with each party owning an equal share], full-function joint venture [...] via their respective subsidiaries [...] [which] will offer a privacy-led, digital identification solution to support the digital marketing and advertising activities of brands and publishers" (PDF). This is how it will work:

• User consent must be provided to a brand or publisher (opt-in),and can be revoked via "a user-friendly privacy portal".

• The new network then generates " secure, pseudonymized token derived from a hashed/encrypted pseudonymous internal identity linked to a user’s network subscription which will be provided by participating network operators." The network operators can do this without needing anything from Apple. They don't have to run their apps by Apple's arbitrary, self-serving, and inconsistent app review. They simply have this information by virtue of providing the expensive infrastructure without which Apple's gadgets would be as useless on the road as a piece of scrap metal. And with the token that the networks generate, targeted ads can be served, which would revive in-app advertising on iOS after Apple killed it.

• There are some ways in which the Evil Empire could theoretically strike back:

  1. It could threaten the network operators with not letting them resell iPhones and potentially even with disabling the use of those networks with iPhones. In the U.S. I believe Apple's market power would make that kind of foreclosure illegal. In Europe, Apple's market share is lower, but given high switching costs and low switching rates, the threat would hurt. A joint venture of multiple major network operators, however, would be in a structurally better position to discourage such blackmail in the first place--and if Apple engaged in such conduct anyway, its market power (because of customer lock-in) would be shown more clearly than if it acted like this against a single carrier.

  2. Apple could block apps (also including updates to existing apps, of course) that use the new advertising network. But that would raise antitrust issues for sure (as Apple wouldn't even have a privacy pretext)--and once the EU's Digital Markets Act (DMA) really requires Apple to allow alternative app stores, such stores could then distribute apps that would make use of the new network.

  3. In theory, Apple could also block communications with the new ad network, but that would be so crazy that I don't even want to discuss its implications. Suffice it to say it wouldn't be a good idea for Apple to do that.

The only thing I'd like the Commission to ensure is that other network operators will also have a chance to join that network on fair terms. Other than that, I'm all for this initiative. The EU should let those carriers join forces against abusive platform makers.

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FTC complaint over Microsoft-ActivisionBlizzard is so weak that ATVI is trading at pre-lawsuit level and European Commission clarified that Microsoft didn't walk back on any ZeniMax/Bethesda commitment

I'm not one of those antitrust minimalists who would even like to abolish the FTC (in terms of reintegrating it into the DOJ Antitrust Division). That's why I'm even more disappointed in what's going on now, with the FTC wasting resources and losing credibility only because of some decision makers' desire to be seen as boldly anti-Big Tech. And it isn't even really anti-Big Tech because Microsoft's proposed acquisition of Activision Blizzard (NASDAQ:ATVI) has the potential to contribute enormously to a level playing field in mobile app distribution, ultimately benefiting the little guys.

The following chart shows how Activision Blizzard King's stock has moved in the aftermath of the FTC decision on Thursday afternoon:

ATVI was at approximately $75 when the FTC meeting finished. It temporarily went down after the decision leaked and was then formally announced. After trading hours on Thursday, the public redacted version of the complaint became available. If that one had contained a smoking gun or an impressive legal theory, ATVI would have tanked further. Not so: on Friday it basically returned to where it was before the decision (with only a minor after-hours adjustment). Wall Street largely expected that decision, but again: the complaint fails to convince analysts.

Yesterday I explained various shortcomings of the FTC complaint. Some people may believe that the FTC isn't going to district court yet to obtain a preliminary injunction (which it needs because the transaction could otherwise just be consummated regardless of pending litigation) because the merger is still being reviewed in other jurisdictions whose approval is required, and that may be a factor, but if and when the FTC tries, how can it possibly show a likelihood of success on the merits? Of course, the shorter the period between the PI motion and the expected resolution of its in-house adjudicative proceeding (with an evidentiary hearing (i.e., trial) scheduled for August 2) is, the better the chances that the district court will give less weight to the likelihood of success on the merits--but if the district court sees practically no merit in the case, how can a judge enjoin Microsoft and Activision Blizzard even for a short period of time?

Here's a recording from Jim Cramer's CNBC show where they talk about investor sentiment:

The key points are that the complaint is weak (as this blog said), that there is no economic data or analysis (this blog also noted that there is no theory of harm and the allegations are unsubstantiated), and that the FTC is going to lose. There also isn't too much concern over the EU process as Wall Street believes the European Commission will approve the deal with some remedies. The big question mark is the UK Competition & Market Authority (CMA), whose decisions--they say--are harder to appeal. Again, I wish to emphasize that this depends on the merits. It's yet easier to overturn a baseless CMA decision than a well-considered DG COMP or FTC ruling.

Not only is the FTC coming across as a regulatory agency that doesn't prioritize the legal merits of a case but there is even a risk of the FTC being exposed as a source of fake news. Having live-tweeted from a lengthy FTC trial in 2019, where the FTC staff did a really great job, I'm dismayed.

There are various articles out there now (example: wccftech, Microsoft Didn’t Lie to the EU on ZeniMax Deal Like the FTC Said, According to Sources) that report on a clarification the European Commission provided to the MLex subscription service, which apparently wanted to know whether it was true that Microsoft reneged on what it had promised the EC in connection with the acquisition of ZeniMax/Bethesda Softworks. In yesterday's analysis of the complaint, I explained that the FTC hasn't lied here--but it is fair to say that the FTC, which is hard pressed to find any argument for blocking a totally lawful and even procompetitive merger, has misled a lot of people into thinking that Microsoft walked back on a promise on which the clearance of a previous game studio acquisition depended.

Microsoft published a document (PDF) that explains what exactly happened around that acquisition: Microsoft kept its word.

The EC apparently pointed out that Microsoft's acquisition of ZeniMax/Bethesda was cleared unconditionally. If there were no commitments that the approval of the deal hinged on, Microsoft obviously couldn't renege on any in the first place. The clearance decision did not even rely on any informal commitments (public statements). The Commission simply found that the games industry would still be fragmented enough after the deal that other platforms would not have a shortage of input in terms of game titles.

In an earlier post I already showed the following table from a Microsoft filing with the UK CMA concerning its track record with ZeniMax/Bethesda titles on PlayStation (click on the image to enlarge):

All that the FTC can reasonably say is that a minority of Microsoft game titles in the future may still be Xbox exclusives--which Call of Duty won't be as a 10-year deal with Nintendo is in place, a similar commitment regarding Steam was made (and Steam operator Valve doesn't see a need to contractualize it as it knows it can rely on Microsoft), and Sony has a standing ten-year offer.

Instead of telling things in a way that no reasonable person would be likely to misunderstand, the FTC acted irresponsibly. For litigation purposes, it created a false impression that appeared to be an allegation or at least insinuation, and which threatened to hurt Microsoft's reputation. The FTC's mission is "protecting America's consumers" as opposed to "damaging America's companies"...and now the European Commission has to protect a major American company's reputation against the FTC. That's counterintuitive to put it diplomatically.

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