Case: 23-15992, 08/28/2023, ID: 12781879, DktEntry: 47, Page 1 of 86
`
`NO. 23-15992
`IN THE UNITED STATES COURT OF APPEALS
`FOR THE NINTH CIRCUIT
`–––––––––––––––––––––––––––––––––––––––––––––
`FEDERAL TRADE COMMISSION,
`Plaintiff-Appellant,
`v.
`MICROSOFT CORP., and
`ACTIVISION BLIZZARD, INC.,
`Defendants-Appellees.
`–––––––––––––––––––––––––––––––––––––––––––––
`On Appeal from the United States District Court
`for the Northern District of California
`No. 3:23-cv-2880
`(Hon. Jacqueline Scott Corley, U.S. Distr. J.)
`–––––––––––––––––––––––––––––––––––––––––––––
`OPENING BRIEF
`OF THE FEDERAL TRADE COMMISSION
`[REDACTED]
`–––––––––––––––––––––––––––––––––––––––––––––
`ANISHA S. DASGUPTA
`HOLLY VEDOVA
`Director
`General Counsel
`JOHN NEWMAN
`MARIEL GOETZ
`Deputy Director
`Acting Director of Litigation
`SHAOUL SUSSMAN
`IMAD D. ABYAD
`Associate Director for Litigation
`Attorney
`JAMES H. WEINGARTEN
`FEDERAL TRADE COMMISSION
`PEGGY BAYER FEMENELLA
`600 Pennsylvania Avenue, NW
`JAMES ABELL
`Washington, DC 20580
`CEM AKLEMAN
`(202) 326-3579
`MEREDITH R. LEVERT
`iabyad@ftc.gov
`JENNIFER FLEURY
`
`Attorneys
`BUREAU OF COMPETITION
`
`
`
`
`
`

`

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`
`
`TABLE OF CONTENTS
`
`Table of Authorities ................................................................................... iii 
`Introduction ................................................................................................ 1 
`Circuit Rule 28-2 Statement of Jurisdiction ............................................. 3 
`Statement of the Issues Presented ............................................................ 3 
`Statement of the Case ................................................................................ 5 
`A.  Statutory Framework .......................................................................... 5 
`B.  The Proposed Acquisition .................................................................... 7 
`C.  The Gaming Industry .......................................................................... 8 
`1.  Multi-Game Library Subscription Services .......................... 9 
`2.  Cloud Gaming ...................................................................... 10 
`3.  Console Gaming ................................................................... 12 
`D.  Enforcement Proceedings .................................................................. 12 
`E.  The District Court Proceedings and Order on Review ..................... 14 
`Summary of Argument ............................................................................. 17 
`Standard of Review .................................................................................. 22 
`Argument .................................................................................................. 22 
`I.  The District Court Misapplied The Standard For
`Preliminary Relief That Section 13(b) Of The FTC Act
`Sets Forth For FTC Cases ................................................................. 23 
`A.  The District Court Erroneously Conflated Section
`13(b)’s Preliminary Injunction Standard With the
`Clayton Act’s Ultimate Merits Standard ................................... 23 
`B.  The FTC Has Marshalled Compelling Evidence That
`the Merger May Substantially Lessen Competition ................. 28 
`
`i
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`

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`1.  Microsoft’s incentives to foreclose ....................................... 29 
`2.  Lessening of competition in the multi-game
`subscription market ............................................................. 31 
`3.  Lessening of competition in cloud gaming .......................... 33 
`4.  Lessening of competition in the console market ................ 34 
`C.  The District Court Erred in Ruling That a Purported
`Efficiency Negates the Foreclosure in the Market for
`Multi-Game Subscription Services ............................................ 36 
`D.  The District Court Impermissibly Relied on
`Defendants’ Proposed Remedies to Deny Relief ........................ 45 
`1.  The district court relied on Microsoft’s side deals
`to find no likelihood of success ............................................ 46 
`2.  Proposed remedies cannot be considered at the
`preliminary relief stage of merger analysis ........................ 48 
`3.  The district court should have deferred to the
`FTC’s expertise in antitrust remedies rather
`than evaluating the side deals itself ................................... 55 
`II.  The District Court Erred in Dismissing the Supreme
`Court’s Brown Shoe Liability Framework ........................................ 58 
`III. The District Court Committed Other Reversible Errors ................. 62 
`A.  Microsoft’s Incentives to Foreclose Cannot Be
`Negated by Its Executives’ Stated Intent Not to Do
`So ................................................................................................. 62 
`B.  Partial Foreclosure Is Likely Even Absent the
`Incentives for Full Foreclosure .................................................. 65 
`IV.  The District Court Erred in According No Weight to the
`Public Equities that Favor Relief ...................................................... 68 
`Conclusion ................................................................................................. 74 
`Statement of Related Cases ..................................................................... 74 
`
`
`
`ii
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`

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`
`TABLE OF AUTHORITIES
`
`CASES
`
`PAGE
`
`Ash Grove Cement Co. v. FTC,
` 577 F.2d 1368 (9th Cir. 1978) ........................................................ 37, 44
`
`Aspen Skiing Co. v. Aspen Highlands Skiing Corp.,
` 472 U.S. 585 (1985) .............................................................................. 63
`
`Atl. Refining Co. v. FTC,
` 381 U.S. 357 (1965) .............................................................................. 56
`
`Brown Shoe Co. v. United States,
` 370 U.S. 294 (1962) ...................................................................... passim
`
`Cal. Dental Ass’n v. FTC,
` 224 F.3d 942 (9th Cir. 2000) ................................................................ 63
`
`Chicago Bd. of Trade v. United States,
` 246 U.S. 231 (1918) .............................................................................. 63
`
`Chicago Bridge & Iron Co. N.V. v. FTC,
` 534 F.3d 410 (5th Cir. 2008) .......................................................... 56, 64
`
`Crown Zellerbach Corp. v. FTC,
` 296 F.2d 800 (9th Cir. 1961) ............................................................ 5, 37
`
`Filtrol Corp. v. Slick Corp.,
` No. 69-607, 1969 WL 219 (C.D. Cal. Dec. 29, 1969) ........................... 72
`
`Ford Motor Co. v. United States,
` 405 U.S. 562 (1972) ........................................................................ 44, 59
`
`Fruehauf Corp. v. FTC,
` 603 F.2d 345 (2nd Cir. 1979) ............................................................... 59
`
`iii
`
`

`

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`CASES (CONT’D)
`
`PAGE
`
`FTC v. Affordable Media, LLC,
` 179 F.3d 1228 (9th Cir. 1999) .................................................... 6, 23, 69
`
`FTC v. Cement Institute,
` 333 U.S. 683 (1948) .............................................................................. 56
`
`FTC v. Consumer Def., LLC,
` 926 F.3d 1208 (9th Cir. 2019) .............................................................. 22
`
`FTC v. Elders Grain, Inc.,
` 868 F.2d 901 (7th Cir. 1989) .................................................... 24, 43, 70
`
`FTC v. Enforma Nat. Prods.,
` 362 F.3d 1204 (9th Cir. 2004) .............................................................. 22
`
`FTC. v. Food Town Stores, Inc.,
` 539 F.2d 1339 (4th Cir. 1976) .............................................. 6, 27, 49, 73
`
`FTC v. Hackensack Meridian Health, Inc.,
` 30 F.4th 160 (3d Cir. 2022) ............................................................ 40, 42
`
`FTC v. H.J. Heinz Co.,
` 246 F.3d 708 (D.C. Cir. 2001) ...................................................... passim
`
`FTC v. Ind. Fed’n of Dentists,
` 476 U.S. 447 (1986) ................................................................................ 5
`
`FTC v. Meta Platforms Inc.,
` No. 22-4325, 2022 WL 16637996 (N.D. Cal. Nov. 2, 2022) .................. 7
`
`FTC v. Nat’l Lead Co.,
` 352 U.S. 419 (1957) ........................................................................ 56, 57
`
`FTC v. Penn St. Hershey Med. Ctr.,
` 838 F.3d 327 (3rd Cir. 2016) ........................................................ passim
`
`
`iv
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`

`

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`CASES (CONT’D)
`
`PAGE
`
`FTC v. Procter & Gamble Co.,
` 386 U.S. 568 (1967) ........................................................................ 24, 38
`
`FTC v. Univ. Health, Inc.,
` 938 F.2d 1206 (11th Cir. 1991) ............................................................ 73
`
`FTC v. Warner Commc’ns Inc.,
` 742 F.2d 1156 (9th Cir. 1984) ...................................................... passim
`
`FTC v. Weyerhaeuser Co.,
` 665 F.2d 1072 (D.C. Cir. 1981) ............................................................ 69
`
`FTC v. Whole Foods Mkt. Inc.,
` 548 F.3d 1028 (D.C. Cir. 2008) .................................................... passim
`
`Hospital Corp. of Am. v. FTC,
` 807 F.2d 1381 (7th Cir. 1986) .................................................. 45, 57, 64
`
`Jacob Siegel Co. v. FTC,
` 327 U.S. 608 (1946) .............................................................................. 57
`
`L.G. Balfour Co. v. FTC,
` 442 F.2d 1 (7th Cir. 1971) .................................................................... 56
`
`Miss. River Corp. v. FTC,
` 454 F.2d 1083 (8th Cir. 1972) ........................................................ 62, 63
`
`Olin Corp. v. FTC,
` 986 F.2d 1295 (9th Cir. 1993) .............................................................. 56
`
`ProMedica Health Sys., Inc. v. FTC,
` 749 F.3d 559 (6th Cir. 2014) ................................................................ 56
`
`Standard Oil Co. of Cal. v. United States,
` 337 U.S. 293 (1949) .............................................................................. 37
`
`
`v
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`

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`CASES (CONT’D)
`
`PAGE
`
`Steves & Sons, Inc. v. JELD-WEN, Inc.,
` 988 F.3d 690 (4th Cir. 2021) ................................................................ 24
`
`St. Alphonsus Med. Ctr.-Nampa Inc. v. St. Luke’s Health Sys. Ltd.,
` 778 F.3d 775 (9th Cir. 2015) ........................................................ passim
`
`United States v. Aetna Inc.,
` 240 F. Supp. 3d 1 (D.D.C. 2017) .................................................... 52, 64
`
`United States v. Am. Cyanamid Co.,
` 719 F.2d 558 (2nd Cir. 1983) ................................................... 58, 59, 61
`
`United States v. Anthem,
` 855 F.3d 345 (D.C. Cir. 2017) .............................................................. 39
`
`United States v. AT&T, Inc.,
` 916 F.3d 1029 (D.C. Cir. 2019) ................................................ 26, 49, 64
`
`United States v. E.I. du Pont de Nemours & Co.,
` 353 U.S. 586 (1957) .................................................................. 23, 62, 67
`
`United States v. E. I. du Pont de Nemours & Co.,
` 366 U.S. 316 (1961) ........................................................................ 49, 52
`
`United States v. General Dynamics Corp.,
` 415 U.S. 486 (1974) .............................................................................. 44
`
`United States v. Greater Buffalo Press, Inc.,
` 402 U.S. 549 (1971) .............................................................................. 48
`
`United States v. Microsoft Corp.,
` 253 F.3d 34 (D.C. Cir. 2001) .................................................... 44, 48, 63
`
`United States v. Philadelphia Nat’l Bank,
` 374 U.S. 321 (1963) .............................................................................. 23
`
`
`vi
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`

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`CASES (CONT’D)
`
`PAGE
`
`United States v. Sybron Corp.,
` 329 F. Supp. 919 (E.D. Pa. 1971) ........................................................ 67
`
`
`STATUTES, RULES, & REGULATIONS
`
`15 U.S.C. § 18 ........................................................................................ 5, 23
`
`
`§ 21(a) ......................................................................................... 5
`
`
`§ 21(b) ................................................................................... 5, 56
`
`
`§ 21(c) .......................................................................................... 6
`
`
`§ 45(a) ......................................................................................... 5
`
`
`§ 45(a)(1) ..................................................................................... 5
`
`
`§ 45(b) ......................................................................................... 5
`
`
`§ 45(c) .......................................................................................... 6
`
`
`§ 47 ............................................................................................ 57
`
`
`§ 53(b) ....................................................................... 6, 14, 22, 69
`
`28 U.S.C. § 1292(a)(1) ................................................................................. 3
`
`
`§ 1331 .......................................................................................... 3
`
`
`§ 1337(a) ..................................................................................... 3
`
`
`§ 1345 .......................................................................................... 3
`
`Fed. R. App. P. 4(a)(1)(B)(ii) ....................................................................... 3
`
`
`MISCELLANEOUS
`
`H.R. Rep. 93-624 (1973),
`
`reprinted in 1973 U.S.C.C.A.N. 2417. ........................................... 22, 23
`
`Steven Salop & Jennifer Sturiale,
` Vertical Merger Enforcement in the Draft Merger Guidelines,
` PROMARKET (July 28, 2023) ............................................................. 67
`
`
`
`
`vii
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`

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`MISCELLANEOUS (CONT’D)
`
`PAGE
`
`Tom Warren,
`
`Is Microsoft Getting Ready to Add PC Games to
` Xbox Cloud Gaming, THE VERGE (Apr. 11, 2023) ........................... 54
`
`
`
`viii
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`

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`INTRODUCTION
`Microsoft Corp. has proposed to acquire Activision Blizzard, Inc.
`
`for $69 billion, in a vertical merger that would restructure the 3 billion-
`
`user gaming industry. In what would be the largest ever deal in that
`
`industry, the merger would combine the owner of one of the principal
`
`playing platforms, Microsoft, with one of the “Big 4” independent game
`
`publishers, Activision.
`
`The Federal Trade Commission (FTC or Commission) filed an
`
`administrative complaint to determine whether the proposed
`
`acquisition violates antitrust law. If the merger is consummated and
`
`reaches its potential for harm, it would enable Microsoft—at a key
`
`inflection point in a massive and growing industry—to foreclose
`
`platform rivals from a leading input provider: Activision, which
`
`produces some of the industry’s most popular games. At stake,
`
`therefore, is whether the emerging subscription and cloud gaming
`
`markets will calcify into oligopolistic walled gardens or evolve into open,
`
`competitive landscapes, where games are platform-agnostic, new
`
`platforms can emerge to challenge established incumbents, and
`
`consumers are free to choose where and how to access their games.
`
`
`
`

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`To aid its administrative proceedings, the FTC sought a
`
`preliminary injunction under Section 13(b) of the FTC Act to pause the
`
`merger pending a merits determination. Section 13(b) authorizes such
`
`relief whenever the FTC raises serious, substantial questions on the
`
`antitrust merits and the equities favor granting relief. Here, the FTC
`
`presented compelling evidence that the merger is reasonably likely to
`
`substantially lessen competition in multiple relevant markets—more
`
`than meeting the statutory standard.
`
`The district court nonetheless erroneously denied preliminary
`
`relief based on reasoning containing multiple errors. Throughout its
`
`decision, the court effectively applied the ultimate merits standard
`
`rather than Section 13(b)’s preliminary injunction standard. For one
`
`market, the court identified a foreclosure of rivals that was sufficient to
`
`raise a serious question about the legality of the merger, yet
`
`disregarded that foreclosure after erroneously crediting a supposed
`
`efficiency that was not cognizable, verifiable, or merger-specific. For two
`
`other markets, the court impermissibly gave dispositive weight to the
`
`merging parties’ proposed remedies although the scope of the merger’s
`
`harm has yet to be finally determined, making it impossible for the
`
`2
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`

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`court to evaluate whether the proposed remedies would sufficiently
`
`address that harm. The district court thus usurped the Commission’s
`
`role in determining the antitrust merits and did so on an admittedly
`
`limited record. The district court also misapplied the Supreme Court’s
`
`traditional liability framework for vertical mergers, and failed to follow
`
`established precedent concerning the role of intent in antitrust analysis,
`
`the viability of partial foreclosure theory, and the balance of equities
`
`under Section 13(b).
`
`CIRCUIT RULE 28-2 STATEMENT OF JURISDICTION
`(a) The district court had subject matter jurisdiction pursuant to
`
`28 U.S.C. §§ 1331, 1337(a), and 1345.
`
`(b) The decision on review denied a preliminary injunction, and is
`
`thus appealable under 28 U.S.C. § 1292(a)(1), pursuant to which this
`
`Court has jurisdiction.
`
`(c) The district court’s decision was dated July 10, 2023, and
`
`docketed on July 11, 2023. Appellant, a United States agency, timely
`
`filed its notice of appeal on July 12, 2023. Fed. R. App. P. 4(a)(1)(B)(ii).
`
`STATEMENT OF THE ISSUES PRESENTED
`1. Whether the district court erred when it rejected the FTC’s
`
`showing of a likelihood of success on the antitrust merits based on:
`
`3
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`

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`a. application of an incorrect legal standard for relief;
`
`b. a premature and improper determination that the harm
`
`from Microsoft’s foreclosure of rivals in the market for multi-game
`
`subscription services is outweighed by Microsoft’s offering some
`
`Activision content on only Microsoft’s own service in that market;
`
`c. an impermissible reliance on the merging parties’
`
`proffered remedies at the preliminary injunction stage.
`
`2. Whether the district court erred in failing to properly apply the
`
`functional liability framework set forth in Brown Shoe Co. v. United
`
`States, 370 U.S. 294 (1962).
`
`3. Whether the district court erred in:
`
`a. ruling that Microsoft’s post-merger incentives to foreclose
`
`are negated by its executives’ stated intent to forgo doing so; and
`
`b. holding that partial foreclosure is not possible without the
`
`incentives for full foreclosure.
`
`4. Whether the district court erred in according no weight to the
`
`public equities favoring preliminary relief.
`
`4
`
`

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`STATEMENT OF THE CASE
`A. Statutory Framework
`Section 7 of the Clayton Act prohibits mergers “the effect of” which
`
`“may be substantially to lessen competition” in “any line of commerce.”
`
`15 U.S.C. § 18. “In the statutory phrase ‘in any line of commerce’, the
`
`word entitled to emphasis is ‘any’.” Crown Zellerbach Corp. v. FTC, 296
`
`F.2d 800, 812 (9th Cir. 1961).
`
`Section 5 of the FTC Act, in turn, proscribes “[u]nfair methods of
`
`competition in or affecting commerce.” 15 U.S.C. § 45(a)(1). An
`
`acquisition that violates Section 7 of the Clayton Act, by definition, also
`
`violates Section 5 of the FTC Act. FTC v. Ind. Fed’n of Dentists, 476
`
`U.S. 447, 454 (1986).
`
`Congress “empowered and directed” the FTC to enforce Section 5
`
`of the FTC Act, and “vested” in the agency the power to enforce Section
`
`7 of the Clayton Act. 15 U.S.C. §§ 45(a), 21(a).
`
`The FTC may enforce these statutory mandates by issuing an
`
`administrative complaint, holding an adjudicatory hearing to determine
`
`the antitrust merits, and, if law violations are found, issuing a cease
`
`and desist order with appropriate remedies, including blocking the
`
`merger and divestiture. See 15 U.S.C. §§ 21(b), 45(b). The cease and
`
`5
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`

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`desist order is subject to review in an appropriate court of appeals. Id.
`
`§§ 21(c), 45(c).
`
`To aid the FTC’s administrative adjudication, Section 13(b) of the
`
`FTC Act authorizes the FTC to seek preliminary relief to prevent
`
`consummation of a merger until the Commission has the opportunity to
`
`determine the merger’s legality in its administrative proceeding.
`
`15 U.S.C. § 53(b); FTC v. Affordable Media, LLC, 179 F.3d 1228, 1233
`
`(9th Cir. 1999).
`
`Section 13(b) preliminary injunctions “are meant to be readily
`
`available to preserve the status quo while the FTC develops its ultimate
`
`case.” FTC v. Whole Foods Mkt. Inc., 548 F.3d 1028, 1036 (D.C. Cir.
`
`2008); see FTC v. Penn St. Hershey Med. Ctr., 838 F.3d 327, 352 (3rd
`
`Cir. 2016) (purpose of Section 13(b) “is to preserve the status quo and
`
`allow the FTC to adjudicate the anticompetitive effects of the proposed
`
`merger in the first instance”); FTC. v. Food Town Stores, Inc., 539 F.2d
`
`1339, 1342 (4th Cir. 1976) (“The only purpose of a proceeding under § 13
`
`is to preserve the status quo until FTC can perform its function.”).
`
`Accordingly, the scope of court proceedings under Section 13(b) is
`
`“narrow.” FTC v. Warner Commc’ns Inc., 742 F.2d 1156, 1162 (9th Cir.
`
`6
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`

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`1984) (per curiam); accord FTC v. Meta Platforms Inc., No. 22-4325,
`
`2022 WL 16637996, at *5 (N.D. Cal. Nov. 2, 2022) (scope is “necessarily
`
`limited and narrow”). The court “is not to make a final determination on
`
`whether the proposed merger violates Section 7.” Warner Commc’ns,
`
`742 F.2d at 1162. “That adjudicatory function is vested in the FTC in
`
`the first instance.” Whole Foods, 548 F.3d at 1042 (Tatel, J.,
`
`concurring). The court’s task is “rather to make only a preliminary
`
`assessment of the merger’s impact on competition.” Warner Commc’ns,
`
`742 F.2d at 1162.
`
`B. The Proposed Acquisition
`In January 2022, Microsoft and Activision announced a planned
`
`$68.7 billion merger, the largest ever deal in the gaming industry and
`
`in Microsoft’s history. PX9050 at 25 [2-ER-184]. Microsoft’s video
`
`gaming business includes multiple playing platforms: Xbox GamePass,
`
`a multi-game library subscription service; Xbox Cloud Gaming (or
`
`xCloud), a games streaming service; and the Xbox specialized gaming
`
`console. PX9050 at 15 [2-ER-183]. Microsoft also publishes games
`
`through its Xbox Game Studios, comprising 24 separate game
`
`development studios. PX0003 at 16 [3-ER-469].
`
`7
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`Activision develops video games, and is easily one of the largest
`
`independent game publishers. Its current titles include Diablo,
`
`Overwatch, Candy Crush (for mobile devices), World of Warcraft (for
`
`PCs), and Call of Duty—the most successful video game franchise in the
`
`industry’s history, earning approximately
`
` in sales annually.
`
`ECF_226-2 at 7 [3-ER-292].
`
`C. The Gaming Industry
`The gaming industry has over 3 billion players worldwide, with
`
`revenues exceeding those of the film, music, and print entertainment
`
`industries. PX1777 at 32-33 [3-ER-429-30]. It is the fastest-growing
`
`entertainment medium, expected to reach 4.5 billion consumers by
`
`2030. PX1785 at 9 [3-ER-422].
`
`Video games can be played on general-purpose or gaming PCs,
`
`consoles, and mobile devices. PX1777 at 33 [3-ER-430]. Gaming PCs
`
`typically have more advanced hardware, allowing users to play
`
`computationally more demanding games. PX8001 ¶15 [3-ER-230-31].
`
`Conversely, games played on mobile devices have lower-quality
`
`graphics and typically are less sophisticated. PX0003 at 73 [3-ER-476].
`
`8
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`Consumers and industry participants agree that gaming content
`
`drives the sales of both the games and the platforms required to play
`
`them. See PX1087 at 1 [3-ER-453] (“content is king”). “AAA” video
`
`games (those requiring the most resources to develop and to play, and
`
`that command the broadest appeal for gamers) require hundreds of
`
`millions of dollars, hundreds of personnel, and years to make. PX4671
`
`at 1 [3-ER-380]; PX8001 ¶¶20-23 [3-ER-302-303]. These games are
`
`particularly important in the gaming industry; platforms employ AAA
`
`titles to attract users, build their gaming ecosystems, and gain a
`
`competitive advantage over rivals. PX8001 ¶¶18-23 [3-ER-302-303].
`
`1. Multi-Game Library Subscription Services
`The gaming industry is experiencing rapid change. Today, gamers
`
`can play via a subscription to a multi-game library service, with tiered
`
`access to hundreds of games for a recurring fee. Hr’g Tr. 138:2-9 [2-ER-
`
`151]; PX0003 at 18 [3-ER-471]; PX0006 at 13-14 [3-ER-465-66]. This
`
`differs markedly from the traditional buy-to-play model in which
`
`gamers purchased outright the games they played on their personal
`
`hardware devices.
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`Microsoft’s Xbox GamePass, launched in 2017, is already far and
`
`away the dominant multi-game subscription service. PX0006 at 13 [3-
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`ER-465]; PX1516 at 39 [3-ER-443]; PX8001 ¶9 [3-ER-297-98]. Sony’s
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`PlayStationPlus ranks second but well behind. PX7053 at 17-19 [3-ER-
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`341]; PX8001 ¶9 [3-ER-297-98]. Other firms, like Amazon (via Prime
`
`Gaming and Luna+), Electronic Arts (via EA Play), and Ubisoft (via
`
`Ubisoft+) provide similar services, albeit to far fewer users currently.
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`PX3206 at 4 [3-ER-409]; PX0003 at 18-19 [3-ER-471-72]; PX0006 at 80
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`[3-ER-467].
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`2. Cloud Gaming
`Cloud gaming—which Microsoft views as “the future of gaming”—
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`is another nascent but rapidly growing segment of the industry. PX3381
`
`at 6 [3-ER-399]. It lets gamers stream the game’s video content without
`
`downloading the code onto the gamer’s device, be that consoles, PCs,
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`mobile devices, or (in the case of Microsoft’s xCloud) smart TVs. PX8000
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`¶¶6-7, 50 [3-ER-313, 323]; PX0003 at 77 [3-ER-477]; Hr’g Tr. 846:9-13
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`[2-ER-110]. Cloud gaming services run games on remote servers so that
`
`the primary processing occurs in separate datacenters and only live
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`video feeds of the games are streamed to the player’s device. PX0003 at
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`95 [3-ER-478]; PX8000 ¶7 [3-ER-313]; PX3381 at 2-3 [3-ER-397-98].
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`This enables playing computationally demanding games on less
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`powerful devices. PX8000 ¶7 [3-ER-313]; PX0003 at 77 [3-ER-477]; Hr’g
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`Tr. 64:8-10, 467:24-468:22 [2-ER-145, 139-40]; PX3381 at 2 [3-ER-397].
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`Cloud gaming “has helped AAA gaming reach users in lower
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`socioeconomic groups who otherwise would not be able to purchase, or
`
`could not afford, their own video game system or gaming PC.” PX8000
`
`¶10 [3-ER-314].
`
`Microsoft’s xCloud is already the dominant leader in this market,
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`and is a core pillar of Microsoft’s gaming business strategy. Hr’g Tr.
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`835-844 [2-ER-99-108]. Microsoft introduced xCloud in late 2020.
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`PX9091 at 1-6 [2-ER-176-81]. Millions of gamers already have used
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`xCloud, PX9171 at 17 [2-ER-175], and internal Microsoft documents
`
`predict that cloud gaming will “dramatically expand [Microsoft’s]
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`market opportunity.” Hr’g Tr. 308:4-11 [2-ER-125]; PX1065 at 17 [3-ER-
`
`456].
`
`Other participants in the cloud gaming market include Amazon,
`
`Nvidia, and Sony. PX0003 at 68 [3-ER-475]; PX8001 ¶9 [3-ER-297-98].
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`The ability for new entrants to access gaming content is critical; Google
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`exited that market in January 2023, citing the high cost and difficulty
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`of securing gaming content for its service. Hr’g Tr. 470-471 [2-ER-141-
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`42].
`
`3. Console Gaming
`Gaming consoles are consumer devices designed especially for
`
`playing video games. PX8001 ¶10 [3-ER-298]. Consumers purchase
`
`consoles based on hardware features as well as the availability of game
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`content on the particular device. PX8001 ¶¶4, 11 [3-ER-295-96, 298].
`
`Currently, the two high-performance consoles are Microsoft’s Xbox
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`Series X/S and Sony’s PlayStation5, both in their ninth design iteration
`
`(or generation). PX0003 at 60, 105 [3-ER-474, 479]; PX2421 at 8-9 [3-
`
`ER-415-16]. Console makers generate revenue from sales of their
`
`hardware and accessories (like controllers, headsets, and storage
`
`drives), and from having a share of the revenue of publishers like
`
`Activision from game sales, add-on content sales, and in-game
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`purchases. PX0003 at 16 [3-ER-469]; PX1110 at 12 [3-ER-452]; PX8001
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`¶¶4-5 [3-ER-295-96].
`
`D. Enforcement Proceedings
`In December 2022, the Commission commenced administrative
`
`proceedings to determine if the proposed merger violates Section 7 of
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`the Clayton Act and Section 5 of the FTC Act. See Complaint, In the
`
`Matter of Microsoft Corp. et al., FTC Dkt. 9412 (Dec. 8, 2022) (Admin.
`
`Cmplt.), at 1. The administrative complaint alleged that the merger, if
`
`consummated, “would continue Microsoft’s pattern of taking control of
`
`valuable gaming content,” increase barriers to entry, and give Microsoft
`
`“the ability and increased incentive to withhold or degrade Activision’s
`
`content in ways that substantially lessen competition” in quality, price,
`
`and innovation. Admin. Cmplt. ¶1. The complaint alleged a lessening of
`
`competition was reasonably likely in at least three distinct U.S.
`
`markets (id. ¶¶92-95): (1) high-performance consoles, id. ¶¶63-72;
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`(2) multi-game subscription services, id. ¶¶73-82; and (3) cloud gaming
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`services, id. ¶¶83-91.
`
`An administrative hearing on the merits was set for August 2,
`
`2023, ECF_1 ¶16 [3-ER-553], but later put on hold. Order Withdrawing
`
`Matter from Adjudication, In the Matter of Microsoft Corp. et al., FTC
`
`Dkt. 9412 (July 20, 2023).
`
`Meanwhile, on April 26, 2023, the U.K. Competition & Markets
`
`Authority (UKCMA), following its own investigation, issued a finding
`
`that the merger violated UK competition law because it was likely to
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`substantially lessen competition in the market for cloud gaming—one of
`
`the product markets in the FTC’s complaint. ECF_10-7. In May 2023,
`
`the UKCMA issued an interim injunction and a proposed final order to
`
`prohibit the merger for ten years. Id.
`
`E. The District Court Proceedings and Order on Review
`In light of Microsoft’s representations to the district court in a
`
`parallel, private challenge to the merger about the merging parties’
`
`consummation timeline—and UKCMA’s later interim order, ECF_10-
`
`7—the FTC initially focused on its administrative adjudication.
`
`Defendants later represented to the FTC, however, that they might
`
`close their deal well before the August 2 administrative merits hearing.
`
`ECF_1 at 2-3 [3-ER-548-49]. Thus, on June 12, 2023, the FTC filed this
`
`action for a preliminary injunction pursuant to Section 13(b) of the FTC
`
`Act, 15 U.S.C. § 53(b). See ECF_1 at 2-3 [3-ER-548-49].
`
`The district court ordered an expedited hearing based on
`
`defendants’ representations that a merger termination deadline of July
`
`18, 2023, was looming. Op. 20 [1-ER-21]. Shortly after the district court
`
`issued its opinion, however, the merging parties negotiated an
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`extension of that termination deadline until October 18, 2023.
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`Activision Blizzard, Inc. Current Report (SEC Form 8-K), July 19, 2023.
`
`Following the hearing, the distr