The move by the commission signals an aggressive stance by federal regulators to thwart the expansion of the tech industry’s biggest companies.
The Federal Trade Commission, in one of the most aggressive actions taken by federal regulators in decades to check the power of the tech industry’s giants, on Thursday sued to block Microsoft’s $69 billion acquisition of the video game maker Activision Blizzard.
The F.T.C. said that the deal would harm consumers because Microsoft could use Activision’s blockbuster games like Call of Duty to lure gamers from rivals. The agency’s commissioners voted 3to 1 to approve filing the suit.
The decision is a blow to the expansion of Microsoft’s video game business, which has become its most important consumer unit and topped $16 billion in annual sales during the most recent fiscal year. For the F.T.C. chair, Lina Khan, a legal scholar who rocketed to fame after she wrote an article criticizing Amazon, the lawsuit will test whether her aggressive plan to rein in the power of Big Tech can survive in the courts.
Microsoft’s acquisition of Activision would be the largest consumer technology deal since AOL bought Time Warner two decades ago. It would marry Microsoft’s Xbox console and game streaming service, which many consider gaming’s future, with Activision titles like Call of Duty and Candy Crush. The scale of those games is enormous: Activision says it has almost 370 million active users each month.
“Microsoft has already shown that it can and will withhold content from its gaming rivals,” said Holly Vedova, director of the F.T.C.’s Bureau of Competition, in a statement. “Today we seek to stop Microsoft from gaining control over a leading independent game studio and using it to harm competition in multiple dynamic and fast-growing gaming markets.”
Microsoft indicated it would not abandon the deal and would fight in court to keep the acquisition alive.
“We continue to believe that this deal will expand competition and create more opportunities for gamers and game developers,” Brad Smith, Microsoft’s president, said in a statement. “We have been committed since day one to addressing competition concerns, including by offering earlier this week proposed concessions to the F.T.C. While we believed in giving peace a chance, we have complete confidence in our case and welcome the opportunity to present our case in court.”
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In an email to Activision employees, Bobby Kotick, Activision’s chief executive, said the F.T.C.’s move was the result of a regulatory environment based on “ideology and misconceptions about the tech industry.”
“I want to reinforce my confidence that this deal will close,” he wrote. “The allegation that this deal is anti-competitive doesn’t align with the facts, and we believe we’ll win this challenge.”
The deal between Microsoft and Activision has been under review by 16 regulators around the world, but the F.T.C. is the first of three key regulators, including in Britain and the European Union, to reach a decision on the acquisition.
Microsoft has argued that the deal benefits consumers because Microsoft could make Activision’s broad library of games available to more people on different platforms and as part of a bundled subscription to Xbox Game Pass, its Netflix-like streaming offering, instead of downloading and buying each game individually.
But the F.T.C. said customers would be harmed because Microsoft could misuse Activision’s hugely popular games to its advantage, by withholding them from competitors like Sony or leveraging them to get an upper hand as more gaming is streamed online by harnessing the power of Microsoft’s data centers.
Legal experts said the case could be challenging for the F.T.C. to win because Microsoft and Activision do not really play in the same industry, reducing potential monopoly concerns. But the F.T.C. may be trying to pressure European regulators to step up, while making it more difficult for the companies to complete their deal.
The lawsuit follows a final scramble by Microsoft to assuage regulators’ concerns.
In mid-November, Microsoft offered Call of Duty to Sony for 10 years, significantly longer than in a previous offer. On Monday, Mr. Smith, Microsoft’s president who leads its lobbying operations, said in a Wall Street Journal opinion piece that the company was “open to providing the same commitment to other platforms and making it legally enforceable by regulators in the U.S., U.K. and European Union.”
Late Tuesday night, in an announcement intended to placate regulators, Microsoft said it reached a deal to bring the Call of Duty franchise to Nintendo’s Switch devices — where the games currently are not available — for 10 years if the Activision deal closes.
Microsoft has also gone on the offensive against Sony, which emerged in recent months as the primary opponent of the Activision deal. Sony, which makes the popular video game console PlayStation, told British regulators that the acquisition would put crucial games “under Microsoft’s sole control, giving it an unprecedented content advantage,” and that Microsoft had not offered to make Call of Duty available on Sony’s game streaming service.
In statements, Microsoft has needled its rival directly, including in a Twitter post from Mr. Smith on Tuesday night after the Nintendo deal was announced.
“Any day @Sony wants to sit down and talk, we’ll be happy to hammer out a 10-year deal for PlayStation as well,” he wrote.
Sony declined to comment on the F.T.C.’s decision on Thursday.
Ms. Khan has been skeptical that such promises from companies are better than forcing them to divest assets as part of getting a deal approved or blocking a deal outright. She has said the agency should be more open to filing risky cases that could fail in court if they stretch the boundaries of antitrust law.
The F.T.C. sued in July to block Meta, Facebook’s parent company, from buying a virtual reality start-up for $400 million in a case drawing on little-used legal arguments. A judge began a multiday hearing in the case on Thursday that could determine the fate of the F.T.C.’s suit.
Ms. Khan, who was appointed by President Biden, “has been signaling an appetite to challenge a lot of mergers and not consider a lot of remedies,” like changes to business practices that would make a deal more palatable to regulators, said Maureen Ohlhausen, a former Republican chair of the F.T.C.
When Microsoft announced the deal to acquire Activision in January, it said it wanted to get a toehold in mobile gaming, where Microsoft barely competes, and acquire a studio that produces hugely popular games, which would make its consoles and game subscription service more appealing. Microsoft’s powerful computing infrastructure and deep pockets make it a leader in the gaming space, but it has struggled to produce hit titles at the same rate as Sony or Nintendo.
Phil Spencer, chief executive of Microsoft’s video game business, called Call of Duty “one of the amazing entertainment franchises on the planet.”
Microsoft indicated approvals would be a substantial hurdle, and told investors it could take 18 months to close. It agreed to pay as much as $3 billion to Activision if the deal falls apart.
Microsoft pursued Activision when the game maker was a troubled company, reeling from a lawsuit filed by a California regulator that accused it of fostering a toxic workplace culture in which women were routinely sexually harassed. For months, Activision employees staged intermittent walkouts and some top executives departed.
Ms. Khan has taken a greater interest in scrutinizing how mergers could hurt workers, and the Communications Workers of America, which had been organizing workers at Activision, initially expressed reservations about the deal. In June, Microsoft announced an agreement with the union where it promised not to oppose unionization at Activision.
In October, the union’s president, Chris Shelton, met with Ms. Khan to praise Microsoft’s commitment to remain neutral in union campaigns and said the deal should be approved. In an opinion piece in The Hill on Monday, Mr. Shelton wrote that approving the deal “would send a game-changing message to corporate America” that labor concerns matter.
Kellen Browning contributed reporting.