Microsoft-Activision-Blizzard Discussion Thread |OT3| - Sony bends the knee!

[Haven (Victor)]

@ShinMegamiTenseiX

Nah. They would have blocked Bethesda in that case. I just think Activision is that huge it went under scrutiny. If they tried to acquire a Japanese company the CMA have 0 grounds for doing anything because those software are tiny compared to ABK.

I don’t think the Zenimax acquisition fell under them (CMA). I think it was just the EC that reviewed that deal.

[EPC]

CMA existed before Brexit, but it was only looking at small cases that EC was not handling. It is plausible that CMA disagreed on the Bethesda case but could not prevail on EC.

[Haven (Victor)]

@EPC

CMA existed before Brexit, but it was only looking at small cases that EC was not handling. It is plausible that CMA disagreed on the Bethesda case but could not prevail on EC.

I don’t think the CMA reviewed the ZENIMAX deal at all. I haven’t seen any reference that they had any regulatory involvement, and the FTC only quoted the EC.

[MJ_INC]

@Zappy5

The U.K. is a considerable larger pot than that and their turnover is routed through Ireland and the EU for tax reasons so it’s not a known amount.

It’s simply not going to happen and Nadella having a laugh in an interview is being taken to ridiculous levels. Tom Warren is on the money here.

It’s not happening and forget the revenue for a second…it would completely destroy Microsoft’s reputation globally they’d not be trusted by regulators, countries, and would lose huge swathes of their business. Just the NHS alone and the impact of them no longer using MS products would have a massive international knock on effect.

I’m not sure where you get your data on how much Microsoft make in the UK. From what I’ve seen of different analysis the US makes up a little less then 50% of Microsoft’s revenue so the rest of the world would be a little more then 50%. There doesn’t seem to be any data on the breakdown for the rest of the world but going off azure data centers, staff counts(about 5000-6000 people) and other data, I can’t see how the UK can be much more then a few percent of Microsoft’s total income.

[EPC]

@Haven

I don’t think the CMA reviewed the ZENIMAX deal at all. I haven’t seen any reference that they had any regulatory involvement, and the FTC only quoted the EC.

They were not involved. I have read they regret not to be. Notice that it happened during the Brexit, so everything about EC was badly resented.

[EPC]

My personal feeling, they had contact with FTC that pushed them to block. They thought they will appear as a mature player by blocking like FTC.

There have been debates on how FTC was powerless against MS and wanted the other regulators to do what they could not do effectively. I think CMA was thinking to be with the group by blocking.

Another possibility, they have written quite soon that EC and CMA could differ. It was quite a fast comment considering the hearings were not finished. Like they knew all along that they would block.

[anon74828371]

Some interesting posts

The Microsoft / Activision Blizzard acquisition |OT| Antitrust Simulator...

People are trying to look at how normal merger cases are handled by the CMA/CAT and other regulatory bodies, but this case is absolutely not a conventional case. This is the first case (to my knowledge) where any regulator has attempted to regulate a nascent technology market. The traditional rule was that regulators would avoid intervening in nascent markets to avoid killing such a market in its infancy. This case is also novel because the CMA is effectively arguing that MS’s high degree of vertical integration and resources with regards to a nascent market is an independent grounds for blocking a vertical merger. The highly novel nature of the legal/policy questions involved in this case mean that it is difficult to know what is going to happen here. Just because something normally happens in conventional merger cases does not mean that it will happen here. We are all in uncharted territory here

/

I do not think that CAT will be sympathetic to the view that “contract law is meaningless”. CAT has previously stated in cases that it presumes that parties will fulfill their legal obligations. I really doubt they will say that the CMA is acting rationally by assuming all contracts are easily broken and MS only has a incentive to break their contracts. That type of thinking is better described as “paranoid” rather than “rational”.

/

(regarding automatic remittal to the CMA)

The Competition Appeal Tribunal may—

(a) dismiss the application or quash the whole or part of the decision to which it relates; and (b) where it quashes the whole or part of that decision, refer the matter back to the original decision maker with a direction to reconsider and make a new decision in accordance with the ruling of the Competition Appeal Tribunal.

Keep in mind that the statute uses the term “may”, which CAT has interpreted as discretionary (meaning that these are options, not hard limits). While interpreting this part of the statute, the CAT has written. “The presence of an express discretion regarding remedy (“may”) strongly suggests a discretion informed by the jurisprudence of the United Kingdom, but which is the Tribunal’s own.”

In other words, the tribunal itself determines how to handle the results of the appeal. Traditionally, appellate courts would not remand a case where the case was determined solely on a legal as opposed to factual question.

/

There has been so much discussion regarding the cloud market definition that people have forgotten that there are other legal issues in this case. In particular, the CMA has to effectively change the standard for blocking a vertical merger. The traditional standard for blocking a vertical merger is to show foreclosure of an essential input. The CMA will have to show that a set of popular video games is an “essential input” for cloud gaming, something that it seems to assume from its findings regarding the popularity of these games on console (despite claiming that these are different markets).

The CMA will have to explain the apparent contradictions where it claims that games like COD are essential inputs for cloud gaming yet the leading cloud gaming providers have allegedly had exponential growth without ABK games. Moreover, the CMA will have to explain why some cloud gaming providers actually have games like COD but are not the most popular cloud gaming services. Services like Boosteroid already allow users to play COD, yet Gamepass somehow achieved dominance without this allegedly “essential input”.

Most importantly, the CMA will need to show that MS could even foreclose this essential input despite its agreement to create an open license with the EC enforcing access to those games. Under traditional anti-trust law, this would essentially be impossible to show foreclosure here given the fact that MS offers the licensing freely and without any kind of price discrimination.

The question of what can be considered as “essential input” is most likely a question of law in that traditionally only something that is physically required to make a product, and stretching that definition to include a popular library of games when there are at least eight other publishers of AAA games is the kind of stretch that is more a question of law than it is of fact, so there may be less deference there.

The CMA has also effectively argued for a new grounds for blocking a vertical merger based off what a leading law firm called “vague concerns over the strengthening of a digital ecosystem”. It seems like the CMA wants to argue that MS should not be able to go ahead with this vertical merger because it already is highly vertically integrated for cloud gaming. That position flys in the face of the last several decades of anti-trust law and a great deal of economic thinking which hold that vertical integration promotes economic efficiency, and that new grounds for blocking a vertical merger is 100% a question of law that CAT will need to decide.

The bottom line is that I actually think that MS has a strong case that the CMA’s input foreclosure argument misapplies the law (by stretching the definition of an “essential input”) or is irrational in light of the agreement with the EC. I am actually not sure how the CMA will argue input foreclosure at this point, and I do not think that it even collected any evidence that these games are essential in cloud given the fact that is allegedly a separate market from console. The CMA’s argument that MS’s digital ecosystem/vertical integration means they cannot acquire ABK is a novel question of law that I doubt can win given the fact that the CMA has not really outlined a case for why the last several decades of legal/economic theory are incorrect. Even if they do so during the appeal, they would still most likely need to outline some legal standard for determining when a company has too advantages to complete a vertical merger to assure the CAT that they are not simply demanding unlimited power to block mergers.

The bottom line is that this case should actually boil down to a few facts and a small number of legal questions other than the cloud market definition. Is MS able to use this acquisition to foreclose rivals from an essential input in light of the agreement with the EC, and should the law change to disfavor vertical integration? I actually do not think those matters will be that hard for MS’s world class lawyers to prevail on.

/

I think that CAT is going to be fairly critical of the CMA’s gerrymandered approach to market definition. CAT has made it clear that the CMA should not try to win cases by narrowly defining a market in order to win. In the Compare the Market case, the CMA criticized the CMA for deciding on a narrow market definition to win a case. The Court wrote: “Following on from this, the process of market definition therefore is, or should be, outcome neutral. It is intended to identify the relevant context in which the anticompetitive effects of the agreement or provision that is said to constitute a restriction on competition can be assessed. It should not be skewed so as to pre-determine the outcome.”. CAT Judgment (catribunal.org.uk) (See page 65, paragraph 112).

It is worth noting that the Compare the Market case was not a merger and had a different standard of review, but the legal principle requiring “outcome neutral” market definitions is most likely a matter of law rather than fact (meaning that it will also be relevant in the ABK case). In Compare the Market, the CAT recognized that the CMA was not defining the market in good faith and ended up ruling against the CMA on almost everything in that case.

Once again, that was not a merger case and it had a less deferential standard of review. Nonetheless, it is a good demonstration of the fact the CAT is fully capable of determining when the CMA is not arguing in good faith and when it is trying to cherry pick a market just to win a case

[Zappy5]

@ShinMegamiTenseiX

Not really. In this case the regulation is pathetic and weak.

How on earth can you let one regulator from 1 country block the deal it makes 0 sense. Surely there has to be a majority entity blocking the merge.

That’s not how it works. Each regulator makes a decision based on their market and the trade within it. It’s Microsoft’s determination that ability to trade in the U.K. is critical to them and the deal.

[EPC]

Companies withdraw of some market all the time. For Example, for Russia, all western companies were pushed to not work in this market because of the war.

Also, Activision has - I assume - stopped working in China after Netease contract was terminated.

[Zappy5]

@EPC

Companies withdraw of some market all the time. For Example, for Russia, all western companies were pushed to not work in this market because of the war.

Also, Activision has - I assume - stopped working in China after Netease contract was terminated.

Microsoft did not need to add the UK regulatory approval to the deal. The fact they did so shows how crucial it is to them and their shareholders.

There is nothing to stop them leaving the market apart from the fact they obviously will not and do not want to.

[proelitedota (Andrew)]

I reviewed the CMAs merger guidelines and I don’t see a way for total prohibition or any structural remedies to stand after the EC remedies. The EC remedies completely remove MS’s incentives to foreclose in the cloud gaming market, unless CMA tries to reason that MS will simply choose to breach EC commitments. If they try to argue that then it’s clear that the CMA’s no longer a rational body.

The whole tweet thread they had about MS getting to regulate the new market makes no sense. Market distortion effects only come into the picture for CMA remedies in the UK. Since the EC remedies are not the UK’s, they can only look at it in terms of the affects of incentives on the merging parties.

The whole conglomerate theory of strength also falls apart then because MS can’t leverage their newly added strength to foreclose rivals / new entries.

I expect the CMA to volunteer for a remittal in light of the EC developments and after looking at MS’s appeal. I expect them to clear the deal unconditionally or with light behavioral remedies to avoid getting embarrassed by the CAT.

[AllianceOfficer]

Is there a complete report of the European Commission findings outside of their website posting that just summarized?

[proelitedota (Andrew)]

@AllianceOfficer

Is there a complete report of the European Commission findings outside of their website posting that just summarized?

Complete findings need to be delayed by a few months due to confidentiality.

[AllianceOfficer]

@proelitedota

Complete findings need to be delayed by a few months due to confidentiality.

I’m assuming the parties at least have full access to them?

[proelitedota (Andrew)]

@AllianceOfficer

I’m assuming the parties at least have full access to them?

Of course.

[Zappy5]

@proelitedota

…choose to breach EC commitments. If they try to argue that then it’s clear that the CMA’s no longer a rational body. The whole tweet thread they had about MS getting to regulate the new market makes no sense. Market distortion effects only come into the picture for CMA remedies in the UK. Since the EC remedies are not the UK’s, they can only look at it in terms of the affects of incentives on the merging parties. The whole conglomerate theory of strength also falls apart then because MS can’t leverage their newly added strength to foreclose rivals / new entries. I expect the CMA to volunteer for a remittal in light of the EC developments and after looking at MS’s appeal. I expect them to clear the deal unconditionally or with light behavioral remedies to avoid getting embarrassed by the CAT.

The question is whether the CAT feels the CMA have the headroom under existing UK law to define the cloud market in the way they have and over the period they have. Is that ‘legally irrational’. Or not.

We know from past cases that the CAT might not like the period of time or the calculation of likelihood. But there is a gap between that and them deciding that it is ‘legally irrational’.

I think the remedy will be really hard for MS because whilst the CAT loves to comment they have a history of simply deferring to the CMA determinations on remedies and I don’t really see how that will be different here. If the CAT decide the SLC is not ‘legally irrational’ I do not think they will make a determination on the basis of a remedy where their standard line is ‘that is for the CMA to determine’.

So for me if we look historically this all comes down to a question as to whether a) the determination of the SLC is legally rational or not and b) whether the period of time and likelihood the CMA have applied is legally rational or no.

My guess is a) is in the CMA’s favour and b) is up in the air. Whether b) would be enough to overturn the entire decision when sent back to the CMA is another serious question.

[Haven (Victor)]

We’ll probably be getting the temperature of the UK within a week as it seems the deadline for appeal is the 24th. Somehow the CMA has to save face and approve or unblock.

[Zappy5]

@Haven

We’ll probably be getting the temperature of the UK within a week as it seems the deadline for appeal is the 24th. Somehow the CMA has to save face and approve or unblock.

They’ve literally just dug their heels in. They will take legal advice on the appeal once they have it and will obviously make a decision then. But they have the advantage with CAT appeals - as they have huge legal headroom.

[proelitedota (Andrew)]

@Zappy5

…l be really hard for MS because whilst the CAT loves to comment they have a history of simply deferring to the CMA determinations on remedies and I don’t really see how that will be different here. If the CAT decide the SLC is not ‘legally irrational’ I do not think they will make a determination on the basis of a remedy where their standard line is ‘that is for the CMA to determine’. So for me if we look historically this all comes down to a question as to whether a) the determination of the SLC is legally rational or not and b) whether the period of time and likelihood the CMA have applied is legally rational or no. My guess is a) is in the CMA’s favour and b) is up in the air. Whether b) would be enough to overturn the entire decision when sent back to the CMA is another serious question.

I was saying that the appeal would not even make it to the CAT. The CMA will volunteer for a remittal to avoid such determination.

[AllianceOfficer]

@Zappy5

They’ve literally just dug their heels in. They will take legal advice on the appeal once they have it and will obviously make a decision then. But they have the advantage with CAT appeals - as they have huge legal headroom.

We will see. The CMA is attempting to set legal precedent in many different areas with this case. They are also attempting to do so with high levels of inaccuracy, contradictory arguments (to other areas of their report), and a general lack of supporting information.

It doesn’t seem like a situation where that group has an upper hand. Unless the upper hand is simply the case being remanded to them with lots of direction. In that case I agree the likely scenario is a remand.