Context: The U.S. Federal Trade Commission (FTC) is still making a long-shot push, presently before its own in-house court, for a forced divestiture of Activision Blizzard King or parts thereof. Earlier this month, the FTC’s Administrative Law Judge (ALJ) D. Michael Chappell denied a Microsoft motion to compel Sony to produce documents and testify on the grounds that Microsoft had not previously requested that the court reopen discovery (January 10 games fray article). Microsoft did what games fray also considered a logical next step and made that request (previous article on this dispute). The Sony deposition is scheduled for February 8 and the Ubisoft deposition may take place as early as January 31. While Ubisoft is happy to have acquired ABK’s cloud-streaming rights and will therefore not try to undermine the deal, it’s a known fact that Sony is still trying to support the FTC. Thus it’s totally foreseeable that Sony’s witness is going to be evasive when Microsoft asks questions, making it even more critical for Microsoft to get enough time to get to the the key issues.
What’s new: As Microsoft’s motion indicated, the FTC’s litigation counsel (who depends on the ALJ’s decisions just like Microsoft, except they’re all employed by the same government agency) opposed the motion. That opposition brief has now become publicly available (PDF). It clarifies that the question is not whether Microsoft would get any deposition time, as 1.5 hours of time with each of Sony and Ubisoft would be guaranteed under a January 2023 order, but how much. And should Microsoft get the same amount of time to ask questions, the FTC’s litigation counsel at least seeks to impose certain limits on what questions Microsoft can bring up.
Direct impact: The FTC is correct that Microsoft’s motion did not mention—as the ALJ did not have to be reminded of his own scheduling order—the 1.5-hour minimum amount that is guaranteed even for the non-moving side (here, Microsoft and its now-subsidiary ABK). Still, the fundamental question is symmetry. If ALJ Chappell denies Microsoft’s motion, Sony and Ubisoft will have to answer the FTC’s questions for 4 hours each and Microsoft’s for only 1.5. That’s a ratio of 2.7 to 1. If Microsoft’s motion is granted, the deposition time is 7 hours per party, not 5.5, and it will be split evenly, giving the FTC and Microsoft 3.5 hours each. The FTC’s argument that Microsoft is far more familiar with its Sony and Ubisoft agreements (and that Microsoft and Sony have a “close legal and commecial relationship” and some “common interest” anyway) fails to recognize that the purpose of those depositions isn’t merely to be instructive and informative, but it’s about building a record, also with a view to an appeal. Knowing that the ALJ may decide in favor of symmetry, the FTC’s litigation counsel at least wants to ensure that Microsoft won’t put deposition topics on its list that it didn’t already raise in the motion that was denied. But in that scenario Microsoft would also have been able to perform discovery prior to the deposition, which is why they might now need to ask additional questions on February 8.
Wider ramifications: The FTC is very, very unlikely to achieve a forced divestiture. The proceedings before the ALJ are not going to be decisive as the commissioners make the final call. To make that fact even clearer, they changed some internal guidelines last year to clarify that the ALJ merely makes a “recommendation” (not even a decision that the commissioners might sometimes change). Even if the FTC in the end ordered a divestiture, it wouldn’t be enforceable unless affirmed by a federal appeals court, and the odds are very long against the FTC getting there. Also, the parties are presently awaiting an appeals court’s decision on the FTC’s preliminary injunction appeal, and depending on what that one says, it could be that the FTC decides to deprioritize the ABK matter as a whole.
The FTC criticizes that Microsoft didn’t explain why 1.5 hours of deposition time in each case would not be enough. But symmetry is one of the most fundamental principles of proceedings in the civilized world, and even in the uncivilized world there is usually at least a superficial appearance of procedural symmetry.
Microsoft’s motion indicated that the FTC’s counsel suspected the primary objective (or at least one key objective) was to shorten the amount of time that the FTC’s counsel would get to spend with those parties. But if discovery is reopened and Microsoft gets to subpoena those corporate witnesses, the total amount of time per witness goes up from 5.5 hours to 7. If the FTC’s litigation counsel got its way, they’d have 4; if Microsoft got its way, 3.5. So one of the FTC’s original arguments in pre-motion discussions with Microsoft was apparently that Microsoft was more interested in reducing the FTC’s deposition time (per witness) from 4 hours to 3.5 (that’s just -13%) than in getting 3.5 hours instead of 1.5 for itself (that’s +133%) and redressing the balance from almost 3 to 1 to an even split.
If Microsoft in the FTC’s counsel’s opinion should have explained why 1.5 hours weren’t enough, the FTC’s counsel should actually explain why 3.5 hours are not enough and, even more so, why an extra 30 minutes beyond those 3.5 hours would make a significant difference.
It’s not at all unreasonable to assume that Ubisoft is in favor of the ABK deal. They wouldn’t have acquired ABK’s cloud-streaming rights if it wasn’t a nice business opportunity. And they weren’t the only ones interested as we’ve all learned by now. The FTC points to the fact that Microsoft and Ubisoft asserted a common interest privilege. That term means there was communication involving counsel for both parties and employees of both parties, and they didn’t want the FTC to see it. There’s nothing unusual about that. The term “common interest” is not, and especially not in this context, a synonym for “cahoots” or “collusion”: it merely means that there is some overlapping interest. U.S. courts have also granted the common-interest privilege in situations where parties where adversaries in litigation, but had a common interest vis-à-vis another party to a dispute.
The bigger problem, however, is that the FTC is totally aligned with Sony and vice versa. As game fray put it earlier this month (January 6 article), the FTC and Sony are supporting each other like it’s 2023 (i.e., as if the ABK merger hadn’t already been consummated). Given that Sony is the global market leader in consoles, it’s hard to see that the FTC is acting in consumers’ interest.
Now, when a witness is interested in one side winning (Sony wants the FTC to win while Ubisoft wants it to lose), that affects the way they answer questions. When they get questions from the other side, they answer evasively, tend to reflect a bit before answering, provide answers with a low information density and often also speak sloooowly, while doing just the opposite when asked by their own side.
So if the FTC gets 4 very productive hours with a Sony witness eager to fire one shot after the other on the ABK deal, while the same witness might be highly uncooperative and slow-roll the part where Microsoft can ask questions, that makes a 2.7-to-1 imbalance (4 hours vs. 1.5) a lot worse. Microsoft’s lawyers might have to ask so many questions to approach a critical issue step by step that in order to counterbalance something the FTC elicited from Sony in 1 minute, they might have to spend 5 or even 10 before their actual question is even answered.
It’s still rather likely that ALJ Chappell will decide in favor of symmetry. If not, it won’t look good and the appeals court would see it later. Either way, that litigation is very unlikely to change anything that gamers care about. It is, however, technically still pending and continues to shed light on the history of the deal as well as the relationship between various parties. That’s why games fray keeps reporting.