Context: The FTC and Sony are supporting each other against Microsoft’s acquisition of Activision Blizzard King (ABK) even at this stage, two months after the deal closed (previous article on this matter). Sony provided arguments against the merger to the FTC, prompting a discovery request by Microsoft and a motion to compel. A discovery motion by the FTC into Microsoft’s negotiations with Ubisoft was granted, while the FTC’s litigation counsel was not allowed to look into the negotiations that led to the renewal of the Microsoft-ABK merger agreement in the summer.
What’s new: The FTC’s Administrative Law Judge (ALJ) has denied Microsoft’s motion on procedural grounds, faulting Microsoft’s lawyers for not having moved to reopen discovery before serving a subpoena on Sony (order (PDF)).
Direct impact: The FTC is still not realistically able to force Microsoft to divest ABK or any part thereof, given that an appeals court would first stay and then almost certainly reverse any such decision. One can infer from the public versions of Microsoft’s filings that Sony must have expressed very negative views on the ABK merger in general and its 10-year CoD deal in particular. The question is now whether Microsoft gets the chance to request a reopening of discovery at this point, given that there is no firm trial date (just one pending an appellate decision).
Wider ramifications: The January 8 order is not facially unfair: some ALJs of the U.S. International Trade Commission (ITC), a trade agency with quasi-judicial powers, also tend to apply their procedural rules very restrictively. Also, lawyers are far more familiar with procedures in federal court than in the relatively rare adjudicative proceedings before the FTC. Should this denial be the last word, any decision in favor of the FTC will be based on a one-sided record, which would call the integrity of the FTC’s process into question, as there would be no prejudice from still allowing discovery in the current circumstances. The FTC’s in-house proceedings, which based on statistics (they won every case in their own court over the course of a quarter century) simply deprive merging parties of access to justice and are likely to draw further constitutional challenges after Axon (case overview on company website).
The pragmatic thing would be to reopen discovery now, should Microsoft’s lawyers bring a motion to that effect. Denying that wouldn’t reflect favorably on the process, and that fact would also be noticed by an appeals court further down the road.
Apparently Microsoft’s lawyers interpreted the ALJ’s October 26 order, which allowed the FTC to take some discovery into the topic, as being symmetrical, in which case Microsoft would automatically have had certain rights as well. That is now how ALJ Chappell views it. His position is, quite apparently, that a defendant doesn’t automatically have certain rights.
The problem with the FTC’s process is not ALJ Chappell’s sense of fairness, but the fact that he can merely issue a recommendation and the commissioners (who voted to bring the complaint in the first place) will then make the final decision. This being a presidential election year, some changes at the FTC are possible, especially but not only if the next president is a Republican. The FTC’s current leadership style may be viewed more skeptically inside the Democratic Party than one can tell from the outside, as no one wants to weaken President Biden by indirectly criticizing the wisdom of his arguably boldest appointment.
ALJ Chappell’s decision doesn’t mean that Microsoft’s lawyers drew an unwarranted conclusion from the October 26 order allowing the FTC some further discovery. In the end, the FTC is so far from having a case against this merger that whatever Sony may have said in its response to the FTC’s discovery request shouldn’t matter. The merger was cleared in well over 40 countries, and even in the country where it faced the biggest obstacle (the UK), the regulator threw out the console market theory of harm prior to its April 26 blocking decision.
A court that critics (games fray does not adopt or endorse this wording) have called a “kangaroo court” would be well advised to decide in dubio pro reo.