The first day of a weeklong hearing that could determine the outcome of Microsoft’s $70 billion acquisition of video game giant Activision Blizzard opened Thursday with a promise from Microsoft: If a federal judge grants an injunction that would delay the deal’s closing, Microsoft could abandon the deal altogether.
“This is going to decide whether the deal goes forward,” said Beth Wilkinson, Microsoft’s lead attorney. She added that a loss could force the company into a “three-year administrative nightmare” that would sink the transaction, which it hopes to close by July 18.
That set the stakes for the federal court hearing in San Francisco, where the Federal Trade Commission began laying out its case that Microsoft acquiring Activision — and its popular games like Call of Duty — would be devastating for the video game industry.
The F.T.C. is asking Judge Jacqueline Scott Corley for a preliminary injunction, which would bar Microsoft from completing the deal before the F.T.C. has had the chance to argue the case in its internal court.
The clash is broadly seen as a test of whether recent efforts to more aggressively curb the power of tech giants around the world will succeed. Lina Khan, the chair of the F.T.C., has argued that big tech companies have vast influence over online commerce and communication, allowing them to engage in anticompetitive practices that harm consumers.
“If this deal is completed, the combined company will have and is likely to have the ability and incentive to harm competition in various markets related to consoles, subscription services and cloud,” said James Weingarten, the F.T.C.’s lead attorney, in court on Thursday.
Mr. Weingarten also said Microsoft could make Activision’s games exclusive to its Xbox console or degrade their quality on other platforms to make the Xbox more appealing to gamers. He pointed to Microsoft’s past $7.5 billion purchase of ZeniMax Media and its slate of game studios in 2020, after which Microsoft made some of those games exclusive to Xbox.
The F.T.C. is also expected to argue that absorbing Activision’s games into Microsoft’s portfolio would give it an unfair edge in the nascent market for cloud gaming.
Microsoft responded that the Activision deal would be good for consumers, expanding their ability to play Activision’s games through low-cost options like Microsoft’s Xbox Game Pass, a subscription service, or through the platforms of other companies like Nintendo and Nvidia, with whom it has partnered.
Ms. Wilkinson also argued that it would be nonsensical for Microsoft to remove Call of Duty and other titles from other platforms, such as Sony’s PlayStation, because the company would lose out on a huge chunk of the game’s revenue. She said Sony had become the “complainer-in-chief” in the case, and showed an email from Sony’s chief executive, Jim Ryan, suggesting that he did not really believe Microsoft would withhold Call of Duty.
The F.T.C. has in another lawsuit accused Meta, Facebook’s parent company, of cutting off nascent competitors when it bought Instagram and WhatsApp. On Wednesday, it sued Amazon over allegations that the company tricked users into signing up for its Prime subscription service. But the F.T.C. has had setbacks: Earlier this year, its challenge to Meta’s purchase of a virtual reality start-up fell apart after a judge declined to stop the deal from closing.
The F.T.C. initially challenged Microsoft’s bid for Activision using an in-house court. But that court does not have the legal authority to stop the deal. The F.T.C. asked the U.S. District Court for the Northern District of California to step in earlier this month, saying it feared Microsoft would try to complete the deal despite the legal challenges.
The hearing in Judge Corley’s courtroom could be a decisive test for the F.T.C. If Microsoft wins, it would signal that there are weaknesses in the F.T.C. case and could cause the agency to drop its challenge to the deal. But a win for the F.T.C. could be a sign that its broader challenge has legs, and could put new pressure on Microsoft and Activision to reconsider the multibillion corporate marriage.
Sony, whose PlayStation console competes against Microsoft’s Xbox, has been a vocal critic of the deal. Sony argues that PlayStation gamers could lose access to Call of Duty — a massive franchise that has earned more than $30 billion in lifetime revenue — if Microsoft decided to make the game exclusive to Xbox. Microsoft has denied that it would do so.
Though most governments around the world, including the European Union, have approved the acquisition, Microsoft was dealt a setback in April when a British regulatory authority blocked it. That decision is under appeal.
The high-profile list of witnesses expected to testify before Judge Corley over the next week includes Satya Nadella, the chief executive of Microsoft; Amy Hood, the company’s chief financial officer; Bobby Kotick, the chief executive of Activision; and Phil Spencer, the chief executive of Microsoft’s Xbox unit. Mr. Ryan, the chief executive of Sony, will appear via a prerecorded video deposition.