Thread by @FOSSpatents

I'll share some key quotes here.

"The U.S. antitrust agencies have rarely sought to enjoin
vertical mergers and have lost every recent case when they tried. Indeed, the FTC is asking this Court to be the first in decades to find a vertical merger unlawful."

🧵1/X

As for the foreclosure theory (withdrawing CoD from rival platforms): they say the court doesn't just have to take their word for it.

"This is the exceptional case where the Court can rely on actions rather than words."

🧵2/X

They point to commitment to bring ABK games to Game Pass; CoD deal with Nintendo; offer to Valve, and Valve said they could rely on Microsoft anyway; various cloud streaming agreements; commitment to EC (but valid worldwide) re. streaming rights; and parity offer to #Sony

🧵3/X

Regarding the legal standard, as I'll explain in the Twitter Space in about 9 hours, that is something on which they disagree. FTC says it just has to raise an interesting question to get the PI. MSFT-ABK point out PI is "extarordinary and drastic remedy" as courts say.

🧵4/X

"After 18 months of investigation and litigation, including 56 investigational hearings and depositions and the production of nearly 6 million documents, the FTC offers only a minuscule collection of incomplete quotations in support of its motion."
Record supports deal.

🧵5/X

!!! Apparently Jim Ryan said something privately on the day the acquisition of ABK was announced that CONTRADICTS the claim that Microsoft would withdraw CoD from the PlayStation! But that part is redacted in the filing. !!!

🧵6/X twitter.com/i/web/status/1…

"Even if the merger were to cause every PlayStation owner that played COD for as little as two hours per month to buy an Xbox--a wildly implausible scenario--PlayStation would still remain the console leader." ... "would at most put a small dent in [PS's] massive lead"

🧵7/X twitter.com/i/web/status/1…

"Defendants are aware of no case where a court has blocked a merger to protect a dominant firm's position."

mic drop!

🧵8/X

Microsoft and ABK insist that not only Nintendo but also gaming PCs are in the same market, and the FTC even contradicts its own evidence here. Why? "Nintendo has been successful for years without COD, as was the dominant PC game store, Valve's Steam." COD not essential!

🧵9/X twitter.com/i/web/status/1…

"[T]he FTC has literally no factual basis for its claim that the merger will harm competition in the supposed markets for multi-game library subscription and cloud gaming services." No evidence ABK would put its games on such services; transaction will benefit consumers.

🧵10/X

The focus of the opposition argument is on the lack of merits of the FTC's claims, but they also make an equitable argument (fairness): the FTC seeks to block the merger though Microsoft would hold ABK separate and a divestiture further down the road would remain possible

🧵11/X

"[C]onsoles now represent the smallest share of video game revenue. [...] More gamers play on PCs, and substantially more play on mobile devices--the fastest growing segment."

🧵12/X

In connection with Game Pass giving gamers great value for their money, the filing notes that "Sony ... primarily puts old games in its service, forcing customers to pay high per-game fees to access new content."

Sony fans must see that Jim Ryan is NOT on their side!

🧵13/X

Idea of cloud streaming of games is described as "to let gamers play games on les highly powered and more affordable devices, particularly salient in less developed nations." (FTC says market is U.S. only, so this means cloud gaming not that important in U.S. market.)

🧵14/X

They point the recent comments by Sony's CEO (Ryan's boss) that cloud gaming faces difficulties, is tricky in technical and financial terms.
(see

https://twitter.com/FOSSpatents/status/1665185462850396162

)

🧵15/X

"Sony is a gaming giant. Its gamer base is two times as large as Xbox's worldwide, and 50% larger in the U.S." (again, the FTC focuses on U.S. as relevant geographic market)

🧵16/X

"Sony dwarfs Xbox on exclusives."

Another mic drop!

🧵17/X

"In addition to those agreements, during the European Commission’s regulatory process, Xbox committed to grant streaming rights to Activision games to other cloud gaming services—regardless of whether Xbox ultimately decides to stream those games itself."

🧵18/X

"The lone exception is the United Kingdom’s CMA. But like the European Commission and other global competition authorities, the CMA rejected the FTC’s core theories of harm here, tied to console foreclosure and subscription service foreclosure."
And they're appealing.

🧵19/X

Re. the legal standard, the filing explains that the court must first see whether the FTC's case has merit (and I believe that's where the FTC is going to lose anyway). If it had, public equities (procompetitive benefits of merger) and harm to MSFT-ABK to be considered.

🧵20/X

They demonstrate the extent to which PC is an alternative gaming platform to consoles:

"In 2022, all but one of the top 30 Xbox titles and all but
three of the top 30 PlayStation titles were available on PC."

🧵21/X

The fact that "Nintendo and PC gaming are differentiated from Xbox and PLayStation in certain ways ... does not decide the market definiition question." The legal standard in the U.S. is to look at all the options consumers have in the event of a hypothetical price hike.

🧵22/X

"Subscription services, such as Game Pass or
Sony’s PlayStation Plus, are not their own market, but rather an alternative way for consumers to pay for console, PC, or mobile games that are otherwise offered as standalone buy-to-play or free-to-play
games."

🧵23/X

They then reference Pistacchio v. Apple, a class action over Apple Arcade that was dismissed by another judge in the same district. Right after I saw the FTC's December complaint I automatically & independently made the connection with Pistacchio: fosspatents.com/2022/12/ftcs-m…

🧵24/X

In Pistacchio it was also about whether Apple Arcade was in a separate market from other games.

That class action was never seen again. They didn't even appeal. I commented on that class action at the time and also doubted its merits (fosspatents.com/2022/12/ftcs-m…).

🧵25/X

"The FTC's proposed cloud-gaming subscription services market is similarly incoherent. ... not a separate product--it is a euphemism for a technology that allows for a game to be streamed from an external source, such as the cloud, rather than downloaded onto a device"

🧵26/X

"[T]he FTC's proposed market includes some multi-game subscription services, like Game Pass, that offer cloud streaming of console games as a feature for subscribers, who typically use it to try games before downloading them."

Many gamers on Twitter said so all along!

🧵27/X

As for nascent market theory: "Even assuming that perceived har, to a future market is relevant, the FTC itself has recognized that projecting harm in future markets 'can be difficult,' must be 'strongly rooted in the evidence,' and requires 'considerable evidence'"

🧵28/X

Microsoft & ABK say "[t]he FTC must account for these economic realities [Microsoft's commitments and contradcts] in trying to meet its burden [of proof], rather than relying on 'assumptions and simplications that are not supported by real-world' facts."

🧵29/X

"The only plausible reason why Sony has declined to sign [the deal it was offered] is not because it fears 'foreclosure' (which it could prevent with the stroke of a pen), but because it believes this transaction will make third-place Xbox a more effective competitor."

🧵30/X

That "day and date" releases on Game Pass will be good for consumers (though Sony would rather charge $70 for each new release) "is a reason to approve this deal because the antitrust laws 'were enacted for the protection of competition not competitors.'"

🧵31/X twitter.com/i/web/status/1…

"The antitrust laws do not protect a dominant firm’s profit margin."

Another mic drop!

🧵32/X

Microsoft & ABK "are not aware of any situation where a publisher has chosen to take exclusive an existing game franchise that is multi-player and offers cross-platform play. [...] There is no reason to believe this would be the first."

🧵33/X twitter.com/i/web/status/1…

FTC's expert Robin Lee claims that withholding CoD from the PS would result in a 5% increase in Xbox's console share. Microsoft and ABK have an expert who counters that absurdity: Professor Dennis Carlton from Chicago chicagobooth.edu/faculty/direct…

🧵34/X

Apparently the FTC's expert Robin Lee didn't properly limit his work to what an expert witness should do, but "tried to justify the 5% figure based on cherry-picked documents." But in any event, "the sources do not support his conclusion."

🤡🤡🤡

🧵35/X

"Lee’s analysis provides no basis to disregard the real world, where Sony has a favorable offer for COD, Xbox has made plain that it wants to provide COD to Sony (and in fact needs to continue to sell to Sony), and regulators around the world all agree" there's no concern

🧵36/X twitter.com/i/web/status/1…

"The first two ZeniMax games Xbox released post-acquisition (Deathloop and Ghostwire) were exclusives for Sony"

🧵37/X twitter.com/i/web/status/1…

The filing discusses various options for Sony to respond to a hypothetical and unrealistic CoD foreclosure, such as lowering prices, improving hardware, investing in other 1st-party or 3rd-party games, "as it recently did with Bungie in a deal the FTC quickly cleared."

🧵38/X

I wrote yesterday that the FTC's expert Lee is now actually contradicting what he wrote in a 2013 paper (see

https://twitter.com/FOSSpatents/status/1669732548933451777

). Indeed, Microsoft and ABK's filing brings this up: "Dr. Lee himself has recognized in his prior academic work ... can be procompetitive"

🧵39/X

I really don't understand why a Harvard professor of economics is prepared, just for the "honor" of representing a currently out-of-control FTC in hopes of then getting to work as an expert for corporations, is prepared to discredit himself like that.

Counterproductive.

🧵40/X

The filing points out the legal standard for when foreclosure is an issue under U.S. antitrust law: it would have to "make the combined company’s rivals ineffective as competitors." It would have to leave them "stunted" as competitors.

🧵41/X twitter.com/i/web/status/1…

They point out that the legal standard for foreclosure of other multi-game subscription and cloud services is NOT whether an independent ABK would be more likely to do such deals than an ABK that is a Microsoft subsidiary.

(BTW the CMA had no other argument than that.)

🧵42/X

The filing explains that in horizontal mergers it's hard to "unscramble" a merger later (if the FTC were to win after multi-year litigation). Here, it's vertical and "Activision's creative operations will remain separate and continue to run as they did pre-merger."

🧵43/X

"[G]ranting a preliminary injunction would kill the deal, robbing consumers of the 'beneficial economic effects and procompetitive advantages' resulting from this merger, including increased availability of Activision content."

By contrast Sony has CoD contract thru 2024

🧵44/X

The filing contains inter alia a redacted version of Microsoft's cloud streaming commitments to the European Commission!

documentcloud.org/documents/2385…

Extremely compelling opposition brief. FTC's going to lose!

Wil do a blog post and a Twitter Space (12 noon Eastern Time)!

🧵45/45