Microsoft Activision Answering Brief

Case: 23-15992, 09/06/2023, ID: 12787806, DktEntry: 55, Page 1 of 84
No. 23-15992
United States Court of Appeals

for the Ninth Circuit
________________
FEDERAL TRADE COMMISSION,

Plaintiff-Appellant,
v.
MICROSOFT CORP. AND ACTIVISION BLIZZARD, INC.,

Defendants-Appellees.
________________
Appeal from an Order of the

U.S. District Court for the Northern District of California
No. 3:23-cv-02880-JSC, Hon. Jacqueline Scott Corley
________________
DEFENDANTS’-APPELLEES’ ANSWERING BRIEF

[REDACTED]
________________
Jonathan E. Nuechterlein Beth Wilkinson

C. Frederick Beckner III Rakesh N. Kilaru
William R. Levi Counsel of Record
Daniel J. Hay Anastasia M. Pastan
Lucas Croslow Jenna H. Pavelec
SIDLEY AUSTIN LLP WILKINSON STEKLOFF LLP
1501 K Street, N.W. 2001 M Street, N.W., 10th Floor
Washington, D.C. 20005 Washington, D.C. 20036
Telephone: (202) 736-8000 Telephone: (202) 847-4000
Facsimile: (202) 736-8711 Facsimile: (202) 847-4005
[email protected] [email protected]
Counsel for Defendant-Appellee Microsoft Corp.

[Additional Counsel Listed on Inside Cover]
Steven C. Sunshine Adam B. Banks

Julia K. York WEIL, GOTSHAL & MANGES LLP
Evan Kreiner 767 Fifth Avenue
Michael Sheerin New York, NY 10153
SKADDEN, ARPS, SLATE, MEAGHER Telephone: (212) 310-8419
& FLOM LLP [email protected]
1440 New York Avenue, N.W.
Washington, DC 20005-2111 Counsel for Defendant-Appellee
Telephone: (202) 371-7000 Microsoft Corp.
Facsimile: (202) 393-5760
[email protected]
Grant Dixton
ACTIVISION BLIZZARD, INC.
2701 Olympic Blvd Bldg B
Santa Monica, CA 90404
Telephone: 310-255-2000
[email protected]
Counsel for Defendant-Appellee

Activision Blizzard, Inc.
CORPORATE DISCLOSURE STATEMENT
Under Federal Rule of Appellate Procedure 26.1, Defendants-
Appellees state as follows:
Defendant-Appellee Microsoft Corp. (“Microsoft”) is a publicly held
company that has no parent corporation, and no publicly held
corporation owns 10% or more of more of its stock.
Defendant-Appellee Activision Blizzard, Inc. (“Activision”) is a
publicly held company that has no parent corporation, and no publicly
held corporation owns 10% or more of its stock.
September 6, 2023 /s/ Rakesh N. Kilaru

Counsel for Microsoft Corp.
/s/ Steven C. Sunshine

Counsel for Activision Blizzard Inc.
ii
TABLE OF CONTENTS
CORPORATE DISCLOSURE STATEMENT ........................................... ii
TABLE OF AUTHORITIES ..................................................................... vi
JURISDICTIONAL STATEMENT ........................................................... 1
INTRODUCTION ...................................................................................... 1
ISSUE PRESENTED ................................................................................ 6
STATEMENT OF THE CASE .................................................................. 6
I. Factual Background ......................................................................... 6
A. The Gaming Industry.............................................................. 6
B. Xbox’s Position ........................................................................ 8
C. This Merger ........................................................................... 14
II. Procedural History ......................................................................... 16
A. Nature of the Case ................................................................ 16
B. The District Court’s Opinion................................................. 19
C. Post-Decision Developments ................................................. 23
SUMMARY OF ARGUMENT ................................................................. 25
STANDARD OF REVIEW....................................................................... 31
ARGUMENT ........................................................................................... 31
I. The District Court Correctly Applied the Controlling Legal

Standard. ........................................................................................ 31
II. The District Court Correctly Found No Plausible Claim of

Competitive Harm in the Putative Subscription and Cloud-
Gaming Markets. ........................................................................... 37
iii
A. The FTC’s Claims About Both Markets Rest on a False

Premise About Standalone Activision’s Plans...................... 38
B. The District Court Did Not “Find Foreclosure” in

Multi-Game Subscription Services or Credit an
“Efficiencies Defense.” ........................................................... 40
III. The District Court Correctly Found No Serious Question of

Competitive Harm in the Console Market. ................................... 44
A. The FTC Failed to Establish that Microsoft Has Any

Incentive to Withhold Call of Duty from Sony. .................... 45
1. The FTC Fails to Show Clear Error in the District

Court’s Fact-Bound Conclusions.................................. 45
2. The FTC Does Not Seriously Contest the District
Court’s Rejection of the Economic Testimony that
Was the “Lynchpin” of Its Case. .................................. 48
B. The FTC Failed to Show that Withholding Call of Duty
from Sony Would Likely Harm Competition. ....................... 51
C. The FTC Cannot Save Its Case with a Later-Added

Partial Foreclosure Theory. .................................................. 54
IV. The District Court Correctly Considered Microsoft’s Binding

Contracts with Competitor Platforms. .......................................... 56
V. The District Court Did Not Abuse Its Discretion by Rejecting

the FTC’s Brown Shoe Theory. ...................................................... 61
VI. The District Court Correctly Found that the Equities

Provided an Independent Reason to Deny the Motion.................. 64
A. The FTC Has Forfeited Any Argument the Merger

Could Not Be Unwound. ....................................................... 65
B. The Balance of Equities Overwhelmingly Favor

Microsoft. ............................................................................... 67
CONCLUSION ........................................................................................ 70
iv
STATEMENT OF RELATED CASES
CERTIFICATE OF COMPLIANCE
CERTIFICATE OF SERVICE
v
TABLE OF AUTHORITIES
Page(s)
Cases
Axon Enter., Inc. v. FTC,

986 F.3d 1173 (9th Cir. 2021), rev’d on other grounds, 598
U.S. 175 (2023).................................................................................... 17
Beech Aircraft Corp. v. United States,

51 F.3d 834 (9th Cir. 1995) ................................................................. 39
Brown Shoe Co. v. United States,

370 U.S. 294 (1962) ....................................................................... 29, 62
Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc.,

429 U.S. 477 (1977) ............................................................................. 43
Cascadia Wildlands v. Thrailkill,

806 F.3d 1234 (9th Cir. 2015) ............................................................. 31
Craftsmen Limousine, Inc. v. Ford Motor Co.,

363 F.3d 761 (8th Cir. 2004) ............................................................... 50
Disabled Rights Action Comm. v. Las Vegas Events, Inc.,

375 F.3d 861 (9th Cir. 2004) ............................................................... 25
Epic Games, Inc. v. Apple Inc.,

67 F.4th 946 (9th Cir. 2023) ............................................................... 61
Fruehauf Corp. v. FTC,

603 F.2d 345 (2d Cir. 1979) .................................................... 43, 62, 63
FTC v. Arch Coal, Inc.,

329 F. Supp. 2d 109 (D.D.C. 2004) ......................................... 33, 57, 65
FTC v. Atl. Richfield Co.,

549 F.2d 289 (4th Cir. 1977) ............................................................... 32
FTC v. Dean Foods Co.,

384 U.S. 597 (1966) ............................................................................. 65
vi
FTC v. Exxon Corp.,

636 F.2d 1336 (D.C. Cir. 1980) ........................................................... 32
FTC v. Foster,
2007 WL 1827098 (D.N.M. May 30, 2007) ......................................... 17
FTC v. Great Lakes Chem. Corp.,

528 F. Supp. 84 (N.D. Ill. 1981) .......................................................... 66
FTC v. H.J. Heinz Co.,

246 F.3d 708 (D.C. Cir. 2001) ....................................................... 35, 65
FTC v. Lab’y Corp. of Am.,

2011 WL 3100372 (C.D. Cal. Mar. 11, 2011)................................ 33, 66
FTC v. Libbey, Inc.,

211 F. Supp. 2d 34 (D.D.C. 2002) ....................................................... 57
FTC v. Meta Platforms Inc.,

2023 WL 2346238 (N.D. Cal. Feb. 3, 2023) ............................ 32, 33, 35
FTC v. Pharmtech Rsch., Inc.,

576 F. Supp. 294 (D.D.C. 1983) .......................................................... 67
FTC v. RAG-Stiftung,
436 F. Supp. 3d 278 (D.D.C. 2020) ......................................... 33, 35, 57
FTC v. Steris Corp.,

133 F. Supp. 3d 962 (N.D. Ohio 2015) ................................................ 33
FTC v. Sysco Corp.,

113 F. Supp. 3d 1 (D.D.C. 2015) ............................................. 32, 57, 66
FTC v. Thomas Jefferson Univ.,

505 F. Supp. 3d 522 (E.D. Pa. 2020)............................................. 33, 35
FTC v. Univ. Health, Inc.,

938 F.2d 1206 (11th Cir. 1991) ........................................................... 35
FTC v. Warner Commc’ns Inc.,

742 F.2d 1156 (9th Cir. 1984) ............................3, 25, 31, 32, 34, 35, 67
vii
FTC v. Weyerhaeuser Co.,

665 F.2d 1072 (D.C. Cir. 1981) ..................................................... 16, 69
FTC v. Whole Foods Mkt., Inc.,

548 F.3d 1028 (D.C. Cir. 2008) ........................................................... 33
Husain v. Olympic Airways,

316 F.3d 829 (9th Cir. 2002) ............................................................... 47
Lektro-Vend Corp. v. Vendo Co.,

660 F.2d 255 (7th Cir. 1981) ............................................................... 57
McWane, Inc. v. FTC,

783 F.3d 814 (11th Cir. 2015) ............................................................. 51
In re Mercury Interactive Corp. Sec. Litig.,

618 F.3d 988 (9th Cir. 2010) ......................................................... 43, 67
Paddock Publ’ns, Inc. v. Chi. Trib. Co.,

103 F.3d 42 (7th Cir. 1996) ........................................................... 52, 53
Pierce v. Cnty. of Orange,

526 F.3d 1190 (9th Cir. 2008) ............................................................. 31
Rothenberg v. Sec. Mgmt. Co.,

667 F.2d 958 (11th Cir. 1982) ............................................................. 25
Saucillo v. Peck,
25 F.4th 1118 (9th Cir. 2022) ............................................................. 37
Tillamook Country Smoker, Inc. v. Tillamook Cnty.

Creamery Ass’n,
465 F.3d 1102 (9th Cir. 2006) ............................................................. 65
United States v. Anthem, Inc.,

855 F.3d 345 (D.C. Cir. 2017) ............................................................. 42
United States v. AT&T, Inc.,

916 F.3d 1029 (D.C. Cir. 2019) ............................................... 56, 57, 64
United States v. Burnette,

698 F.2d 1038 (9th Cir. 1983) ............................................................. 44
viii
United States v. E.I. du Pont de Nemours & Co.,

366 U.S. 316 (1961) ............................................................................. 58
United States v. Greater Buffalo Press, Inc.,

402 U.S. 549 (1971) ............................................................................. 58
United States v. UnitedHealth Grp. Inc.,

630 F. Supp. 3d 118 (D.D.C. 2022) ......................................... 46, 57, 64
Wilbur v. Locke,
423 F.3d 1101 (9th Cir. 2005) ............................................................. 25
Statutes
15 U.S.C. § 53(b) .................................................................................. 2, 16
15 U.S.C. § 53(b)(2) ................................................................. 4, 25, 31, 35
Other Authorities
Current Report (Form 8-K), Activision Blizzard, Inc. (July

19, 2023), http://tinyurl.com/ynz9ccjv ................................................ 24
Comm’ns Workers of Am, CWA Supports Microsoft’s

Proposed Acquisition of Activision-Blizzard (June 30,
2022), https://cwa-union.org/news/releases/cwa-supports-
microsofts-proposed-acquisition-of-activision-blizzard ...................... 69
EU Commission Press Release, Mergers: Commission Clears

Acquisition of Activision Blizzard by Microsoft, Subject to
Conditions (May 15, 2023),
https://ec.europa.eu/commission/presscorner/detail/en/ip_2
3_2705 ................................................................................................. 60
Prepared Statement of the FTC Before the U.S. Sen. Comm.

On the Judiciary (Oct. 7. 2015) .................................................... 16, 36
ix
JURISDICTIONAL STATEMENT
Appellees concur in the FTC’s jurisdictional statement. Br.3.
INTRODUCTION
As this case comes to the Court, it involves a vertical merger
between Microsoft and Activision—two companies that do not compete.
The U.S. antitrust agencies have rarely sought to enjoin vertical
mergers and have lost every recent case in which they tried. That is
because vertical mergers are generally understood to be procompetitive
and benefit consumers.
This merger is no exception. From the day it was announced,
Microsoft made clear that it would make Activision’s popular
videogames more broadly accessible. This approach is good business for
Microsoft: Its gaming console, Xbox, has been lagging in third place for
decades, so its gaming division must distribute on many different
platforms to have sustainable economic success. This approach is also
good for consumers, who—in the FTC’s own words—benefit from a more
“open, competitive landscape[]” where “consumers are free to choose
where and how to access their games.” Br.1.
1
Despite these obvious benefits, the FTC sued to enjoin the merger
under Section 13(b) of the FTC Act, 15 U.S.C. § 53(b). Over a five-day
bench trial, Judge Corley heard testimony from 16 witnesses and
considered every document the FTC selected from the millions it
received during its fourteen-month investigation and six months of
administrative litigation. After weighing all this evidence, Judge Corley
denied a preliminary injunction in an exhaustive 53-page opinion.
The FTC’s primary theory until appeal has been that Xbox would
harm competition by withholding the videogame Call of Duty from
Sony’s PlayStation gaming console. Judge Corley rejected that
argument on nine independent factual grounds. Now, the FTC has
pivoted to focus on alleged harm in “the emerging subscription and
cloud gaming markets . . . .” Br.1. But the FTC failed to introduce even
basic evidence supporting these alternate theories, and Judge Corley
rejected them on multiple independent factual grounds as well. She
found (among other things) that Activision likely would not make Call
of Duty available in those alleged markets absent this merger, such that
the merger could only increase competition. These factual findings are
2
reviewed only for clear error, and should be the end of the matter,
particularly since the FTC barely addresses them.
The FTC tries without success to transform its failures of fact into
errors of law. Contra the FTC’s suggestion, the district court properly
applied Section 13(b) of the FTC Act. This Court’s cases required the
district court to consider whether the FTC has raised “questions going
to the merits so serious, substantial, difficult and doubtful” as to
portend likely success. FTC v. Warner Commc’ns Inc., 742 F.2d 1156,
1162 (9th Cir. 1984) (per curiam) (emphasis added). The court did just
that, finding that “the FTC has not raised serious questions regarding
whether the proposed merger is likely to substantially lessen
competition in the console, library subscription services, or cloud
gaming markets.” 1-ER-52 (emphasis added).
In attacking the court’s straightforward application of the law, the
FTC reveals that its true purpose is to change the law to allow it to
obtain a preliminary injunction essentially whenever it wants. The FTC
faults the district court for citing cases that addressed antitrust
challenges on the merits, rather than just Section 13(b) cases. But every
court to consider a Section 13(b) case, including this Court, has done the
3
same thing, because the statute requires consideration of “the
Commission’s likelihood of ultimate success . . . .” 15 U.S.C. § 53(b)(2).
Similarly, the FTC claims that it was improper for the district
court to consider all manner of relevant and probative evidence,
including the likely real-world consequences of the merger,
methodological shortcomings in the FTC’s expert analysis, and the
sworn testimony of senior company executives. No case suggests that
Article III judges are rubber stamps for the FTC, duty-bound to ignore
any evidence that harms the FTC’s case.
The FTC likewise misses the mark in challenging the district
court’s consideration of the commercial contracts Microsoft has entered
with its rivals to guarantee them access to Call of Duty for the coming
decade. Those include agreements ensuring that new versions of Call of
Duty will appear on Nintendo’s platforms (which have not had it for a
decade) as well as five cloud streaming services (which have never had
it). To begin with, the district court’s decision did not turn on those
contracts; Judge Corley provided distinct reasons for her ruling that
serve as adequate and independent grounds for affirmance. But there
was also nothing wrong with considering this evidence, which
4
powerfully rebutted the FTC’s foreclosure case. The law is clear that
courts should compare the real world with a merger to the “but-for”
world without it. No principle of law or logic requires courts instead to
evaluate an artificial post-merger world where signed, binding contracts
vanish. There is nothing sensible—or legally justified—about requiring
courts to address imaginary problems and discouraging parties from
reaching real-world, pro-competitive solutions.
Finally, the district court properly balanced the equities. The
court found that a preliminary injunction would likely have “skuttl[ed]”
this transaction, thereby depriving consumers of its benefits. 1-ER-52.
By contrast, all the evidence at the hearing showed that the FTC could
obtain effective post-consummation relief, including divestiture, in the
unlikely event it ultimately prevails on the merits, 1-ER-52-53—facts
the FTC failed to rebut in the district court and ignores on appeal.
No court has ever preliminarily enjoined a vertical merger under
Section 13(b). The district court correctly declined to break new ground
in this case, applying settled law to factual findings that the FTC does
not meaningfully challenge. The Court should affirm.
5
ISSUE PRESENTED
Whether the district court abused its discretion by denying the
FTC’s motion for a preliminary injunction.
STATEMENT OF THE CASE
I. Factual Background
A. The Gaming Industry
Gaming is one of the fastest-growing industries in the world. E.g.,
1-ER-3, 6. Gaming is often associated with dedicated game-playing
devices known as consoles; today, Sony’s PlayStation 5 and Nintendo’s
Switch are the industry leaders, with Microsoft’s Xbox console in third
place. 1-ER-6. But console gaming now represents the smallest share of
video game revenue, and that share is shrinking year-over-year.
Gamers are instead shifting to play on personal computers (PCs) and,
increasingly, mobile devices. 1-ER-5-6, 36. Mobile gaming is the fastest-
growing industry segment, encompassing of gameplay today and
projected by 2030. 1-ER-6; 3-SER-528-529.
Hundreds if not thousands of game studios develop games for
these different platforms, and there is no one recipe for success. Hit
games can come from anywhere; many popular games were unexpected
6
breakout successes by small studios, whereas many highly anticipated
and well-funded games are busts. 1-SER-21; 1-SER-30; 1-SER-40.
Activision is one of dozens of game studios that publish video
games for consoles and PCs, including Call of Duty, its flagship
franchise. See 1-ER-11-14. Call of Duty games “are first-person shooter
games based on military conflict through history.” 1-ER-11 (quotation
marks omitted). Since its first installment in 2003, “Call of Duty games
have been continuously available on both PlayStation and Xbox . . . .” 1-
ER-12. Despite Call of Duty’s success, Activision is not the biggest or
most successful game publisher. In console gaming, Activision accounts
for only 7.4% of videogame publishing revenues globally and in
the United States. 1-SER-169; 3-SER-544-548.
Call of Duty has “multiplayer” functionality: Different gamers can
play the same game with one another via the internet or a local network
connection. Call of Duty also permits “cross-play” between platforms. 1-
ER-7. For example, an Xbox gamer, a PlayStation gamer, and a PC
gamer can play Call of Duty with each other using their respective
devices. These features play a major role in the game’s popularity and
commercial success—it has a broad community that transcends any
7
single gaming platform. Id.; see 1-ER-37 (“Call of Duty’s cross-platform
play is critical to its financial success.”).
Activision’s portfolio is not limited to buy-to-play console games.
For example, Activision offers free-to-play console versions of Call of
Duty that gamers can play without paying anything up front. Activision
also offers several popular mobile games. One is Candy Crush, which
accounts for a substantial portion of Activision’s total revenue. 1-ER-13.
Another is Call of Duty: Mobile, which has more than 150 million
monthly users. Both of these games can be downloaded for free.
B. Xbox’s Position
Xbox operates financially as a standalone business. But since its
launch in 2001, Xbox has struggled to compete in all aspects of the
industry. 1-ER-6. Xbox’s console sales have always lagged its
competitors, and its most recent console “has consistently ranked third
(of three)” behind the Sony PlayStation and Nintendo Switch. Id.; 3-
SER-530-533. Xbox also develops and publishes its own (“first party”)
games, but its game sales lag behind those of Nintendo, Sony, and
Activision. See 1-ER-10-11.
8
Because Xbox has a smaller user base relative to its console rivals,
it has to adopt different business strategies. For example, Sony’s
PlayStation has been the leading console both worldwide and in the
U.S. for over two decades and through five console generations. 1-SER-
184. Sony has leveraged that dominant position by developing a series
of first-party, proprietary hits that can be played only on PlayStation—
such as God of War, The Last of Us, and Spider-Man. 1-ER-10. It also
provides generous incentives to third-party game developers to make
their games either fully or partially exclusive to PlayStation. 1-ER-10-
11.
Xbox’s smaller share precludes it from following PlayStation’s
exclusivity strategy. Doing so would result in the loss of significant
first-party game sales to PlayStation’s much larger user base, and
require crippling up-front payments to third-party developers to try to
offset the substantial losses they would incur from foregoing that user
base.1 1-SER-118-19. This approach would also stand at odds with
1 To put the companies’ different exclusivity strategies in context:

“[t]he number of exclusive games available on PlayStation dwarfs the
number available on Xbox, with eight exclusive games on PlayStation
for every one on Xbox.” 1-ER-10 (emphasis added).
9
Microsoft’s multi-platform approach to software distribution. 1-SER-
215-16.
As a result, when Microsoft has acquired studios that make games
for multiple platforms, it has kept those games on multiple platforms.
See 1-SER-21-22; 2-SER-310-311. The best example is Minecraft, which
was available on multiple platforms (including PlayStation) when
Microsoft acquired Mojang in 2014. 1-ER-38-39. At that time, Minecraft,
like Call of Duty, was “an established multiplayer, multi-platform game
with cross-play.” Id. Post-acquisition, Microsoft not only maintained
access to Minecraft on all existing platforms, but expanded access to
new platforms (like Nintendo). Id. Minecraft is now “Microsoft’s largest
game by revenue.” Id.
Xbox has also tried to innovate in game distribution models. In
2017, Xbox launched a subscription gaming service called “Game Pass,”
which allows subscribers to access a rotating collection of games for a
single monthly fee as low as $9.99 rather than buying individual titles
for as much as $70 each. 1-ER-15. Others have followed suit, including
Sony, Nintendo, Electronic Arts, and Ubisoft. 1-ER-15-16. Many game
publishers, particularly smaller independent publishers, value the
10
exposure that Game Pass affords—they are more likely to gain followers
as part of a broad catalog than if people have to pay up front to play
their game. See, e.g., 1-SER-37-38 (140:15-141:16).
In an effort to make Game Pass more attractive, Xbox includes all
of its new first-party games on the service from the moment of release.
1-ER-15. That is a unique approach in the industry. 1-ER-16. Most
larger game publishers elect not to include their newest titles in
subscription services—either close to their release date, or in many
circumstances at all—because they are concerned about “significant
cannibalization of buy-to-play revenues . . . .” 1-ER-16-17. For example,
Sony never simultaneously releases its new first-party games on its
subscription service, PlayStation Plus, because it makes more money by
selling those games individually. 1-ER-15-16; see 1-SER-110.
Sharing Sony’s view, “Activision does not allow, and has no plans
to allow, its games in multigame subscription libraries upon release.” 1-
ER-17. To the extent Activision games have appeared on subscription
services, it has only been old versions of their games, for limited
windows of time, rather than the new versions most exciting to gamers.
11
1-SER-191, 197; see 1-SER-189-190 (explaining Activision’s concerns
about cannibalization).
Xbox also tried to innovate in game distribution by launching a
cloud-gaming feature, xCloud, as part of the highest subscription tier of
Game Pass (called Game Pass Ultimate). 1-ER-18. Cloud gaming, or
game streaming, involves running games on remote hardware that
gamers can access over the internet on a variety of different devices—
similar to how video streaming services like Netflix operate. 1-ER-17.
In theory, cloud gaming allows gamers to play “on less highly-
powered and more affordable devices,” such as mobile devices or smart
televisions. 1-ER-18. In practice, however, Xbox has not found a way to
make this model profitable. 1-SER-263. Nor has it been able to solve the
technical challenges unique to cloud gaming. Unlike watching videos,
playing games is highly interactive. A gamer who pushes a button
needs a consistent instantaneous response, particularly in competitive
multiplayer settings. Xbox’s cloud gaming feature, however, often
subjects gamers to lags (or “latency”) in transmission between their
individual device and cloud hardware. 1-SER-39. As a result, Xbox’s
cloud gaming feature has had limited uptake, 1-ER-18-19, and a “large
12
majority” of users employ the feature only to stream a game while it is
downloading onto their Xbox console, at which point they play natively.
Id.
Other companies have experimented with cloud gaming, and some
have had moderate success. For example, Nvidia, which manufactures
high-end graphics chips for PCs and is one of the most valuable
companies globally, has been able to leverage its hardware advantage to
create a cloud streaming service for PC games, known as GeForce
NOW. But many established industry players are skeptical.
PlayStation’s CEO “acknowledged [that] it is ‘quite difficult’ to provide a
cloud platform that ‘pleases customers,’” and “neither he, nor ‘anybody
in the world,’ can know when cloud gaming ‘will become a meaningful
component of how gamers access games.’” 1-ER-19.
Activision has a similar view. Its “content is not currently on any
cloud-streaming service,” and “it is not likely to be available absent the
merger.” 1-ER-51. Activision fears that the poor user experience
inherent in cloud gaming would harm its brand. 1-SER-124; 1-SER-185-
86, 192.
13
C. This Merger
Against this backdrop, on January 18, 2022, Microsoft announced
an agreement to purchase Activision for $68.7 billion. 1-ER-4.
Microsoft’s motivations are simple. Xbox has little presence in the fast-
growing mobile gaming segment. Activision does, and employs
engineers who know how to develop and monetize popular mobile
content. See 1-ER-13; 1-SER-185. Even post-merger, Microsoft would
represent less than of this highly fragmented segment. 3-SER-541.
Microsoft also wants to acquire Activision’s popular franchises,
including Call of Duty, to ensure a reliable annual revenue source. 1-
ER-35-36. Unlike most of Xbox’s game franchises, there is a new Call of
Duty released every year, and the game typically generates large sales
across multiple different platforms, including PlayStation and PC. 1-
ER-35-37. Microsoft counted on these revenue streams in getting
approval from its Board of Directors for the acquisition—Activision’s
existing business constituted the majority of the deal value. Xbox also
plans to bring Call of Duty to Game Pass for the first time, further
expanding access to the game and hopefully improving Game Pass’s
attractiveness to consumers. 1-ER-48.
14
The merger agreement provided that either party could terminate
it if the transaction had not closed by July 18, 2023 (the “termination
date”). 1-ER-21. In that event, Microsoft would have been obligated to
pay Activision a termination fee of $3 billion. Id.
In the nineteen months since the transaction was announced,
regulators around the world have been closely reviewing it. And
Microsoft has tried to accommodate any concerns—however speculative
they might be. It was always Xbox’s plan to increase access to Call of
Duty, but normally, companies do not make deals involving an
acquisition’s assets until after the merger is completed. See 1-SER-45.
Microsoft departed from that practice here to underscore its intent to
turn its words into tangible post-closing action.
Accordingly, well before the trial, Microsoft signed a ten-year
agreement to bring Call of Duty to the Switch for the first time ever
(and to a Nintendo console for the first time since 2013). 1-ER-19.
Microsoft also entered five separate ten-year agreements with cloud
gaming providers—including Nvidia’s GeForce Now service—to ensure
that their customers can access all Xbox games, including Activision
games. 1-ER-20. Microsoft also made an offer to keep Call of Duty on
15
Sony for a similar ten-year term, which Sony refused to sign until after
trial. See infra pp.24-25.
II. Procedural History
A. Nature of the Case
Shortly after Microsoft announced the merger, the FTC opened an
investigation. The investigative phase lasted a year and involved the
production of nearly 3 million documents and 15 investigational
hearings of senior company leadership. 1-ER-20-21.
The FTC’s normal practice in challenging an unconsummated
merger is to bring two actions simultaneously: an administrative “Part
3 proceeding,” and a separate preliminary injunction proceeding in
federal court to try to stop the merger until the Part 3 proceeding
concludes. See 15 U.S.C. § 53(b). The federal court proceedings are
almost invariably outcome determinative. A loss for the FTC in federal
court normally causes it to abandon its Part 3 case.2 By the same token,
an FTC win typically “kill[s], rather than suspend[s], a proposed
transaction,” FTC v. Weyerhaeuser Co., 665 F.2d 1072, 1087 (D.C. Cir.
Prepared Statement of the FTC Before the U.S. Sen. Comm. On

2
the Judiciary 14 (Oct. 7. 2015) (“FTC Statement”).
16
1981). Part 3 proceedings are extremely lengthy, and “[i]t is often
difficult or impossible for businesses to wait fourteen plus months while
the FTC determines whether a merger is anti-competitive.” FTC v.
Foster, 2007 WL 1827098, at *6 (D.N.M. May 30, 2007). The delay also
comes with a dim prospect of success: The FTC Commissioners who
issue a complaint historically side with themselves when adjudicating
that complaint.3 Because of the stakes, federal courts scrutinize the
strength of the FTC’s underlying antitrust claims. See infra Section I.
Had the FTC followed its traditional process, the district court
would have had ample time to hold a preliminary injunction hearing
ahead of the termination date. But the FTC did not. On December 8,
2022, the FTC filed only an administrative complaint. 2-ER-195. It
waited to file this case until June 12, 2023, six months after its
administrative complaint and just five weeks before the agreement’s
July 18th termination date. 1-ER-21; 3-ER-547.
3 See Axon Enter., Inc. v. FTC, 986 F.3d 1173, 1187 (9th Cir. 2021)
(“[The] FTC has not lost a single [administrative] case in the past
quarter-century. Even the 1972 Miami Dolphins would envy that type
of record.”), rev’d on other grounds, 598 U.S. 175 (2023).
17
The FTC’s strategic delay, however, did not impair the trial. The
parties had agreed upon an expedited discovery schedule in the
administrative proceeding, such that the case was trial-ready by June
2023. 1-ER-20-21. So just ten days after the complaint was filed, the
district court commenced a five-day evidentiary hearing featuring
hundreds of exhibits and 16 witnesses. While now characterizing the
hearing as “rushed” (at 17, 23, 46, 57, 73), the FTC does not identify a
single witness it could not call or document it could not introduce, nor
did it raise any objection below to the timing or length of the hearing.
See 3-ER-540 (asking for a hearing “[a]s soon as the matter may be
heard”); see also 3-SER-473 (asking for a TRO no later than “June 15,
2023”). In fact, the parties left nearly a full day of trial time on the
table. 1-SER-2.
At trial, the FTC focused almost exclusively on a putative “high-
performance console” market consisting of Xbox and PlayStation (not
Nintendo). It alleged that after the merger, Microsoft would withhold
Call of Duty from PlayStation. 1-ER-2. The FTC largely ignored its
other two putative markets—content-library subscription services and
cloud-gaming services, 1-ER-25-26—presenting no meaningful economic
18
evidence with respect to either. Indeed, while the FTC’s expert witness,
Professor Robin Lee, had months to prepare his expert reports, he
conducted no quantitative analysis of these services. 1-ER-48-51.
Trial testimony also made clear that the merger agreement would
have collapsed had the district court issued the requested preliminary
injunction, which would have lasted for the potentially multi-year
duration of the FTC’s administrative proceeding. In particular, Bobby
Kotick, Activision’s CEO, testified: “My board’s view is that if the
preliminary injunction is granted, that they don’t see how the deal
would continue.” See 1-SER-187.
B. The District Court’s Opinion
On July 10, 2023, the district court denied a preliminary
injunction. 1-ER-2. In its 53-page opinion, the district court found that
no evidence supported, and overwhelming evidence refuted, the FTC’s
claims of likely harm to competition.
The court first addressed the FTC’s principal claim that the post-
merger company would likely withhold Call of Duty from PlayStation. 4
4 The court expressed doubts about, but assumed arguendo the

validity of, the FTC’s proposed market definitions. 1-ER-26-29.
19
See 1-ER-47 (finding the FTC “did not offer evidence” about “other
Activision titles”). The court found, on the basis of eight independent
factors, that Microsoft had no incentive to, and would not, pursue that
strategy. 1-ER-34-41; see 1-ER-41 (describing “overwhelming” evidence).
Among other considerations, the district court relied on:
• Microsoft’s valuation model for the acquisition, which showed it

would make no financial sense to pull Call of Duty from
PlayStation, its largest and most profitable console customer
base;
• Undisputed testimony that taking Call of Duty off PlayStation

would cause Microsoft “irreparable reputational harm” and
make the game less valuable for even Xbox gamers by
dramatically shrinking the multiplayer community;
• Sworn testimony from Microsoft witnesses, including CEO

Satya Nadella and Gaming CEO Phil Spencer, that “there are
no plans to make Call of Duty exclusive to the Xbox”;
• Microsoft’s track record of acquiring Minecraft—a similarly

popular cross-platform multiplayer franchise—and then
expanding the game to new platforms;
• The absence of “any instance in which an established

multiplayer, multiplatform game with cross-play, that is, a
game that shares Call of Duty’s characteristics, has been
withdrawn from millions of gamers and made exclusive”; and
• a candid admission by PlayStation’s CEO that the acquisition is

“not an xbox exclusivity play at all,” and that Sony “will
continue to see COD on PS for many years to come.”
1-ER-34-37.
20
In addition to those factual findings, the court noted that
Microsoft had contractually offered to make Call of Duty available to
Sony, with “the same content, feature, and technical parity” to Xbox, for
ten years on the same terms that Sony enjoyed pre-merger. 1-ER-39.5
The court stressed, however, that this ninth factor was “not necessary
to the Court’s finding.” Id.
The court also comprehensively reviewed the economic evidence.
“The lynchpin” of the FTC’s case was “the expert opinion of Professor
Robin Lee . . . .” 1-ER-41. But that opinion was sorely lacking. As the
court found, Dr. Lee’s quantitative analysis of the merged firm’s
foreclosure incentives was based on a completely unsupported
assumption. In his written direct, his cross-examination, and his re-
direct, Dr. Lee did “[n]othing” to address this and other critiques
identified by defendants’ expert, Dr. Dennis Carlton. 1-ER-41-45.
Likewise, “Prof. Lee did not engage in any quantitative analysis of
partial foreclosure.” 1-ER-46.
See infra pp.24-25; 3-SER-501-518.
21
The court also rejected the FTC’s barely-presented claims of likely
harm to the putative subscription and cloud-gaming “markets.” 1-ER-
47-51. In both cases, the court found that Activision had not made its
games available for either subscription or cloud-gaming services and
was very unlikely to change that policy in the future as a standalone
company. See 1-ER-50-51. That finding by itself refuted any claim of
competitive harm: The merger will not deprive anyone of content
otherwise available to them. But the court also found that “the record
evidence points to more consumer access to Call of Duty and other
Activision content,” because Microsoft intends to place Call of Duty on
Game Pass, and signed agreements to make Call of Duty available on
Nintendo’s Switch and five rival cloud-gaming platforms. 1-ER-39-40,
50, 54. In short, the world with the merger would feature much broader
access to Activision content than the world without it.
The court thus concluded that the FTC had not “raised serious
questions regarding whether the proposed merger is likely to
substantially lessen competition,” and thus “has not demonstrated a
likelihood of ultimate success as to its Section 7 claim . . . .” 1-ER-52.
22
Although the court did not “need [to] proceed to the balance of
equities question,” it did so anyway and concluded that the equities
weighed in favor of allowing the merger rather than “potential[ly]
skuttling” it altogether by delaying consummation until the end of the
lengthy administrative process. Id. The court noted that this “is a
vertical acquisition,” in which “Microsoft and Activision will act as
parent and subsidiary,” and thus does not raise the egg-scrambling
concerns that often justify a preliminary injunction against horizontal
mergers. 1-ER-53. Indeed, Microsoft plans to operate Activision as a
limited-integration studio, as it has done with other previously-acquired
studios. Id.; 2-SER-314; 1-SER-263.
C. Post-Decision Developments
The district court temporarily restrained Microsoft and Activision
from closing the merger through July 14, 2023, to allow the FTC to seek
appellate relief. 1-ER-54. Late on July 13, the FTC moved for
injunctions pending appeal in the district court and then in this Court.
Both motions were denied. 2-SER-299; Dkt.25.
Once these decisions eliminated a significant potential block to the
transaction, Microsoft and Activision negotiated a three-month
23
extension on July 18, 2023, to accommodate remaining foreign
regulatory review. Among other valuable concessions, Microsoft agreed
to pay Activision shareholders a cash dividend of $0.99 per share and to
increase its termination fee by up to 50% ($4.5 billion), and it waived its
right to collect up to $500 million in revenue sharing from Activision if
the deal is terminated. Current Report (Form 8-K), Activision Blizzard,
Inc. (July 19, 2023), http://tinyurl.com/ynz9ccjv.
On July 20, 2023, the FTC suspended the underlying
administrative proceedings for a determination of whether continuing
them serves the public interest. 2-ER-56. To date, the FTC has taken no
further action in the administrative proceeding.
Sony had been the principal complainant against this transaction
and the primary alleged victim in the FTC’s foreclosure theory. But
after the FTC’s court losses, Sony accepted Microsoft’s
contract for Call of Duty.
3-
SER-501-518.
24
Id.
Id.6
SUMMARY OF ARGUMENT
1. To obtain a preliminary injunction under Section 13(b), the FTC
must demonstrate (among other things) its “likelihood of ultimate
success” on the merits. 15 U.S.C. § 53(b)(2). The district court faithfully
applied that standard, giving the FTC the benefit of the doubt on
multiple disputed issues and ultimately concluding that the FTC did
not “demonstrate[] a likelihood of ultimate success” because it failed to
“raise[] serious questions regarding whether the proposed merger is
likely to substantially lessen competition . . . .” 1-ER-52. That is
precisely what Section 13(b) requires. See Warner, 742 F.2d at 1162.
The FTC incorrectly claims that it was legal error for the district
court to look to the reasoning of Section 7 merits cases. The district
6 The Court may take notice of the later-signed Sony contract to

affirm the decision below. See, e.g., Wilbur v. Locke, 423 F.3d 1101, 1112
(9th Cir. 2005); Disabled Rights Action Comm. v. Las Vegas Events, Inc.,
375 F.3d 861, 866 n.1 (9th Cir. 2004); see also, e.g., Rothenberg v. Sec.
Mgmt. Co., 667 F.2d 958, 961 n.8 (11th Cir. 1982) (“We are, however,
free to take judicial notice of subsequent developments in cases that are
a matter of public record and are relevant to the appeal.”).
25
court simply followed the same path as the courts in all other Section
13(b) cases, citing Section 7 cases to help evaluate whether the FTC had
shown a likelihood of ultimate success on the Section 7 merits. The FTC
never explains how a court can make that necessary determination
without considering what the FTC must ultimately prove. The FTC
similarly departs from precedent in advancing the implausible
suggestion that district courts must ignore any evidence that cuts
against the FTC’s case.
2. The FTC’s makeweight arguments about the legal standard
underscore that its true complaint is with the district court’s findings of
fact. But the FTC identifies no error in those findings, much less clear
error; indeed, the FTC conspicuously ignores most of the court’s robust
findings. See, e.g., Br.7-14 (summary of facts without a single citation of
the opinion); Br.28-36 (summary of purported evidence again without a
single citation to findings below).
For example, the FTC did little at trial to support its theories
regarding subscription and cloud-gaming services, theories the FTC
stresses for the first time on appeal. The court found, as a matter of
fact, that absent this merger, Activision would not make its games
26
available on such services, consistent with its longstanding historical
practice. That fact precludes any foreclosure claim as to these services:
it is meaningless to assert that a merger “forecloses” third parties by
denying access to an input that they could not have obtained anyway.
The district court further found, again as a matter of fact, that the
merger will expand output and enhance competition because the
merged company will make Activision content available to at least one
content-library subscription service (Game Pass) as well as multiple
new cloud-streaming platforms. That outcome will benefit consumers by
increasing access and enabling them, for the first time, to play new Call
of Duty and other Activision games without buying them outright.
The FTC fails to turn these factual virtues into a legal vice. The
FTC’s claims that the district court found foreclosure and improperly
accepted an “efficiencies defense” are untethered from reality. The
district court simply compared its factual assessment of the world with
the merger to its factual assessment of the world without the merger.
That ordinary-course antitrust analysis established that the merger will
cause no competitive harm at all and will in fact benefit consumers.
27
3. The FTC makes no serious effort to show an abuse of
discretion in the district court’s rejection of its claims about the console
market. 1-ER-6. At most, the FTC quibbles with some of the district
court’s factual findings, such as the weight it gave to testimony from
Microsoft executives. But those are classic credibility determinations
evaluated for clear error, and in any event provide no basis for setting
aside the court’s other, independently sufficient adverse findings of fact.
The FTC fares no better when challenging the district court’s
rejection of its late-raised “partial foreclosure” theory. As the court
found, the FTC provided “no expert testimony to support” it and no
evidence that any partial exclusivity policy would drive “enough
PlayStation users to Xbox such that the benefits to the combined firm
outweigh the costs.” 1-ER-46.
Beyond these flaws, the FTC never showed—and still has not
shown—potential harm to competition. Even if Xbox were to make Call
of Duty fully or partially exclusive (against all the evidence), that would
at most allow it to narrow (but not close) Sony’s two-to-one lead in the
console market. 1-ER-9. As the district court aptly found, the merger,
28
while “[p]erhaps bad for Sony,” is “good for Call of Duty gamers and
future gamers.” 1-ER-40.
4. The FTC ignores the law, the record, and common sense in
assigning error to the district court’s consideration of Microsoft’s
binding commitments to make Call of Duty available on Nintendo
Switch and five rival cloud-gaming platforms, as well as the then-
pending offer to sell Call of Duty on PlayStation for another decade. As
the court made clear, its conclusions rested on independent and
adequate factual grounds, so the FTC’s complaint is irrelevant.
In any event, reliance on these agreements is legally sound.
Courts have long treated a firm’s contractual obligations to third parties
as real-world constraints relevant to the question of liability, not mere
“remedies” for (non-existent) legal violations. The FTC does not cite a
single case obligating a court to ignore the real world and base its
decision on a fictional reality more favorable to the FTC.
5. There is also no basis for the FTC’s complaints about the
district court’s application of Brown Shoe Co. v. United States, 370 U.S.
294 (1962). As the court correctly recognized, “the FTC made no
reference to this theory in its opening statement or closing argument.
29
Nor is it discussed by Dr. Lee’s expert report; he addressed only
Microsoft’s ability and incentive to foreclose.” 1-ER-51. Moreover, the
court correctly rejected the FTC’s argument on the merits. Under any
doctrinal framework, the FTC’s case presupposed that Microsoft would
harm competition by withholding Activision content from rivals that
would otherwise obtain it. The FTC completely failed to substantiate
that premise with evidence. 1-ER-51-52.
6. Finally, the district court correctly found that the balance of
the equities supplies “a separate, independent reason the FTC’s motion
must be denied.” 1-ER-52-53. As the FTC recognizes, “[t]he only purpose
of a proceeding under § 13 is to preserve the status quo” pending the
administrative case if doing so is necessary to preserve the possibility of
effective relief if the FTC ultimately prevails. Br.6 (emphasis added)
(citation omitted). The district court found that rationale inapplicable
because the FTC had identified nothing about this vertical merger that
“would make it difficult to order an effective divestiture.” 1-ER-53.
On appeal, the FTC does not challenge that factual finding, which
is reason enough to affirm. At the same time, the court correctly found
that a preliminary injunction pending the FTC’s lengthy administrative
30
case could harm both the parties and consumers by “skuttling” this pro-
competitive transaction altogether, 1-ER-52, as Section 13(b)
injunctions invariably do for mergers. In short, the balance of equities
points to only one path: the one the district court took.
STANDARD OF REVIEW
The denial of a motion for a preliminary injunction under Section
13(b) is reviewed for abuse of discretion. Warner, 742 F.2d at 1160. This
Court’s review in such cases is “limited and deferential,” and requires
the appellant to show the district court “committed an abuse of
discretion, or an error of law, or made a clearly erroneous factual
finding.” Cascadia Wildlands v. Thrailkill, 806 F.3d 1234, 1240 (9th
Cir. 2015). Even where an appellant makes the substantial showing
required under the abuse-of-discretion standard, the judgment will be
affirmed “unless prejudice is shown.” Pierce v. Cnty. of Orange, 526 F.3d
1190, 1201 (9th Cir. 2008) (cleaned up).
ARGUMENT
I. The District Court Correctly Applied the Controlling Legal

Standard.
To enjoin a merger, the FTC must show, among other things, a
“likelihood of ultimate success” on the merits. 15 U.S.C. § 53(b)(2). That
31
showing is critical because “the issuance of a preliminary injunction
prior to a full trial on the merits is an extraordinary and drastic
remedy” and “may prevent the transaction from ever being
consummated” even if it is lawful and pro-competitive. FTC v. Exxon
Corp., 636 F.2d 1336, 1343 (D.C. Cir. 1980) (cleaned up).
To meet that standard, the FTC must “raise[] questions going to
the merits so serious, substantial, difficult and doubtful as to make
them fair ground for thorough investigation, study, deliberation and
determination by the FTC in the first instance and ultimately by the
Court of Appeals.” Warner, 742 F.2d at 1162; cf. FTC v. Atl. Richfield
Co., 549 F.2d 289, 298 (4th Cir. 1977) (denying preliminary injunction
under Section 13(b) where “there was not a substantial likelihood that
FTC would be able to establish a violation of § 7”). It is not enough for
the FTC to raise “mere questions or speculations supporting”
allegations of anticompetitive conduct. FTC v. Meta Platforms Inc., 2023
WL 2346238, at *8 (N.D. Cal. Feb. 3, 2023). Instead, Section 13(b)
“demands rigorous proof,” FTC v. Sysco Corp., 113 F. Supp. 3d 1, 23
(D.D.C. 2015), and a court must “exercise independent judgment” after
carefully assessing “all the evidence before it, from the defendants as
32
well as from the FTC,” FTC v. Whole Foods Mkt., Inc., 548 F.3d 1028,
1035 (D.C. Cir. 2008).7
The district court correctly identified and faithfully applied that
standard. See, e.g., 1-ER-23-24, 52 (following Warner). The court
repeatedly made clear that it was not finally resolving the merits;
rather, it assumed the FTC was correct on numerous disputed issues.
See, e.g., 1-ER-25 n.5 (“accept[ing], without deciding, the FTC’s
definition of the relevant markets here”); 1-ER-28 (court would “likely
find Nintendo Switch part of the” console market if it “was the final
decisonmaker on the merits,” but concluding otherwise for purpose of
the decision); 1-ER-29, 31 (assuming “multigame content library
subscription services and cloud gaming” are “each their own product
market”); 1-ER-34 (“accept[ing]” ability to foreclose); 1-ER-48 (assuming
Call of Duty exclusivity for subscription services).
7 Contrary to the FTC’s suggestions, courts have in fact commonly

denied FTC requests for preliminary injunctions in Section 13(b)
merger cases—even ones involving horizontal mergers. See, e.g., Meta,
2023 WL 2346238; FTC v. Thomas Jefferson Univ., 505 F. Supp. 3d 522
(E.D. Pa. 2020); FTC v. RAG-Stiftung, 436 F. Supp. 3d 278 (D.D.C.
2020); FTC v. Steris Corp., 133 F. Supp. 3d 962 (N.D. Ohio 2015); FTC
v. Lab’y Corp. of Am., 2011 WL 3100372 (C.D. Cal. Mar. 11, 2011); FTC
v. Arch Coal, Inc., 329 F. Supp. 2d 109 (D.D.C. 2004).
33
Notably, in the conclusion of its analysis—which the FTC
conspicuously omits—the court again returned to the Warner standard,
finding that “the FTC has not raised serious questions regarding
whether the proposed merger is likely to substantially lessen
competition,” and therefore “has not demonstrated a likelihood of
ultimate success.” 1-ER-52 (emphasis added); accord, e.g., 1-ER-48, 50
(invoking the “serious questions” standard).
Seeking to invent a legal error, the FTC first argues that the
district court “conflat[ed] Section 13(b)’s standard for a preliminary
injunction with the permanent injunction standard under Section 7.”
Br.25. Not so. The district court was required, under Section 13(b), to
assess whether the FTC had raised serious “questions going to the
merits.” Warner, 742 F.2d at 1162 (emphasis added). In making that
assessment, the district court logically looked to the merits standard
the FTC would ultimately have to satisfy. See 1-ER-22-23. Warner took
the same approach, looking to the FTC’s ultimate Section 7 burdens to
assess whether the FTC had shown a likelihood of meeting them. 742
F.2d at 1160, 1164.
34
It thus makes no sense for the FTC to criticize the district court
for “relying on AT&T and other non-Section 13(b) cases,” which
involved permanent injunctions. Br.26. To evaluate the FTC’s
“likelihood of ultimate success,” 15 U.S.C. § 53(b)(2), it was proper—
indeed, necessary—for the district court to consider precedents
analyzing the ultimate merits standard. Courts routinely analyze
merits decisions in assessing a preliminary injunction movant’s
likelihood of success. 8 That is necessary to coherent judicial
decisionmaking, not some kind of legal error.
The FTC is similarly wrong in suggesting that the district court
erred by considering all the evidence. Under the FTC’s view on appeal,
district courts should not be allowed to consider the FTC’s ultimate
burden on the merits, Br.25-26; or evidence the district court finds more
persuasive than the FTC’s scant evidence, Br.28; or methodological
shortcomings in the FTC’s expert analysis, Br.41-42; or the real-world
effects of the merger, Br.45-58, including whether the merger is output-
8 See, e.g., Warner, 742 F.2d at 1164; FTC v. H.J. Heinz Co., 246
F.3d 708, 715 (D.C. Cir. 2001); FTC v. Univ. Health, Inc., 938 F.2d 1206,
1218 (11th Cir. 1991); Meta, 2023 WL 2346238, at *8; RAG-Stiftung,
436 F. Supp. 3d at 290; Thomas Jefferson Univ., 505 F. Supp. 3d at 537-
38.
35
expanding, Br.38-39; or the sworn testimony of relevant executive
decisionmakers, Br.42-43, 60-65; or the hardships a preliminary
injunction would pose to the merging entities and to third parties,
Br.68-74; or the ability of the FTC to fashion effective relief post-
merger, Br.55-58. Nothing in Warner or other Section 13(b) precedent so
circumscribes a district court’s review of the evidence, reduces Article
III courts to FTC case managers, or “presumpti[vely]” entitles the FTC
to a preliminary injunction just for showing up to trial. See Br.69. If
that were the law, the outcomes of merger challenges—particularly
vertical merger challenges—would be quite different.
Indeed, the FTC itself has squarely rejected this very argument.
The FTC previously insisted to Congress, in response to proposed
legislation to align the FTC’s merger-challenge burdens with DOJ’s,
that the standard that courts actually apply in Section 13(b) cases
requires the FTC “to make a robust evidentiary and legal showing that
the transaction would likely be anticompetitive in order to obtain a
preliminary injunction.” FTC Statement, supra, at 13 (emphases
added); see also id. (“[A]ny effort to seek a federal court injunction
against a proposed merger requires the FTC or [DOJ] to present a
36
convincing factual and legal basis for competitive concern in order to
secure appropriate relief.”).
Finally, the FTC’s legal arguments—even if accepted—do not
justify reversal. The appropriate remedy in such circumstances would
be to remand for re-evaluation under a new standard. See, e.g., Saucillo
v. Peck, 25 F.4th 1118, 1133 (9th Cir. 2022). But remand would be a
pointless exercise because, as we next show, the FTC’s case fails under
any plausible standard.
II. The District Court Correctly Found No Plausible Claim of

Competitive Harm in the Putative Subscription and Cloud-
Gaming Markets.
The FTC devoted almost its entire case at trial to the console
market. Having watched that case disintegrate, the FTC now shifts its
focus to the putative “markets for content-library and cloud-gaming
services,” which it addressed only in passing below. For multiple
independent reasons, the district court properly rejected the FTC’s half-
baked theories of harm in these two “markets.”9
9The district court “assume[d] without deciding” that subscription

and cloud-gaming services “are each their own product market.” 1-ER-
29. They are not. As the district court suggested, they are “simply
alternative ways” to buy video games (via subscription rather than
(continued on next page)
37
A. The FTC’s Claims About Both Markets Rest on a False

Premise About Standalone Activision’s Plans.
As a threshold matter, the FTC’s theories of harm fail because
they rest on a factual premise that the district court expressly rejected.
To substantiate any claim of foreclosure, the FTC needed to show, as an
initial matter, that the merged firm will withhold new Activision games
from third parties that could otherwise obtain them. A company cannot
“foreclose” third parties by withholding inputs that would otherwise be
unavailable to them.
The district court found—as a matter of fact—that the FTC could
not make this showing. The court concluded that a standalone
Activision would maintain its “long-held stance” not to make new
content available to subscription or cloud-gaming services because of
profit-cannibalization and game-performance concerns, respectively. 1-
ER-48-49 (subscription); 1-ER-49-50 (cloud gaming). In other words, the
game-specific sales) or to play them (on the cloud rather than on a

console). Id.; see also 3-SER-378-383. Moreover, Microsoft and Sony do
not compete in some freestanding “market” for subscription services: an
Xbox gamer cannot use PlayStation Plus on an Xbox, and a PlayStation
gamer cannot use Game Pass on a PlayStation. A gamer with one of
these consoles therefore cannot switch between these two subscription
services without buying the other console (or gaming PC). 1-SER-109.
38
district court found that, absent the merger, new Activision content
would not be available on subscription or cloud-gaming services. That
finding is fatal to the FTC’s claims about both markets unless the FTC
can show clear error. See Beech Aircraft Corp. v. United States, 51 F.3d
834, 838 (9th Cir. 1995). 10
In various passages, the FTC quibbles with the court’s finding but
does not come close to showing clear error. For example, it asserts that
“Activision’s CEO also testified that Activision could offer its games
on . . . subscription services going forward.” Br.32. But the question is
not whether a standalone Activision would have the ability to do so, but
whether it would do so. The clear answer, the district court found, is no.
10
The FTC’s theory about the putative cloud-gaming “market”
fails for other independent reasons. First, the FTC failed to show that
cloud gaming will develop into a genuine alternative to consoles or
performance PCs for multiplayer, fast-twitch, graphics-intensive games.
As the district court found, “the technology and economics of cloud
gaming remain challenging, particularly for latency-sensitive
multiplayer games” like Call of Duty. 1-ER-18-19. Second, the FTC
failed to show that Xbox will be a major player in that future market. In
fact, the undisputed evidence confirms that the primary use case for
xCloud is to temporarily try games prior to downloading them, not as
an alternative to native gameplay. 1-ER-19. There is accordingly no
evidence to suggest Xbox is, or will ever be, “the runaway dominant
provider,” Br.33, of any eventual cloud-gaming market for playing
games like Call of Duty.
39
1-ER-49-51. More broadly, sifting witness testimony and making
credibility determinations is exactly the kind of finding that district
courts are entrusted to make and that parties cannot second-guess on
appeal, absent clear error.
The FTC also cannot avoid the clear error standard by grossly
mischaracterizing the court’s finding as a mere “assumption.” Br.36 n.2.
The district court based its conclusion on the evidence at trial, including
testimony from Activision’s CEO and witnesses from Sony and Nvidia.
1-ER-49-51; see also 2-ER-85, 88 (Activision’s CEO testifying that
subscription is not “a sustainable long-term business” and “not
something that we do have any plans to do”); 1-ER-49 ( “Sony has never
even asked Activision about adding its games to PlayStation Plus
because Activision has been so ‘public’ and ‘vocal’ about not putting its
content on subscription services.”); 3-SER-567 (testimony from the head
of GeForce Now).
B. The District Court Did Not “Find Foreclosure” in

Multi-Game Subscription Services or Credit an
“Efficiencies Defense.”
Rather than attempt to show clear error, the FTC resorts to
misdirection, asserting that the district court found “foreclosure” in the
40
subscription market and then credited a supposed “efficiencies defense.”
That is wrong. The district court found no likelihood of “foreclosure” in
any market, and Microsoft did not even raise an “efficiencies” defense
because it did not need to do so.
As discussed, the district court found that the merger would
expand access to Call of Duty because at a minimum Xbox will include
the game in Game Pass. That outcome will “give[] consumers a new,
lower cost way to play the game” the day it is released. 1-ER-48; see id.
(“[A]dding Call of Duty, and Activision content in general, will actually
lower costs for many game consumers, and harm none.”). The court
assumed that Call of Duty would be exclusive to Game Pass but found
that the FTC had not presented meaningful evidence that such
exclusivity could possibly result in competitive harm. To the contrary,
the district court concluded that even that world would be better for
consumers and competition than the but-for world, where Call of Duty
will likely appear on zero subscription services. 1-ER-48-50.
Nothing about that ruling is a “finding [of] . . . foreclos[ure].”
Br.36. Again, it makes no sense to allege that a merger might
“foreclose” rivals by withholding access to an input that they would not
41
have obtained anyway. Moreover, the district court did not find that the
post-merger Xbox will withhold Call of Duty from other subscription
services—it simply assumed that for purposes of the decision. 1-ER-48.
See supra pp.24-25.
The district court’s reasoning on this score also did not amount to
acceptance of an “efficiencies defense.” As the name suggests, an
“efficiencies defense” is just that—an effort to justify anticompetitive
harms based on offsetting efficiencies, generally in some other market.
See, e.g., United States v. Anthem, Inc., 855 F.3d 345, 378 (D.C. Cir.
2017); Br.38. Instead, the district court properly found no evidence of
anticompetitive harm, through the requisite comparison of the but-for
world without the merger to the real world with the merger. So here
too, the FTC’s argument runs squarely into the district court’s contrary
and well-justified finding that Call of Duty would not be available on
multiple subscription services absent the merger.
Even if, contrary to the evidence, a standalone Activision would
have made Call of Duty available to other subscription or cloud-gaming
services, that would not make it anticompetitive for the merged
42
company to withhold Call of Duty from such services. The relevant
question in vertical foreclosure analysis is not whether a firm would
withhold an input from rivals, but whether that withholding would
harm competition. See Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429
U.S. 477, 488 (1977); Fruehauf Corp. v. FTC, 603 F.2d 345, 352 n.9 (2d
Cir. 1979); see also infra Section III.B. The FTC presented no evidence,
quantitative or otherwise, suggesting that Sony—or any other rival—
would be unable to compete even if Call of Duty were exclusive to Game
Pass. Indeed, PlayStation’s subscription service has roughly twice as
many subscribers as Game Pass, even without Sony releasing any of its
new first-party games into the service. 3-SER-557. For all these
reasons, the FTC’s rhetoric (at 44) about the need to prevent Game Pass
from “becom[ing] a monopolist” in the alleged subscription market falls
flat. In any event, the FTC did not raise this baseless “monopoly”
concern below, so it is forfeited. See In re Mercury Interactive Corp. Sec.
Litig., 618 F.3d 988, 992 (9th Cir. 2010).
In sum, the district court properly concluded that this merger will
expand the content available to the consumers of at least one
subscription service (Game Pass), without depriving consumers of any
43
other subscription service of content they otherwise would have
obtained. There is nothing anticompetitive about that picture.
III. The District Court Correctly Found No Serious Question of

Competitive Harm in the Console Market.
As explained above, the FTC’s primary claim at trial was that
Microsoft will harm competition by withholding Call of Duty from the
PlayStation console once the merger is consummated. 1-ER-34; see 1-
ER-47 (FTC “did not offer evidence” about “other Activision titles”). On
appeal, the FTC largely retreats from this argument, for good reason—
the district court rejected it based on overwhelming evidence.
As a preliminary matter, the FTC’s case is even weaker now than
when the district court issued its opinion. The district court accepted,
for purposes of its decision, that Microsoft would have the ability to
withhold Activision content from Sony. That premise is now incorrect,
in light of the contract that Microsoft and Sony have signed. See supra
pp.24-25. That contract thus provides an independent ground for
affirmance, particularly given the FTC’s representation that such an
agreement would address its concerns in the console market. 1-SER-
268. See United States v. Burnette, 698 F.2d 1038, 1048 (9th Cir. 1983)
(district court may be affirmed “on any basis fairly presented by [the]
44
record that, as a matter of law, sustains the judgment”); supra n.5
(Court may take judicial notice of later developments to affirm).
In any event, the district court properly rejected the FTC’s case on
the evidence before it. In response, the FTC merely nitpicks at the
margins of some of the court’s nine grounds for decision, leaving others
unchallenged. The FTC shows no error in the findings it does challenge,
let alone clear error, and any error would be harmless.
A. The FTC Failed to Establish that Microsoft Has Any

Incentive to Withhold Call of Duty from Sony.
1. The FTC Fails to Show Clear Error in the

District Court’s Fact-Bound Conclusions.
The district court found the evidence “overwhelming” that
Microsoft lacked any incentive to withhold Call of Duty from Sony, 1-
ER-41. As noted above, the district court based this conclusion on nine
independent factual findings, even apart from Microsoft’s agreements
with third parties; for example, it found that withholding would be
financially and reputationally ruinous to Microsoft. See supra pp.20-21.
The district court also credited evidence regarding Microsoft’s
acquisition of Minecraft publisher Mojang, which “exemplifies how a
45
console seller (and Microsoft in particular) behaves when acquiring a
hugely popular multiplayer cross-platform game,” 1-ER-38-39.
On appeal, the FTC recites its favored snippets from the record,
but does not even attempt to show that the district court’s findings were
clearly erroneous, as it must. Indeed, the only one of the district court’s
findings that the FTC meaningfully attempts to address is the district
court’s crediting of sworn commitments from senior Microsoft
executives “to continu[e] to ship Call of Duty on the Sony PlayStation.”
1-ER-36; see Br.62-63. But there was nothing legally improper in the
district court’s consideration of that evidence as one input among many
others. As just one example, similar commitments undermined the
government’s case in United States v. UnitedHealth Grp. Inc., 630 F.
Supp. 3d 118, 154-55 (D.D.C. 2022) (sworn commitments are “far more
probative of post-merger behavior than [the government expert’s]
independent weighing of costs and benefits”). The FTC provides no
authority for completely discarding such testimony as a matter of law,
46
and its suggestion that the court gave these statements “dispositive
weight” is belied by the court’s analysis.11
The weakness of the FTC’s console case is underscored by its
oblique and misleading challenge to the district court’s finding that
Microsoft’s financial models showed no incentive or intent to withhold
Call of Duty from Sony. The FTC suggests the district court overlooked
a 2022 analysis of how Microsoft “could recoup the potential loss of
Activision’s revenue from games sold on Sony’s PlayStation,” Br.31.
What the FTC fails to mention, however, is the impetus for this
analysis—not to plot a withholding strategy, but to address concerns
that Sony would use its dominant position to demand unfavorable
commercial terms from Microsoft. See 3-SER-551; 1-SER-257-258.
Beyond ignoring that context, the FTC mischaracterizes both the actual
scenario Microsoft modeled (a reduction in Microsoft’s share of
revenues from Call of Duty, not withholding from Sony, id.); and
11 The FTC’s footnote (at 64 n.11) describing these commitments

as having been “impeached” is unsupported by the testimony cited,
which had nothing to do with the relevant comments by the executives.
More importantly, the district court—the ultimate judge of witness
credibility here—found these commitments credible and not impeached.
See, e.g., Husain v. Olympic Airways, 316 F.3d 829, 839 (9th Cir. 2002).
47
Microsoft’s proposed competitive response (selling Call of Duty on more
rather than fewer platforms), 1-SER-265. Freed from the FTC’s
revisionist framing, this evidence comports perfectly with the district
court’s conclusions that Microsoft never modeled an exclusivity
strategy; that it consistently valued the deal based on continued sales
on PlayStation, Call of Duty’s largest and most valuable market; and
that it would be “financially impossible” for Microsoft to overcome the
loss of Call of Duty sales on PlayStation. 1-ER-34-35, 45.
2. The FTC Does Not Seriously Contest the District

Court’s Rejection of the Economic Testimony
that Was the “Lynchpin” of Its Case.
The FTC similarly provides no basis for disturbing the district
court’s rejection of the FTC’s economic evidence about Microsoft’s
alleged incentive to foreclose.
The FTC understood that to show the merger would likely lessen
competition, it had to establish (among other things) that Microsoft
would have the incentive to withhold Call of Duty—that is, that
Microsoft could increase its console sales enough to offset the enormous
cost of closing off Call of Duty’s largest and most profitable customer
base. The FTC attempted to carry this burden by relying on empirical
48
analyses by its economist, Professor Lee. See 1-ER-41 (“The lynchpin of
the FTC’s argument is the expert opinion of Professor Robin Lee . . . .”).
The district court correctly concluded that Professor Lee’s
economic modeling “[did] not dispute the evidence of Microsoft’s lack of
an economic incentive.” Id. While Professor Lee endeavored to show
that the benefit of withholding Call of Duty from PlayStation exceeded
the well-documented costs, his economic models fell apart at trial. The
“pivotal” data point in his analyses was a “conversion rate”— the
number of PlayStation gamers who “would purchase an Xbox console to
play Call of Duty 2025 if it was not available on PlayStation.” 1-ER-41-
44. 12 The district court found that Professor Lee “simply assumed a
conversion rate for his model that would make exclusivity
profitable . . . .” 1-ER-42-45. This substitution of assumptions for
evidence was fatal to Professor Lee’s models, which are so sensitive that
changing the assumed inputs even “just a bit” reverses his analysis and
shows that “it would not be profitable to withhold Call of Duty from
PlayStation.” 1-ER-42 (emphasis in original).
12 “Call of Duty 2025” refers to the first Call of Duty title that will
be released after Sony’s prior contract expired in 2024. 1-ER-41.
49
The district court also identified numerous additional weaknesses
in Professor’s Lee’s analysis. As it observed, Professor Lee had no
response to many of the modeling criticisms advanced by Microsoft’s
expert that, when corrected, showed no incentive to withhold Call of
Duty. 1-ER-44 (“[W]hat does Prof. Lee say about Dr. Carlton’s criticism?
Nothing . . . . The criticism thus stands unscathed—and persuasive.”).
The district court also found that Professor Lee sought confirmation of
his assumed conversion rate from documents that he had not actually
considered or that in fact undermined his analyses. 1-ER-42-43; see also
1-ER-44-45 (noting “several additional weaknesses,” including failure to
consider the reputational harm of pulling Call of Duty). The FTC does
not seriously contest these fatal factual findings. See Craftsmen
Limousine, Inc. v. Ford Motor Co., 363 F.3d 761, 777 (8th Cir. 2004)
(rejecting expert opinion because it “failed to ‘incorporate all aspects of
the [market’s] economic reality’”).
Quite apart from these flaws, Professor Lee himself conceded in
response to the district court’s questioning that he had no basis for
testifying that the post-merger company would likely withhold Call of
Duty. 1-SER-155-156. By itself, this concession independently
50
undermines the FTC’s principal rationale for enjoining this merger: the
notion that the post-merger company would likely “foreclose” the
market-dominant Sony by withholding Call of Duty.
B. The FTC Failed to Show that Withholding Call of Duty

from Sony Would Likely Harm Competition.
Because the FTC failed to show that the combined firm was likely
to withhold Call of Duty, the district court did not need to determine
whether the FTC was likely to prevail on its claim that such
withholding was likely to substantially lessen competition. See, e.g.,
McWane, Inc. v. FTC, 783 F.3d 814, 838-39 (11th Cir. 2015) (vertical
transactions are generally found to raise antitrust concerns only where
they leave rivals “stunted” as competitors and materially impair their
ability to discipline the defendants’ prices). The FTC cannot make that
showing either, providing an alternative ground for affirmance.
The FTC offered no plausible basis at trial for predicting that the
withholding of a single video game could cause harm to competition.
Xbox has lagged PlayStation for decades, such that withholding Call of
Duty would serve only to make the playing field more level. Even if all
of Dr. Lee’s conclusions were valid, Xbox would gain only a 5.5% share
shift from PlayStation, and PlayStation would still remain the leading
51
console provider. 3-SER-530-533. Indeed, the undisputed evidence
below was that, even if
3-SER-533.
The FTC also did not dispute that Sony would have effective
competitive responses to the loss of Call of Duty. See Paddock Publ’ns,
Inc. v. Chi. Trib. Co., 103 F.3d 42, 44 (7th Cir. 1996) (explaining that a
competitor who is “deprived of access” to even the “best known” content
can still compete using alternative content); see also id. (“[A] newspaper
deprived of access to the New York Times crosswords puzzles can find
others, even if the Times has the best known one.”). Sony’s CEO told
investors in the wake of news of Microsoft’s acquisition of Activision
that “growing your studios organically successfully is a smart thing to
do” to increase Sony’s own value proposition to consumers. 2-SER-306.
Sony could also leverage its vast library of intellectual property to
develop new video game content. 1-SER-184. These market dynamics
are the essence of competition, and fatal to the FTC’s case.
52
That is particularly so because the FTC’s expert conceded these
market dynamics. Professor Lee acknowledged both that Sony would
have competitive responses to any withholding strategy, and that he
had not modeled them. 1-SER-152. He also did not dispute that Sony
could acquire additional content, as it did when it agreed to purchase
Bungie “just days after the Activision Xbox transaction was
announced.” 1-SER-152. He likewise did not dispute that Sony could
protect itself by accepting Xbox’s offer to maintain Call of Duty on
PlayStation, as it has since done. 1-SER-152.
Finally, the FTC’s suggestion that any withholding harms
competition is contradicted by the fact that exclusive games are
common in the video game industry. See 1-ER-10 (there are “eight
exclusive games on PlayStation for every one on Xbox”). 13 Sony in
particular “uses its market power to extract other preferential
treatment from third-party game developers, including earlier release
dates, exclusive marketing agreements, and exclusive in-game content,”
and has also paid for third-party publishers not to release their games
13More broadly, exclusivity arrangements are ubiquitous

throughout the economy and are generally procompetitive. See, e.g.,
Paddock Publ’ns, 103 F.3d at 44.
53
on Xbox. 1-ER-10-11. The FTC has never explained why it would be
anticompetitive for the last-place competitor to do something broadly
and routinely done by the long-time market leader.
C. The FTC Cannot Save Its Case with a Later-Added

Partial Foreclosure Theory.
The district court also properly rejected the FTC’s theory that
Microsoft could harm competition through a strategy of “partial
foreclosure.” Partial foreclosure, in the context of this case, refers to
degrading the quality of games on PlayStation or making them more
attractive on Xbox, such as by having an earlier release date or
exclusive content on Xbox. 1-ER-46; see, e.g., 1-SER-9 (providing the
example of making “a neat player or a tool” available only on Xbox).
As an initial matter, the FTC did not raise this issue until the eve
of trial. 1-ER-46 (theory was “not [in] its original moving papers”). It
accordingly had “no expert testimony to support a finding the combined
firm would have the incentive to engage in such conduct.” 1-ER-45.
The FTC did not support this theory with any other evidence. In
particular, it supplied no evidence that partial foreclosure would result
in “enough PlayStation users [switching] to Xbox such that the benefits
to the combined firm outweigh the costs.” 1-ER-46. And as the district
54
court found, based in part on testimony from the FTC’s own witness,
any form of partial foreclosure that had a material effect on gameplay
would harm the game publisher too. 1-ER-46-47; see also id. (citing
Sony testimony that developing a degraded game would draw “vitriol
from gamers that would be well deserved,” and “cause reputational
damage to the company”).
The FTC does not contest these shortcomings. It instead focuses
on a theoretical debate regarding a firm’s incentives for partial
foreclosure. Br.66-67.14 But that theoretical debate has no relevance
because the FTC produced no evidence that “partial foreclosure” was at
all likely, let alone that it would harm competition. A “partial
foreclosure” strategy would necessarily be less effective in driving
consumers to give up their PlayStations than a strategy of withholding
Call of Duty altogether. And the FTC offered no evidence suggesting
that Microsoft would have the incentive to pursue that strategy, or that
14 The lone argument raised in the FTC’s lone amicus brief is that
the district court should have separately analyzed total and partial
foreclosure. Dkt.36-1. But the amici do not address the FTC’s failure to
provide evidentiary support for its “partial foreclosure” theory at trial or
explain what evidence the district court should have, but did not,
consider. Id.
55
the strategy would cause gamers to switch to Xbox at all, much less in
such numbers that Sony would be left unable to compete. See supra
p.43-44. The FTC has the burden of demonstrating that the proposed
merger “is likely to substantially lessen competition” not just in theory
but in fact. United States v. AT&T, Inc., 916 F.3d 1029, 1032 (D.C. Cir.
2019). It completely failed to do so.
In all events, Microsoft has no ability to “partially foreclose”
rivals. Its contractual obligation to provide Call of Duty to Nintendo
obligate Microsoft to provide the game with
release date, feature, and content parity. 1-ER-39; 3-SER-358; see also
1-ER-19 (same with respect to Nintendo).
IV. The District Court Correctly Considered Microsoft’s

Binding Contracts with Competitor Platforms.
The FTC contradicts decades of precedent in suggesting (at 45-58)
that the district court was required to disregard evidence of arm’s-
length agreements that guarantee access to Call of Duty on competitor
platforms for at least the next ten years.
The well-settled practice in litigated merger cases is to compare
the but-for world without the merger against a world where the merger
is consummated, including the immediate commercial effects of the
56
merger. See Lektro-Vend Corp. v. Vendo Co., 660 F.2d 255, 276 (7th Cir.
1981). A critical part of that analysis is considering the “factual reality”
of the post-merger world. 1-ER-51. Nobody is served by rumination on
hypothetical problems that will never exist in reality.
Accordingly, in both DOJ and FTC cases, courts have consistently
relied upon parties’ post-merger agreements as part of their assessment
of the FTC’s prima facie case. In FTC v. RAG-Stiftung, for example, the
district court denied a preliminary injunction in part based on a post-
merger commitment to divest a plant to a new competitor. 436 F. Supp.
3d 278, 304 (D.D.C. 2020). Similarly, in Arch Coal, the court rejected
the FTC’s argument that the court could not consider a post-merger
agreement to divest a subsidiary. 329 F. Supp. 2d at 115 n.2; see also
AT&T, 916 F.3d at 1041 (holding arbitration agreement rendered
foreclosure concerns “largely irrelevant”); UnitedHealth, 630 F. Supp.
3d at 72-78 (considering party-created structural guarantees to address
competitive concern); Sysco, 113 F. Supp. 3d at 72-78 (considering, but
finding insufficient, a divestiture agreement in granting the FTC’s
motion for a preliminary injunction); FTC v. Libbey, Inc., 211 F. Supp.
57
2d 34, 45-46 (D.D.C. 2002) (same, where parties amended merger
agreement to address antitrust concerns).
Disregarding this precedent, 15 including the two most recently
litigated vertical merger cases (AT&T and UnitedHealth), the FTC
relies (at 48-49) on a misreading of United States v. Greater Buffalo
Press, Inc. That case stands for the simple, unrelated proposition that a
court need not address remedies when there is no finding of liability.
402 U.S. 549, 556 (1971). Greater Buffalo in no way holds that judges
must close their eyes to relevant facts or binding legal commitments in
determining whether a merger likely violates Section 7.
The FTC also wrongly (at 49) faults the district court for relying
on United States v. E.I. du Pont de Nemours & Co., 366 U.S. 316 (1961).
The court addressed du Pont only because the FTC relied on a passage
of its Illumina decision that, in turn, relied on du Pont. 1-ER-40 (citing
In re Illumina, Inc. & Grail, Inc., 2023 WL 2823393, at *49-50 (FTC
15 The FTC dismisses certain of these examples as not “involv[ing]

a Section 13(b) proceeding,” Br.49, but it disregards that several were,
including RAG- Stiftung, Arch Coal, Sysco, and Libbey. Further, AT&T
and UnitedHealth demonstrate that these agreements are relevant to
whether the government has proven a Section 7 violation and thus to
the FTC’s “likelihood of ultimate success.”
58
Mar. 30, 2023)). As the district court correctly noted, the FTC’s
argument that post-merger contracts must be labeled “remedies” and
therefore disregarded rests on a mistaken view of du Pont, which
“involved a remedy proposed after a finding of a Section 7 violation.” Id.
The court properly concluded that du Pont “says nothing about
whether . . . the FTC must address the circumstances surrounding the
merger as they actually exist.” Id. (emphasis added). The “caselaw that
directly addresses the issue contradicts the FTC’s position.” Id.
In addition to misunderstanding the law, the FTC
misunderstands the contracts themselves. The FTC claims that the
contracts may contain terms that allow Microsoft to avoid providing
content on commercially reasonable terms. But the contracts were
negotiated with some of the most sophisticated companies in the world,
including Nintendo, a venerable video game company, and Nvidia,
which has a trillion-dollar market capitalization. There is no reason to
suspect that these companies and their lawyers could not understand
the contracts’ supposed “complex web of onerous terms,” Br.52, and that
the FTC has more “expertise” to assess what is in these companies’ best
commercial interest, Br.55-56.
59
Tellingly, the FTC fails to identify any loopholes that would defeat
these agreements’ efficacy. For example, the FTC claims that Microsoft
has the “unilateral[]” right to “get out of” its contract with Nvidia.
Br.53.
3-ER-426 (emphasis added).
Id. The language simply does not support the FTC’s position, and
the district court was entitled to instead credit Nvidia’s testimony about
the sufficiency of its contract. 3-SER-566; see also 1-ER-50. 16
Last, any error here is harmless because the district court did not,
as the FTC claims, “[r]ely[] on these agreements.” Br.47 (emphasis
16 In addition, Microsoft backed up the binding contracts it entered

into during the duration of the European Commission’s regulatory
process (specifically with Nvidia, Boosteroid, and Ubitus) with binding
regulatory commitments to honor them, on pain of massive penalties,
and the risk of dissolution of the transaction in case of persistent non-
compliance. See European Commission Decision of 15 May 2023, Case
M.10646 – Microsoft / Activision Blizzard, paras. 881, 884, 898, 903,
https://ec.europa.eu/competition/mergers/cases1/202330/M_10646_9311
516_7443_3.pdf.
60
added). While the district court found these agreements relevant to
Microsoft’s ability and incentive to foreclose, the district court also
found that the FTC was unlikely to prevail based on “independent and
sufficient alternative finding[s].” Epic Games, Inc. v. Apple Inc., 67
F.4th 946, 981 (9th Cir. 2023). In the console market, the district court
expressly disclaimed any reliance on Microsoft’s then-proposed contract
with Sony. 1-ER-38. 17 As for the cloud-gaming market, the court
separately concluded that the merger could not harm competition
because, absent the merger, no cloud gaming companies were likely to
have Activision games. 1-ER-50-51. The district court’s decision would
thus stand even if the contracts were excised from its opinion.
V. The District Court Did Not Abuse Its Discretion by

Rejecting the FTC’s Brown Shoe Theory.
The FTC likewise mischaracterizes the district court’s ruling in
claiming (at 58-62) that it incorrectly “dismiss[ed]” the FTC’s
alternative theory under Brown Shoe. As the district court noted, the
FTC “made no reference to this [Brown Shoe] theory in its opening
17 As noted, Microsoft also has an agreement to make Call of Duty

available on Nintendo’s Switch console. Because the district court
accepted arguendo the FTC’s definition of the console market excluding
Switch, that contract played only a limited role in the court’s analysis.
61
statement or closing argument” or in its expert reports. 1-ER-51. The
Court nonetheless dedicated a section of its decision to Brown Shoe in
response to points the FTC buried at the end of its 197-page proposed
findings of fact and conclusions of law. 3-ER-280-83.
The district court was right to find that the FTC’s late-raised
invocation of Brown Shoe did “not make any new arguments not
considered” under the ability-and-incentive framework. 1-ER-51. For
example, the FTC complains that the district court “skipped over
[certain] Brown Shoe functional factors” regarding foreclosure, such as
the “share of the market foreclosed” and the effect of such foreclosure
“on barriers to entry.” Br.20, 59-60.18 But that criticism depends on the
FTC’s discredited premise that the merged company will likely engage
in “foreclosure” in the first place by depriving its rivals of Activision
content otherwise available to them. Here, the district court properly
found that the FTC had provided no basis for concluding that the
merged firm will in fact “foreclose” rivals. The FTC’s Brown Shoe
18 Contrary to the FTC’s suggestion, Brown Shoe does not

prescribe a “precise formula[],” Fruehauf Corp., 603 F.2d at 353, but
rather requires that the merger “be functionally viewed, in the context
of its particular industry,” Brown Shoe, 370 U.S. at 321-22. That is the
approach the district court undertook here.
62
argument is thus just a rehash of its failed challenge to that finding.
See supra p.63.
The FTC similarly misses the mark in asserting that the court
should have considered its allegation that “Microsoft will deny rivals
access to Activision’s AAA content in the multi-game subscription
market.” Br.60-61. The district court did consider that allegation but
concluded that, in the absence of this merger, no subscription service
would have access to that content to begin with. The FTC provides no
reason why this conclusion is any less fatal to its Brown Shoe theory
than to the incentive/ability framework the FTC urged the court to
apply. See supra Section II.A.
Likewise, the FTC’s claim that the district court erred by not
adequately considering a “trend toward concentration” rings hollow. See
Br.61. The FTC litigated this case entirely on a vertical “foreclosure”
theory.19 The FTC did not bring a horizontal challenge because the
19 The FTC labels foreclosure “[t]he primary vice of a vertical

merger . . . .” Br.37 (quoting Brown Shoe, 370 U.S. at 323-24). In fact,
vertical mergers almost never present this potential “vice” to the extent
necessary to produce anticompetitive outcomes. See Fruehauf, 603 F.2d
at 352 n.9 (discussing Brown Shoe and concluding that “we are
unwilling to assume that any vertical foreclosure lessens competition”).
(continued on next page)
63
merger does not significantly increase “concentration” in any market.
To the contrary, if the merger enables Microsoft to reduce the market-
share gap that separates it from market-dominant Sony, it can only
reduce concentration.
Finally, the FTC has waived any suggestion that the merger could
somehow trigger a wave of additional vertical mergers. It has never
offered facts to substantiate such a prediction, let alone a basis in fact
or law for inferring anticompetitive effects. The FTC’s claim (at 61) that
the district court made a “finding that such a trend was present”
misstates the decision below, which merely noted that the FTC “fails to
explain how” such a trend, if it existed, would be anticompetitive in this
specific commercial context.
VI. The District Court Correctly Found that the Equities

Provided an Independent Reason to Deny the Motion.
Finally, the district court correctly found that the balance of the
equities supplies “a separate, independent reason the FTC’s motion
That is why the government has not brought a successful court

challenge to a vertical merger in more than four decades, 1-ER-22 &
n.4, and why its recent court challenges to such mergers have all failed,
see AT&T, supra; UnitedHealth Group, supra.
64
must be denied.” 1-ER-52-53. 20 While the FTC evidently believes the
district court should have weighed the equities differently, it neglects
even to challenge the most important of the district court’s findings, and
fails to show clear error. See Tillamook Country Smoker, Inc. v.
Tillamook Cnty. Creamery Ass’n, 465 F.3d 1102, 1111 (9th Cir. 2006)
(balance of the equities “generally [left] to the considered judgment of
the district court”).
A. The FTC Has Forfeited Any Argument the Merger

Could Not Be Unwound.
The “principal” “public equity consideration” served by Section
13(b) is to maintain the pre-merger “status quo.” FTC v. H.J. Heinz Co.,
246 F.3d 708, 726 (D.C. Cir. 2001); accord Br.6 (describing this the “only
purpose of a proceeding under § 13”). This consideration is more acutely
implicated in horizontal mergers, where competing entities integrate
their operations and, in the process, often eliminate redundancies.
When that occurs, the FTC’s “inability to unscramble merged assets,”
FTC v. Dean Foods Co., 384 U.S. 597, 606 n.5 (1966), makes it difficult
20This Court need not even consider the equities to affirm the
decision below should it uphold the district court’s finding the FTC is
not likely to succeed on the merits. See, e.g., Arch Coal, 329 F. Supp. 2d
at 116 (“[E]quities alone will not justify an injunction.”).
65
for the agency to “restore the parties to their pre-merger state,” Sysco
Corp., 113 F. Supp. 3d at 87.
Those same concerns are not implicated by Microsoft’s vertical
acquisition of Activision, which Microsoft intends to operate as a
limited-integration studio. 1-ER-4; 1-SER-263; 2-SER-314. In
particular, the FTC has identified no reason why it could not order
divestiture as “an effective ultimate remedy” in the unlikely event that
it ultimately finds a Section 7 violation in the Part 3 proceeding and is
affirmed on appeal. FTC v. Great Lakes Chem. Corp., 528 F. Supp. 84,
99 (N.D. Ill. 1981); see FTC v. Lab’y Corp. of Am., 2011 WL 3100372, at
*23 (C.D. Cal. Mar. 11, 2011) (“Courts have routinely permitted
integration of certain assets where such integration would preserve the
potential for divestiture in the future.”).
When asked by the district court, the FTC had no explanation
below as to why it needed an injunction here: “What exactly about the
merger would make it difficult to order an effective divestiture? The
FTC does not say.” 1-ER-53. Nor does it on appeal: Its brief contains no
explanation of why this merger could not be unwound after the FTC
completes its administrative proceeding. Thus, the FTC has forfeited
66
any argument as to the principal public equity consideration. Mercury
Interactive, 618 F.3d at 992.
B. The Balance of Equities Overwhelmingly Favor

Microsoft.
Other public equities also weigh against the FTC. In particular,
the district court found the merger would benefit consumers by bringing
Call of Duty to more consumers on more platforms and at “lower costs
for many game consumers.” 1-ER-48-49. These consumer-welfare
benefits are public equities that the district court properly considered.
See, e.g., Warner, 742 F.2d at 1165; FTC v. Pharmtech Rsch., Inc., 576
F. Supp. 294, 299 (D.D.C. 1983).
Further, the district court found that, even if the FTC were correct
that the merger will harm competition, such harm would not occur for
at least a year because Activision’s contract guarantees that “Call of
Duty will remain on PlayStation through the end of 2024.” 1-ER-53. So
as of the time of the decision, the FTC had a year and a half to complete
its administrative proceedings before Microsoft would even be able to
engage in foreclosure. But see supra pp.24-25 (describing post-opinion
contract extending Sony’s access to Call of Duty for another decade).
67
While the FTC claims that Sony’s continued access to Call of Duty
“says nothing about Activision’s other content,” Br.71, the FTC’s
evidence also “says nothing about Activision’s other content,” e.g., 1-ER-
47 (finding the FTC “did not offer evidence” about “other Activision
titles”). The FTC also contends that Sony’s access to Call of Duty
through 2024 does not negate harm in “other relevant markets,” Br.71,
but the district court found no evidence that Activision titles would ever
become available on subscription or cloud-gaming services, 1-ER-48-51,
much less that this would occur before the FTC could complete its
administrative trial.
In its last-ditch effort to identify a relevant equity in its favor, the
FTC speculates that, post-merger, Microsoft could “access confidential
data of rivals that now is in the possession of Activision.” Br.71-72. But
there was no evidence to support such a finding in the record, as the
district court correctly concluded. 1-ER-46. The only evidence the FTC
now identifies is a self-serving statement from PlayStation’s CEO that
Sony might in the future delay in providing development kits to a
Microsoft-owned Activision. Br.72 (citing 2-ER-191). The district court
rightly found this unpersuasive because “[p]rotecting Sony’s decision to
68
delay collaboration with Microsoft . . . is not pro-competitive.” 1-ER-
46.21
The district court also found, and the FTC does not meaningfully
dispute, that both private and public equities overwhelmingly tilt in
favor of the merger. Allowing the merger to close will benefit consumers
without any interference with the FTC’s ability to accord effective relief,
whereas granting the FTC’s motion will “skuttl[e] . . . the merger.” 1-
ER-52. This is not mere speculation; every single merger enjoined pre-
consummation under Section 13(b) has fallen through. See
Weyerhaeuser Co., 665 F.2d at 1087. That outcome would not only deny
Microsoft, Activision, and their employees22 and shareholders of the
benefits of this transaction, but it will cause Microsoft to incur a multi-
billion-dollar termination fee. 1-ER-4.
The FTC also speculates (at 72) that the combined firm can
21
“immediately start exclusivity plans,” but there is no evidence that

Microsoft has any plan to take Activision content exclusive, e.g., 1-ER-
37, or that such exclusivity would be anticompetitive, supra pp.43-45.
See, e.g., Comm’ns Workers of Am, CWA Supports Microsoft’s
22
Proposed Acquisition of Activision-Blizzard (June 30, 2022), https://cwa-

union.org/news/releases/cwa-supports-microsofts-proposed-acquisition-
of-activision-blizzard.
69
In the face of this history and undisputed evidence, the FTC
dismisses the urgency of closing the merger as an “artificial deadline”
that Microsoft and Activision could have “readily extended.” Br.73. This
is misleading. The parties were able to negotiate a three-month
extension of the merger deadline because of the district court’s
favorable decision and the remaining discrete concerns raised by the
U.K. competition authority. Supra pp.23-24. There is no reason to think
such an extension could have been negotiated had the district court
ruled the other way at trial. Id. Nor is there any reason to believe the
parties could similarly “readily extend” the deadline for the yearslong
period the FTC seeks here. Indeed, the modest three-month extension
agreed to in July required Microsoft to significantly increase the
termination fee and make other financial concessions. See supra pp.23-
24.
CONCLUSION
The district court’s order denying the FTC’s motion for a
preliminary injunction should be affirmed.
September 6, 2023 Respectfully submitted,
/s/ Rakesh N. Kilaru
70
Jonathan E. Nuechterlein Beth Wilkinson

C. Frederick Beckner III Rakesh N. Kilaru
William R. Levi Anastasia M. Pastan
Daniel J. Hay Jenna H. Pavelec
Lucas Croslow WILKINSON STEKLOFF LLP
SIDLEY AUSTIN LLP 2001 M Street, N.W., 10th Floor
1501 K Street, N.W. Washington, D.C. 20036
Washington, D.C. 20005 Telephone: (202) 847-4000
Telephone: (202) 736-8000 Facsimile: (202) 847-4005
Facsimile: (202) 736-8711 [email protected]
[email protected]
Counsel for Defendant-Appellee Microsoft Corp.
Microsoft Corp.
Adam B. Banks
Steven C. Sunshine WEIL, GOTSHAL & MANGES LLP
Julia K. York 767 Fifth Avenue
Evan Kreiner New York, NY 10153
Michael Sheerin Telephone: (212) 310-8419
SKADDEN, ARPS, SLATE, MEAGHER [email protected]
& FLOM LLP
1440 New York Avenue, N.W. Counsel for Defendant-Appellee
Washington, DC 20005-2111 Microsoft Corp.
Telephone: (202) 371-7000
Facsimile: (202) 393-5760
Grant Dixton
ACTIVISION BLIZZARD, INC.
2701 Olympic Blvd Bldg B
Santa Monica, CA 90404
Telephone: 310-255-2000
[email protected]

Activision Blizzard, Inc.
71
STATEMENT OF RELATED CASES
Pursuant to Circuit Rule 28-2.6, Microsoft and Activision state
that the Court is currently considering one case that involves the same
transaction at issue in this case. In DeMartini v. Microsoft Corp., No.
23-15846, the plaintiffs request that this Court reverse the District
Court’s denial of a preliminary injunction to enjoin the Microsoft-
Activision merger.

CERTIFICATE OF COMPLIANCE
This Brief complies with the type-volume limitations of Federal
Rule of Appellate Procedure 32(a)(7)(B) and Circuit Rule 32-1 because it
contains 13,795 words, excluding the parts of the brief exempted by
Federal Rule of Appellate Procedure 32(f).
This Brief also complies with the typeface and type-style
requirements of Federal Rule of Appellate Procedure 32(a)(5)-(6)
because it has been prepared in a proportionally spaced typeface using
the Microsoft Word 365 word processing system in 14-point Century
Schoolbook font.

CERTIFICATE OF SERVICE
I certify that on September 6, 2023, I filed the foregoing
Defendants’-Appellees’ Answering Brief with the Court’s appellate
CM/ECF system. Counsel for Plaintiff-Appellant are registered users of
the Court’s appellate CM/ECF system. I further certify that an
electronic copy of the foregoing was emailed to counsel for Plaintiff-
Appellant at their registered email addresses.

Date: September 6, 2023

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Case: 23-15992, 09/06/2023, ID: 12787806, DktEntry: 55, Page 1 of 84

United States Court of Appeals

FEDERAL TRADE COMMISSION,

MICROSOFT CORP. AND ACTIVISION BLIZZARD, INC.,

Appeal from an Order of the

DEFENDANTS’-APPELLEES’ ANSWERING BRIEF

Jonathan E. Nuechterlein Beth Wilkinson

Counsel for Defendant-Appellee Microsoft Corp.

Steven C. Sunshine Adam B. Banks

Counsel for Defendant-Appellee

CORPORATE DISCLOSURE STATEMENT

Under Federal Rule of Appellate Procedure 26.1, Defendants-

Appellees state as follows:

Defendant-Appellee Microsoft Corp. (“Microsoft”) is a publicly held

company that has no parent corporation, and no publicly held

corporation owns 10% or more of more of its stock.

Defendant-Appellee Activision Blizzard, Inc. (“Activision”) is a

publicly held company that has no parent corporation, and no publicly

held corporation owns 10% or more of its stock.

September 6, 2023 /s/ Rakesh N. Kilaru

/s/ Steven C. Sunshine

CORPORATE DISCLOSURE STATEMENT ........................................... ii

TABLE OF AUTHORITIES ..................................................................... vi

JURISDICTIONAL STATEMENT ........................................................... 1

ISSUE PRESENTED ................................................................................ 6

STATEMENT OF THE CASE .................................................................. 6

I. Factual Background ......................................................................... 6

A. The Gaming Industry.............................................................. 6

B. Xbox’s Position ........................................................................ 8

C. This Merger ........................................................................... 14

II. Procedural History ......................................................................... 16

A. Nature of the Case ................................................................ 16

B. The District Court’s Opinion................................................. 19

C. Post-Decision Developments ................................................. 23

SUMMARY OF ARGUMENT ................................................................. 25

I. The District Court Correctly Applied the Controlling Legal

II. The District Court Correctly Found No Plausible Claim of

A. The FTC’s Claims About Both Markets Rest on a False

B. The District Court Did Not “Find Foreclosure” in

III. The District Court Correctly Found No Serious Question of

A. The FTC Failed to Establish that Microsoft Has Any

1. The FTC Fails to Show Clear Error in the District

C. The FTC Cannot Save Its Case with a Later-Added

IV. The District Court Correctly Considered Microsoft’s Binding

V. The District Court Did Not Abuse Its Discretion by Rejecting

VI. The District Court Correctly Found that the Equities

A. The FTC Has Forfeited Any Argument the Merger

B. The Balance of Equities Overwhelmingly Favor

STATEMENT OF RELATED CASES

Axon Enter., Inc. v. FTC,

Beech Aircraft Corp. v. United States,

Brown Shoe Co. v. United States,

Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc.,

Cascadia Wildlands v. Thrailkill,

Craftsmen Limousine, Inc. v. Ford Motor Co.,

Disabled Rights Action Comm. v. Las Vegas Events, Inc.,

Epic Games, Inc. v. Apple Inc.,

Fruehauf Corp. v. FTC,