US asks appeals court to pause Microsoft deal after lower court refuses

By Diane Bartz and David Shepardson

WASHINGTON (Reuters) -The U.S. Federal Trade Commission on Thursday asked an appeals court to temporarily stop Microsoft (NASDAQ:) from closing its $69 billion purchase of “Call of Duty” maker Activision Blizzard (NASDAQ:), just hours after a federal judge rejected a similar request.

The San Francisco federal court had ruled in favor of Microsoft on Tuesday, saying the FTC had failed to show the deal would be illegal under antitrust law. The FTC appealed that loss late on Wednesday, and Microsoft said it would fight that appeal.

On Thursday evening, the FTC filed an emergency motion to the Ninth Circuit Court of Appeals asking for a “temporary pause” on Microsoft’s closing of its planned deal to buy Activision.

Any outstanding regulatory hurdle makes it more likely the agreement between Microsoft and Activision will expire on July 18 without the deal having been completed. After July 18, either company will be free to walk away unless they negotiate an extension.

The FTC wants the new pause as soon as possible, because an existing temporary restraining order on the deal was meant to end just before midnight on Friday.

“We’re disappointed that the FTC is continuing to pursue what has become a demonstrably weak case, and we will oppose further efforts to delay the ability to move forward,” Microsoft President Brad Smith said earlier in an emailed statement.

In its motion for the pause to federal Judge Jacqueline Scott Corley, the FTC argued her denial of a preliminary injunction to halt the deal “raises serious, substantial issues for the Court of Appeals to resolve.”

“The FTC asks this Court to enjoin the merger at issue pending resolution of the FTC’s appeal to the Ninth Circuit Court of Appeals. The motion is denied,” the judge said in the order late on Thursday.

The FTC had said it was seeking a preliminary injunction to temporarily stop the deal until an internal FTC judge could assess it. But Corley applied the standard needed to permanently stop the deal instead, which the agency argued was inappropriate.

The FTC had also said the judge erred in assessing the deal’s effect on multi-game subscriptions and in how much credit she gave Microsoft for striking deals with rivals in order to save the proposed transaction.

To address the agency’s concerns, Microsoft had agreed to license “Call of Duty” to rivals, including a 10-year contract with Nintendo, contingent on the merger closing.

The deal, the largest in the history of the video game industry, was also struggling in Britain until this week. After the ruling in California, Britain’s Competition and Markets Authority, which had opposed the transaction, said a restructured deal between Microsoft and Activision Blizzard could satisfy its concerns, subject to a new investigation.

It is rare for a merger fight to go to an appeals court. That said, the FTC appealed a ruling more than 10 years ago when it lost its fight against Whole Foods’ purchase of Wild Oats. The agency settled with the companies before the appeals court made a decision.