Activision legal counsel alleges that UK regulators at the Competition and Markets Authority (CMA) had only spent 4 weeks out of its total 32-week investigation on the Microsoft-Activision merger focusing on potential SLC effects in cloud gaming.
Microsoft has filed an appeal with the intent to quash the CMA's decision to block the Microsoft-Activision merger. Today, lawyers for Activision, Microsoft, and the CMA met with Competition Appeals Tribunal's Justice Marcus Smith to discuss how to best proceed with the appeals process. While Microsoft's full 400-page appeal will not be made public, the Tribunal did publish an application summary that condenses the main points. At the hearing, Activision legal counsel delivered key reasons on why it seeks to intervene in the case--Activision has a stake in the outcome of the merger and can provide relevant information in regards to cloud gaming and the games market as a whole, so it is likely to be able to intervene and add evidence to support Microsoft's case.
During the hearing, Activision's lawyer made specific allegations against the CMA's determination of anti-competitive effects that could arise from the merger. The CMA blocked the merger on grounds that the combination would result in a significant lessening of competition (SLC) in the segment of cloud gaming due to Microsoft's potential ability to foreclose, or take away and prevent, access to Activision-Blizzard games to cloud competitors.
The Activision lawyer alleges that the Competition and Markets Authority's independent panel had only spent about 4 weeks focusing on potential SLC's in cloud gaming.
"The vast majority of the time taken by the CMA, in the 32 weeks it spent investigating, 28 weeks were devoted to their first concern, that there has been or would be some anti-competitive conduct in result if this merger would be permitted in the respect of the console market."
"The back-end of the 32 weeks dealt with the cloud story. Of course, at the end of the day, contrary to many expectations, they decided that the console side of the story was okay. There was no problem there. And so at the end of the day, the reason why we've lost, is because of their views in relation to the console story.
"One of the aspects of the console bit of the debate was the foreclosure argument, that that was rejected. And so you have it one at the same time that the conclusion, 'well, we don't think there's going to be a valid foreclosure argument in relation to the console story, but we do think that there will be foreclosure, or a likelihood of the outcome of foreclosure in respect to these competitors not being able to get access to these Activision games, in respect to the cloud.'
"On the face of it, that is a remarkable pair of conclusions. They are diametrically opposite of each other, and one wonders what the purpose of that would be, and why anybody would behave in that way, given that finding the other way that we know about.
"It is also flatly inconsistently with the decision reached by the European Commission, who take a completely different view on what is meant by 'the market' and whether or not there is any validity in the proposition that there would be foreclosure in relation to cloud streaming."
Activision's legal representation goes on to reiterate the billion-dollar publishes position on cloud gaming, which indicates the company had no plans to put its titles on cloud gaming services like NVIDIA GeForce Now or Boosteroid, both of which apparently would not directly interfere with game sales.
"Activision would not have put its games on cloud services. That's our position. That's our case," Activision's counsel said during the hearing.
"Now if that's right, there is no competition issue and the CMA decision, which rejected our case on that point, cannot stand."
Below we have an even greater transcription of what was said in regards to Activision's arguments against the CMA's determinations, and what opportunities that Activision's intervention would offer to the Competition Tribunal.
"The CMA's finding in the counter-factual, we say, is based on unevidenced assertions, misinterpretations of the evidence, and pretty stark procedural unfairness.
"This case presents novel and important points, as to market definition, the approach to remedies, and the procedural unfairness concerning the CMA's procedural unfairness.
"In this appeal, our case will be based on Activision's own documents, strategy and decision-making, and it's unique perspective as the global developer and publisher of games, which essentially distinguishes Activision from Microsoft.
"If we would be permitted to intervene, we would focus principally on the counter-factual, Ground 3, we would also wish to make some limited points on market definition, we would also like to make comments on ability and incentives, Ground 4, and remedies, Ground 5.
"As to the counter-factual, Ground 3, this is about Activision would do. That is a question for Activision. We can discuss the relevance of the documents relied on by the CMA and the evidence that the CMA failed to take into account. on cloud gaming from native gaming.
"We say that there was no evidential basis for the conclusion reached by the CMA, and the decision to the counter-factual was irrational.
"If the relevance of the documents had been fairly put, including Activision's CEO Mr. Kotick, we can deal with what Activision's responses would have been.
"Mr. Kotick has provided a witness statement addressing these points. The witness statement forms part of Microsoft's appeal paperwork.
"We would deal briefly with market definition, which is Ground 1, to show that the CMA failed to consider switching between cloud and native gaming on a console, PC, or mobile, and out-of-market constraints.
"What is never addressed by the CMA, and is certainly not the subject of any questioning, is the notion that the player might be in a position to switch between cloud streaming and native gaming through the very same piece of hardware.
"This concept is very important because it goes to the key question of market definition. Because if in fact, you have the capacity to do the switching, then the notion that this is a separate market becomes a lot more difficult to explain our justify.
"Activision will be able to explain why cloud gaming, which is nothing more than a delivery mechanism--through the cloud, it's just another way of delivering the product to the player. That's all. It's a different way of doing it, but it's simply a mechanism of delivery.
"It is not a separate market."