Microsoft has avoided the hot seat for years. Its new mega deal may change that.

But since then, the digital behemoth has largely avoided antitrust scrutiny, even as it ballooned into a multitrillion dollar company and government pressure against its rivals skyrocketed. 

But Microsoft’s blockbuster deal to buy video game giant Activision Blizzard could change all that and bring about another tectonic clash between the company and regulators.

The proposed $68.7 billion dollar acquisition, expected to close by June 2023 pending approval, would mark one of the biggest deals in the history of the acquisition-happy tech sector and make Microsoft the third-largest gaming company by revenue in the world, behind Sony and Tencent.  

The sheer magnitude of the acquisition is likely to invite political scrutiny and calls for the U.S. federal government to scrutinize or even challenge the deal. For reference, it’s bigger than the deals of Facebook-WhatsApp ($19 billion), T-Mobile-Sprint ($26 billion), Amazon-Whole Foods ($13.7 billion), Apple-Beats ($3.2 billion), Google-Fitbit ($2.1 billion) and Facebook-Instagram ($1 billion) combined.

But its review also arrives as lawmakers and regulators consider new ways to expand the government's power to challenge major mergers, particularly in the tech sector. 

The Federal Trade Commission and Justice Department on Tuesday announced plans to consider revamping its guidelines for merger reviews with a focus on digital markets, a move that could pave the way for tougher enforcement and stricter assessments of deals. Meanwhile, lawmakers on Capitol Hill are pushing legislation that could force tech giants like Microsoft to prove that their proposed deals aren’t anti-competitive to get them signed off. 

That dynamic could help tee off a multipronged and contentious legal bout. Some consumer advocates are already urging regulators to prepare for battle.

“Once again, Microsoft, one of the biggest of the Big Tech companies, is shamelessly gobbling up a competitor to try to strengthen its market position,” Alex Harman, competition policy advocate for Public Citizen said in a statement. “No way should the Federal Trade Commission and the U.S. Department of Justice permit this merger to proceed.” 

But in a positive sign, one key lawmaker said Tuesday that he’s received “encouraging” assurances from Microsoft regarding the deal. “They’ve suggested that they’re going to emphasize access to titles and competition in the marketplace as well as the individual gaming experience,” said Rep. Ken Buck (Colo.), a top Republican on antitrust issues.

A regulatory clash would mark a dramatic shift in fortunes for Microsoft in Washington, where it has been cultivating relationships with officials seeking to rein in its peers.

When Microsoft President Brad Smith testified for the House Judiciary Committee’s antitrust panel last year, one top lawmaker lauded his contributions to their policy efforts. 

Rep. David Cicilline (D-R.I.), who chairs the panel and led its sprawling probe into online competition, publicly thanked Smith “for his assistance during the course of our investigation.” 

“He provided a very valuable briefing to members of the subcommittee during the course of our 16-month investigation,” Cicilline said of Smith at the March hearing.

Unlike his peers, Smith’s testimony came after the panel had already concluded its formal antitrust investigation and he appeared largely alongside critics of rival tech giants. By contrast, the CEOs of Amazon, Facebook, Google and Apple testified together almost a year prior as the investigation was reaching a climax, a blockbuster session where they faced intense scrutiny. 

Microsoft, like many of its rivals, has also occasionally relished in the opportunity to criticize its competitors’ business practices and invite scrutiny against them.

During a live interview in June 2020, Smith told me that it was time for “a much more focused conversation about the nature of app stores” — a not-so-subtle dig at Apple and Google. 

Microsoft has also rallied behind efforts in Australia to make digital advertising giants like Facebook and Google share revenue with news publishers and in the U.S. to grant publishers a safe harbor to collectively negotiate terms for the distribution of their content with tech giants.

Those jabs have put their rivals’ conduct even more in the spotlight as scrutiny of the tech sector has surged, particularly around concerns about a lack of competition online.

“Although Microsoft has remained out of the antitrust hot seat, they are no less deserving of oversight,” said Krista Brown, senior policy analyst for the anti-monopoly group American Economic Liberties Project. “This transaction should trigger renewed scrutiny.”

Now Microsoft could face the brunt of a firestorm whose flames it has helped fan. 

The DOJ and FTC are hoping to wrap up their review of the merger guidelines this year, DOJ antitrust chief Jonathan Kanter said during a press call Tuesday. That’s notably before the Microsoft deal is set to close, meaning the review could help refine the federal government’s legal arguments if it decides to challenge the acquisition.

Advocates argued Tuesday that the Microsoft deal could also be blocked under the bipartisan antitrust legislation introduced last year that targets acquisitions by dominant tech companies. “I don’t see how they could do this if that were the law,” Harman said.

Aside from Buck, spokespeople for the bill’s lead sponsors — Rep. Hakeem Jeffries (D-N.Y.) and Sens. Amy Klobuchar (D-Minn.) and Tom Cotton (R-Ark.) — and Cicilline either did not return or declined requests for comment on whether the Microsoft deal poses antitrust concerns. 

But while the legislation has advanced out of committee in the House, it’s one of several prominent measures that hasn’t been scheduled for either a floor vote in the House or a markup in the Senate. And it’s unclear if there’s enough support to get it passed.

Still, the mere fact that Microsoft is already getting dragged into those bouts more prominently signals a shift in how it may be viewed in Washington for years to come.

Our top tabs

DOJ and FTC ask for public comments as they try to strengthen merger rules

The nation’s top antitrust enforcers announced a sweeping review of the rules that govern mergers, with a particular focus on addressing consolidation in the tech industry, our colleague Cat Zakrzewski reports for The Technology 202.

Jonathan Kanter, the top antitrust official at the Department of Justice, said new rules are urgently needed to address the ways technology has transformed the economy. “The digital revolution has not only impacted markets like tech, but markets across our economy, many of which have been rebuilt from the inside out,” he said. “The connections and interrelationships among companies and markets have increased by orders of magnitude.” 

The agencies asked the public to specifically weigh in on how they should approach cases in markets where services are free, and how they should consider deals where companies stand to gain competitive advantages through access to new data. 

William Kovacic, a professor at George Washington University Law School and former FTC chair, said the questions the agencies released signal the antitrust officials want to tighten merger control at the federal level. “They have a very good idea of what those new guidelines are going to say,” he said. 

The effort to overhaul the guidelines is expected to take about a year. 

AT&T and Verizon say they’ll limit the rollout of 5G networks near airports

The White House helped broker the deal, which came after airlines began preparing for disruptions because of the launch, Ian Duncan and Lori Aratani report. President Biden said in a statement that 90 percent of new wireless towers would be able to launch as planned.

“The telecommunications companies had twice delayed activating the towers in recent months to give aviation safety regulators more time to analyze potential interference with devices on planes known as radio altimeters,” Ian and Lori write. “The devices measure how high planes are flying and are critical for landing in poor visibility.” 

On Monday, major airline executives warned the White House and regulators about impending disruptions. They “asked that the 5G rollout not be allowed within two miles of airport runways,” Ian and Lori write. “AT&T said its changes were in line with that request. Verizon did not share details about how it would limit its service.”

Tech giants argue that antitrust bills will hurt cybersecurity and privacy ahead of Senate markup

Apple and Google warned that two bills being considered by the Senate Judiciary Committee could make it harder for them to protect consumers against threats to their users’ online privacy and security, Axios’s Ashley Gold reports. The arguments mirror long-standing criticisms of antitrust proposals by groups aligned with and funded by Big Tech. 

Both of the companies’ chief executives are personally calling and meeting with members of the Judiciary Committee ahead of the markup, Punchbowl News’s John Bresnahan, Anna Palmer and Jake Sherman report. 

The Senate Judiciary Committee is set to mark up a bill Thursday that would block tech giants from giving their products and services a leg up over their rivals. A group of smaller companies including Google rivals DuckDuckGo and Sonos have urged the committee to vote in favor of the bill. Amazon criticized the bill Tuesday, saying that the bill appeared to single out the e-commerce giant and had “significant unintended consequences.”

The committee has also added the Open App Markets Act for potential consideration. The bill would require the companies that run app stores to let consumers download outside apps. Apple says that could introduce harmful apps to iPhones. The committee is slated to hold over that legislation for a week, according to an aide.

Sen. Richard Blumenthal (D-Conn.), one of the lawmakers who introduced the bill, in August said that tech companies’ “crocodile tears about privacy are really just a pretext,” arguing that “they have no concern for privacy” and “use consumer information relentlessly and purposely simply to make money.”

Rant and rave

As people discovered that the U.S. government had soft launched its new website for ordering free rapid coronavirus tests, some compared the seemingly smooth release to the botched rollout of healthcare.gov. Politico's David Lim:

Glitch CEO Anil Dash and Struck's Jess Vice:

Others pointed to how quickly news about the website spread. Vox's Dylan Matthews:

Inside the industry

YouTube shuts down original content group (Variety)

Tesla investors urge judge to order Musk repay $13 bln for SolarCity deal (Reuters)

Hill happenings

McCarthy’s love-hate relationship with Silicon Valley (Politico)

Democrats unveil bill to ban online ‘surveillance advertising’ (The Verge)

Trending

Former Google scientist says the computers that run our lives exploit us — and he has a way to stop them (Steven Zeitchik)

Mentions

• Former consumer marketing executive Lisa Macpherson has joined Public Knowledge as a senior policy analyst. The group also named Courtney Lee as its chief operating officer and Sara Collins as senior policy counsel.
• Erin Reif is joining Uber as senior manager for federal affairs and Punya Krishnappa is joining the company as its manager for federal campaigns. Reif spent more than two decades as an aide on Capitol Hill; Krishnappa previously worked for Maryland gubernatorial candidate Mike Rosenbaum (D) and the Democratic Congressional Campaign Committee.
• The U.S. Chamber of Commerce announced the launch of a bipartisan commission on artificial intelligence. It will be chaired by former Reps. John Delaney (D-Md.) and Mike Ferguson (R-N.J.).

Daybook

• FTC Chair Lina Khan appears in her first on-camera interview since becoming FTC chair on CNBC today at 10 a.m.
• The Senate Judiciary Committee holds a business meeting on Thursday at 9 a.m. The committee has listed two antitrust bills for potential consideration at the meeting. 

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