Microsoft Says it Could Abandon Activision Deal if Judge Delays It

The first day of a weeklong hearing that could determine the outcome of Microsoft’s $70 billion acquisition of the video game giant Activision Blizzard opened Thursday with a promise from Microsoft: If a federal judge grants an injunction that would delay the deal’s closing, Microsoft could abandon the deal altogether.

“This is going to decide whether the deal goes forward,” said Beth Wilkinson, Microsoft’s lead lawyer. She added that a loss could force the company into a “three-year administrative nightmare” that would sink the transaction, which it hopes to close by July 18.

That set the stakes for the hearing in U.S. District Court in San Francisco, where the Federal Trade Commission began laying out its case that Microsoft’s acquisition of Activision — and its popular games like Call of Duty — would be devastating for the video game industry.

The F.T.C. is asking Judge Jacqueline Scott Corley for a preliminary injunction, which would bar Microsoft from completing the deal before the F.T.C. had the chance to argue the case in its internal court.

The clash is broadly seen as a test of whether recent efforts to more aggressively curb the power of tech giants around the world will succeed. Lina Khan, the chair of the F.T.C., has argued that big tech companies have vast influence over online commerce and communication, allowing them to engage in anticompetitive practices that harm consumers.

“If this deal is completed, the combined company will have and is likely to have the ability and incentive to harm competition in various markets related to consoles, subscription services and cloud,” James Weingarten, the F.T.C.’s lead lawyer, said in court on Thursday.

Mr. Weingarten said Microsoft could make Activision’s games exclusive to its Xbox console, or degrade their quality on other platforms to make the Xbox more appealing to gamers. He pointed to Microsoft’s $7.5 billion purchase of ZeniMax Media and its slate of game studios in 2020, after which Microsoft made some of those games exclusive to Xbox. The F.T.C. pointed to an agreement made between Disney and ZeniMax to produce a game about Indiana Jones for multiple consoles. After Microsoft bought ZeniMax, the agreement was amended and the game became exclusive to Xbox. It was an indication, the F.T.C. appeared to be arguing, that Microsoft could make future Activision games exclusive to Xbox, even amending existing deals to do so.

The F.T.C. has argued that absorbing Activision’s games into Microsoft’s portfolio would also give it an unfair edge in the nascent market for cloud gaming.

Sony, which makes the rival PlayStation console, has been a vocal critic of the deal, and has said that PlayStation gamers could lose access to Call of Duty — an enormous franchise that has earned more than $30 billion in lifetime revenue — if Microsoft decided to make the game exclusive to Xbox. Microsoft has denied that it would do so.

Microsoft said the Activision deal would instead be good for consumers, expanding their ability to play Activision’s games through low-cost options like Microsoft’s Xbox Game Pass, a subscription service, or through the platforms of other companies like Nintendo and Nvidia, with which it has struck deals.

Ms. Wilkinson also argued that it would be nonsensical for Microsoft to remove Call of Duty and other titles from PlayStation because the company would lose out on a huge chunk of the game’s revenue. She said Sony had become the “complainer in chief” in the case, and showed an email from Sony’s chief executive, Jim Ryan, suggesting that he did not really believe Microsoft would withhold Call of Duty. Microsoft also pointed to its acquisition of Mojang, which produces Minecraft. It has continued to allow Minecraft to be available across platforms.

The F.T.C. has in another lawsuit accused Meta, Facebook’s parent company, of cutting off nascent competitors when it bought Instagram and WhatsApp. On Wednesday, it sued Amazon over allegations that the company tricked users into signing up for its Prime subscription service. But the F.T.C. has had setbacks: Its challenge to Meta’s purchase of a virtual reality start-up fell apart this year after a judge declined to stop the deal from closing.

The F.T.C. initially challenged Microsoft’s bid for Activision using an in-house court. But that court does not have the legal authority to stop the deal. The F.T.C. asked the federal court to step in this month, saying it feared Microsoft would try to complete the deal despite the legal challenges.

The hearing in Judge Corley’s courtroom could be a decisive test for the F.T.C. If Microsoft wins, it will signal that there are weaknesses in the F.T.C. case and could cause the agency to drop its challenge to the deal. But a win for the F.T.C. would be a sign that its broader challenge has legs, and could put new pressure on Microsoft and Activision to reconsider the multibillion-dollar corporate marriage.

Though most governments around the world, including the European Union, have approved the acquisition, Microsoft was dealt a setback in April when a British regulatory authority blocked it. That decision is under appeal.

The high-profile list of witnesses expected to testify before Judge Corley over the next week includes Satya Nadella, the chief executive of Microsoft, and Bobby Kotick, the chief executive of Activision. Mr. Ryan, the chief executive of Sony, will appear via a prerecorded video deposition.