On 26 April 2023, the UK Competition and Markets Authority (CMA) published its final report on the Microsoft/Activision Blizzard merger inquiry.
US software giant Microsoft announced its intention to acquire California-based Activision Blizzard, one of the most popular video games publishers in the world, for $68.7 billion in January 2022, sparking competition reviews from regulators.
The UK CMA found that the merger may be expected to result in a substantial lessening of competition (SLC) in cloud gaming services in the UK.
The remedy offered by Microsoft – which would have required Microsoft to support cloud gaming service providers using certain business models (such as by allowing them to stream some games purchased by users through selected storefronts) for a 10-year period – was not considered sufficient to remedy the SLC.
The CMA found the only effective remedy was to prohibit the merger to ensure "innovation and choice" in the cloud gaming market – a decision that apparently shocked the parties and provoked a defiant response.
Both parties have stated publicly that they intend to challenge the CMA's decision.
What does appealing a CMA decision entail?
The only route by which a challenge can be made to a CMA decision is via an appeal to the UK's Competition Appeal Tribunal (CAT).
Any "person aggrieved" by a CMA merger decision can apply to the CAT for a review. This includes third parties with a sufficient interest, as well as the main protagonists to a transaction.
Applications to appeal must be made within four weeks of the date on which the CMA decision was taken and, while there is no fixed rule, generally the main hearing will be held within three months.
But the UK’s merger appeals system is deliberately tough for aggrieved parties and is a last resort for any business.
The CMA makes its decisions based on a full analysis of the substance of the proposed merger, including the economics of the deal and the market environment in which the merging entities operate.
An appeal does not mean a re-hearing of the merits of the case, or that the CAT will conduct a wholesale review of the parties’ evidence. This is because the CAT will only apply judicial review principles in its assessment – i.e., it will look at the decision-making process, rather than the decision itself.
This means appellants must establish that the CMA acted irrationally, illegally or with procedural impropriety in reaching its decision.
The CAT is wary of straying into reviewing the economic judgments that have already been taken by the CMA, a body the CAT considers to be the 'expert', particularly when it comes to mergers.
As the CAT stated previously in its ruling on the prohibited Meta/Giphy merger, when US tech company Meta agreed to buy Giphy, the largest supplier of animated gifs to social networks such as Snapchat, TikTok and Twitter, "it is our task not to consider whether the CMA has “got it right”, but whether the decision it made was lawful or not" (see 1429/4/12/21 Meta Platforms, Inc. v Competition and Markets Authority – Judgment, 14 Jun 2022, paragraph 125).
This means applicants face a high threshold when seeking to overturn a merger decision.
Unsurprisingly, this has had the effect that previous merger appeals have largely been unsuccessful except where they have focused on specific questions of law or procedural unfairness.
Even if an applicant successfully appeals the CMA’s substantive assessment of a merger's impact on the market, the CAT will not make a fresh decision on that substantive assessment.
Instead, it will remit the case back to the CMA for reconsideration – typically to the same case team who reached the original decision.
Therefore, in the absence of a finding of procedural impropriety, opening the door for material new evidence to come to light, it is more likely than not that the CMA will reach the same conclusion as it did first time around. The outcome of the Meta/Giphy appeal is a case in point.
An appeal beyond the CAT to the Court of Appeal or the even the Supreme Court is always a distant possibility. However, such appeals can only be made with permission from the relevant court and would need to be based on 'points of law' only, setting yet another extremely high bar for the parties.
Parties therefore need to weigh up whether an appeal is worth the time and cost of undertaking what is ultimately an uphill struggle against a CMA that since around 2019 has proved to be increasingly interventionist.
For parties considering a merger where there is a risk of SLC, the best advice is to consider whether there are structural remedies that they would be willing to offer as a price for getting the deal done.
This article was authored by James Groves, an associate in the competition and regulatory team at Fieldfisher.
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