The start of 2023 has been a busy one, with global antitrust agencies advancing investigations and challenging a number of technology acquisitions. Future antitrust enforcement could also be shaped by new digital market legislation proposed in the UK and regulators’ apparent interest in artificial intelligence. Notable developments include:

• The Federal Trade Commission’s aggressive enforcement agenda met resistance in court when its challenge of Meta’s acquisition of Within was denied. 
• Divergence has become a hot topic, with the UK Competition and Markets Authority and European Commission adopting different positions on Microsoft’s proposed acquisition of Activision.  
• As Broadcom continues to navigate in-depth reviews of its proposed acquisition of VMware in the UK and EU, the regulators’ response to behavioral remedies could shed light on the circumstances under which such remedies are acceptable to different regulators. Meanwhile, the FTC’s skepticism of divestiture remedies underlies its challenge of ICE/Black Knight.
• Adobe’s proposed acquisition of Figma is now under the jurisdiction of the European Commission following an Article 22 referral, while the CMA is due to issue its Phase 1 decision by June 30. 
• Viasat completed its takeover of Inmarsat following the green light from major jurisdictions around the world in May.
• In the UK, the government is looking to introduce new legislation that will give the CMA broader consumer law and enforcement powers, and create a new regulatory regime for digital markets.  
• Antitrust agencies around the world have signaled their intent to oversee the artificial intelligence industry.   

Meta/Within

The FTC filed a complaint challenging Meta’s acquisition of a popular VR app developer, Within, in July 2022. The Commission reportedly did so against the recommendation of staff, and critics viewed the case as a long shot because it was based on rarely used potential competition theories of harm.¹  Ultimately, the FTC’s critics were vindicated when the Northern District of California denied the Commission’s bid for a preliminary injunction to block the transaction on February 3, 2023.²  Following the decision, there was speculation that FTC Chair Lina Khan would forge ahead with the FTC’s parallel administrative action, bucking an unwritten policy for the FTC to drop cases following preliminary injunction losses. Ultimately the FTC declined to do so, and Meta closed its acquisition of Within later in February 2023. ³

Despite the loss, Chair Khan called the opinion “a programmatic advance” for the agency because it “la[id] out a map … for continuing to bring potential competition cases, especially in digital markets” and “nascent markets.”⁴  According to Chair Khan, the opinion included several legal victories for the FTC, including the adoption of the Commission’s market definition and a less stringent burden of proof in potential competition cases.⁵  Whether these silver linings will encourage the FTC to bring more potential competition cases is an issue to watch for the remainder of this administration.

Microsoft/Activision

Microsoft announced its proposed acquisition of Activision in January 2022. Microsoft makes the popular Xbox video game console and develops a number of popular video games in-house, including Minecraft and Halo. Microsoft also offers a video game subscription service, Xbox Game Pass, which includes a cloud gaming option that allows users to stream cloud-hosted video games directly to different devices. Activision produces some of the all-time most successful video game franchises, including Call of Duty, World of Warcraft, and Overwatch, as well as mobile games such as Candy Crush.  

After the parties announced the transaction, Microsoft’s chief console rival, Sony, raised concerns that the transaction would allow Microsoft to limit the availability of Activision’s popular games on Sony’s PlayStation console and other platforms. In response to these and other complaints, Microsoft offered a behavioral commitment to license Activision games including Call of Duty royalty-free to other gaming platforms (including Sony and Nintendo) for a period of 10 years. It also offered to give any consumer who purchased an Activision game the right to stream that game on rival cloud gaming platforms.

Despite these commitments, the FTC filed an administrative complaint in December 2022 challenging the deal on the grounds that Microsoft would have an incentive to withhold or degrade Activision games to undermine its console, subscription, and cloud gaming competitors. The timing and venue of the FTC’s challenge were notable. The Commission did not wait for the CMA’s and EC’s Phase 2 investigations to near their conclusions to file its challenge. The FTC was likely coordinating closely with both agencies and knew that both investigations prevented the parties from closing the transaction, and it therefore had more time to conduct its investigation before bringing a challenge. The FTC’s timing did, however, allow it to begin its challenge of the deal in its administrative court rather than  seeking a preliminary injunction in federal court, because practically speaking, the ongoing CMA and EC investigations acted as an injunction preventing the parties from closing. 

Four months after the FTC filed its complaint, the UK’s CMA announced in April 2023 that it was blocking the transaction. In its final report, the CMA walked back from concerns it expressed earlier in its review about the deal’s effect on console gaming but maintained its objections related to cloud gaming. The CMA concluded that because of its significant share of cloud gaming through both Xbox and Windows-based PCs, Microsoft would have the incentive to withhold or limit Activision content on other cloud gaming platforms, including the Sony, Amazon, and Nvidia platforms. Central to its concerns was the finding that “cloud gaming services are in their infancy” with significant barriers to entry, rendering access to popular content such as Call of Duty critical for any new entrant. 

Notably, the CMA concluded that Microsoft’s offer to keep Activision games available on other cloud gaming platforms did not mitigate its concerns. It did so in part because the proposed remedy would require cloud gaming platforms to use or be compatible with Microsoft’s Windows OS version of games. That requirement would disadvantage non-Windows-based cloud gaming platforms. The CMA rejected Microsoft’s argument that the remedy would actually benefit UK gamers by bringing titles such as Call of Duty to a wider audience and increase competition by providing newer cloud gaming platforms access to popular titles. Microsoft has appealed the decision before the UK Competition Appeal Tribunal.  

The CMA’s refusal to accept a behavioral remedy is consistent with its well-known skepticism of such remedies as opposed to structural remedies. Sarah Cardell, the CMA’s Chief Executive, reaffirmed this position in a recent address, arguing that behavioral remedies are “unlikely to create the same level of pre-merger competitive intensity between the merging firms” and “can become quickly outdated or unsuited to remedying issues as markets, products and customer desires change.”⁶  

The CMA’s challenge diverged from the decision by the European Commission, which just a few weeks later accepted Microsoft’s behavioral commitments and cleared the deal. The EC identified substantive concerns similar to those the CMA identified, but unlike the CMA concluded that the behavioral remedies would not only offset its concerns but benefit competition by allowing millions of EEA consumers to stream Activision’s games using any cloud gaming platform that would boost the development of the “dynamic technology.”⁷  The CMA and EC have reached different conclusions in past merger investigations, but any divergence between the two regulators draws interest and scrutiny. 

The CMA’s action is its second significant prohibition of an acquisition by a large US technology company following its decision to block Meta’s acquisition of GIPHY in 2020, and we expect close and intense scrutiny of digital mergers to remain a key feature of the CMA’s enforcement in the coming years. Indeed, the Digital Markets, Competition and Consumer Bill, which was introduced to the UK Parliament in April 2023, is intended to equip the CMA with even more tools to regulate transactions involving the largest digital market players (see below). 

The antitrust world will watch closely how this case unfolds, with the FTC’s in-house administrative law judge due to hear the matter later in 2023 and the outcome of Microsoft’s UK appeal due in the coming months.

Broadcom/VMware

Broadcom’s proposed acquisition of VMware, which was announced in May 2022, continues to face opposition around the world. Both parties are active in the cloud computing ecosystem: Broadcom supplies cloud computing hardware, including semiconductors, switches, and adapters, while VMware offers widely used cloud server virtualization software.

In April, the European Commission issued a Statement of Objections,⁸ claiming that after the acquisition, Broadcom could harm adapter competitors by bundling its adapter products with VMware’s software and no longer offering VMware’s software on a stand-alone basis, thereby foreclosing adapter competitors’ access to VMware’s virtualization software. The deadline for the EC’s Phase 2 review is currently July 17, 2023.

The transaction is also facing in-depth investigations in the US, the UK, and China. The FTC issued second requests to the parties in July 2022, while the CMA opened a Phase 2 investigation, announcing that it intends to reach a provisional decision with respect to the deal in July.⁹ The CMA has so far identified two potential concerns with the deal: first, the risk of foreclosure of hardware competitors through attempts by the parties to leverage VMware’s position in server virtualization software, and second, the risk that Broadcom could gain access to competitively sensitive information of its rivals following the transaction. In addition to the EC, FTC, and CMA, reports indicate that SAMR, China’s antitrust authority, is reviewing the deal after a lengthy pre-notification process.

With closing in the first half of 2023 out of the question, the transaction still faces an uphill battle to close at all with four major antitrust enforcers having opened in-depth investigations. Once again, the prospect of behavioral remedies to address lingering doubts raised by the authorities makes this case one to watch as the debate rumbles on about if and how such commitments can address non-horizontal theories of harm.

Adobe/Figma

Adobe announced its intention to acquire Figma, a user interface/user experience (UI/UX) design platform, in September 2022 for approximately $20 billion, representing Adobe’s largest acquisition in its 40-plus-year history.¹⁰ Figma was an early pioneer of web-based, real-time collaborative design tools when it launched in 2016. Adobe launched its own UI/UX design tool (Adobe XD) almost a year later, in 2017.¹¹ While Adobe has touted its plans to integrate Figma’s platform with Adobe’s flagship tools and continue developing new and innovative products, some commentators have speculated that Adobe’s main motivation is to acquire a popular competitor and discontinue its own UI/UX design product.¹²

ICE/Black Knight

In May 2022, Intercontinental Exchange Inc. (ICE) announced that it had agreed to acquire Black Knight Inc. for approximately $13.1 billion.¹⁸ Black Knight provides a variety of services to the mortgage industry, including Empower, a loan origination system (LOS). LOS software is designed to assist lenders with the process of generating new mortgages. In addition to Empower, Black Knight also offers a product pricing and eligibility engine (PPE), an add-on for its LOS that allows lenders to identify the best available mortgage rates for potential homebuyers. ICE also offers its own LOS, Encompass, along with a related PPE service. 

After receiving a second request from the FTC, Black Knight reached an agreement with a buyer to divest its Empower LOS product in an effort to secure HSR clearance.¹⁹ However, only two days after Black Knight announced this proposed divestiture, the FTC brought an administrative action challenging the transaction, alleging that the combination of the country’s two largest LOS systems would give ICE the ability to raise costs for lenders, which in turn would increase costs for homebuyers.²⁰ The FTC also alleged that the elimination of competition for PPE services would “increase ICE’s ability and incentive to use control of its LOS to undermine competition from rival PPEs and other add on providers.”²¹ One month later, the FTC sought a temporary restraining order and preliminary injunction in federal court seeking to prevent the parties from closing the transaction.²² Black Knight and ICE filed their answer and counterclaims on April 25, 2023, raising arguments that the FTC’s administrative process violates their constitutional rights, similar to those made by the parties in Axon Enterprise, Inc. v. FTC.²³

While the outcome of this transaction remains in flux, it is worth noting that the rumored offer, and the FTC’s apparent rejection, of a significant divestiture remedy could reflect a broader development in the FTC’s and DOJ’s approach to remedies. During a speech in February, Holly Vedova, Director of the FTC’s Bureau of Competition, discussed the agency’s increasing skepticism toward divestitures as remedies, noting that “divestitures have not worked nearly as well as we had hoped, and definitely not as well as was necessary to prevent the illegal mergers from undermining competition.”²⁴ These sentiments echo those of Assistant Attorney General Jonathan Kanter, who has stated publicly that when the DOJ “conclude[s] that a merger is likely to lessen competition, in most circumstances we should seek a simple injunction to block the transaction” and that divestitures should be “the exception, not the rule” for deals presenting significant antitrust issues.²⁵ Ms. Vedova added that the FTC would “only recommend acceptance of divestitures that allow the buyer to operate the divested business on a standalone basis quickly, effectively, and independently,” and that it views divestitures as having a “heightened risk of failure” if they do not include a stand-alone business unit and require ongoing supply agreements between seller and buyer, or if there are no “strong and independent” buyers.²⁶ While Ms. Vedova did not call out the ICE/Black Knight transaction by name, the developments in the FTC’s review certainly appear to reflect this new skepticism of divestiture remedies. Going forward, parties exploring divestitures should carefully consider whether proposed remedies could satisfy the FTC’s more stringent criteria.

Viasat/Inmarsat

In November 2021, Viasat and Inmarsat, two providers of satellite broadband and narrowband services, announced their intention to merge.²⁷ Both companies offer services for in-flight connectivity (“IFC”) on commercial airlines, in addition to providing communication services for maritime and government customers. Nearly one year after the announcement of the transaction, the CMA launched a Phase 2 investigation into the possible effects of the merger on the IFC market, and in March 2023 announced that it was provisionally clearing the deal following its in-depth review.²⁸ In its provisional findings, the CMA noted that while the parties compete closely, the evidence suggested that the merged company would face significant competition from both emerging players like SpaceX’s Starlink and established firms like Intelsat and Panasonic.²⁹

In the midst of the CMA’s review, the EC initiated its own investigation into the transaction.³⁰ Like the CMA, the EC noted that Viasat and Inmarsat are close competitors, and there are few suppliers in the IFC market, with high regulatory and technological barriers to entry.³¹ After a three-month investigation, the EC unconditionally approved the transaction on May 25, concluding that the parties’ combined “market position would remain moderate” and that “a number of sizable competitors” in the “nascent and growing” market for IFC services “would likely exert sufficient competitive pressure on the merged entity.”³²

The EC’s expanded investigation into Viasat/Inmarsat followed a global trend toward scrutinizing acquisitions in nascent markets. IFC is a relatively new technology and is uncommon in European airlines, but the EC ultimately cleared the transaction after previously expressing concerns that the deal could stifle competition and innovation as the market matures.

Despite attention from and acknowledgment of head-to-head competition by multiple regulators, the transaction ultimately received unconditional clearance across the board, allowing the parties to close the transaction in late May.

UK’s Digital Markets, Competition and Consumer Bill

On April 26, 2023, the UK Government introduced the Digital Markets, Competition and Consumer Bill (the DMCC Bill) to Parliament. The proposed legislation equips the CMA with a wider range of consumer law enforcement powers and creates a new regulatory regime for digital markets in the UK. The DMCC Bill, which has been discussed and broadly consulted on for a number of years, has been described by Sarah Cardell, Chief Executive of the CMA, as a “watershed moment” that introduces a “tailored, evidenced-based and proportionate approach to regulating the largest and most powerful digital firms.”³³

Key reforms proposed include:

• The establishment of a new ex ante regulatory regime for digital markets:
  • The CMA’s Digital Markets Unit (the DMU) will be endowed with powers to enforce new rules against firms in digital markets that have “strategic market status” (SMS), i.e., enjoying both “substantial and entrenched market power” and a “position of strategic significance” related to digital activities. The SMS regime is not intended to be self-executing, and designation can take place only after a nine-month SMS investigation. Not surprisingly, the regulator will not be required to assess every company that meets the SMS criteria, and so we expect the DMU to prioritize designations of the largest tech platforms. Since the SMS designation can be applied only to companies with global turnover exceeding £25 billion or UK turnover exceeding £1 billion, a number of significant tech players that do not currently exceed these thresholds will fall outside the scope of the legislation (for now, at least), including Spotify, Epic Games, and TikTok.
  • In contrast to the framework of the EU’s Digital Market Act (DMA), which lists a blanket set of requirements and obligations, the UK Digital Markets Unit will develop company-specific Codes of Conduct to regulate each SMS firm’s conduct. The DMCC Bill provides the DMU with a significant degree of latitude in deciding what the respective Codes of Conduct for each firm designated as an SMS should include.
• On the transactional front, the DMCC Bill intends to implement a mandatory and suspensory merger reporting requirement for all SMS firms’ deals meeting certain thresholds. The new acquirer-focused merger review threshold enables the CMA to intervene in deals where one party has a share of supply of at least 33% and UK turnover exceeding £350 million. The new threshold will expand the CMA’s existing jurisdictional net even wider and allow it to scrutinize and intervene in transactions involving target companies that have a limited UK nexus but may impact innovation or competition.

The DMCC Bill can be seen in the wider context of attempts by antitrust agencies around the world to more closely regulate digital markets. In the US, lawmakers continue to call for and discuss legislation that would regulate big tech, though such efforts appear to have stalled for now.³⁴ In Australia, the Australian Competition and Consumer Commission is midway through a five-year Digital Platform Services Inquiry.³⁵ In the EU, the DMA, which sets out rules defining and prohibiting certain business practices by tech “gatekeepers” such as Meta, Facebook, and Amazon, entered into force in November 2022 and requires designated gatekeepers to comply with the DMA requirements by March 2024 at the latest.

While the DMCC Bill’s precise conduct requirements are to be determined, we expect these to be more tailored and less prescriptive than corresponding obligations under the DMA. The UK government’s view is that this will “future proof” the Bill in important ways and allow the CMA to move quickly in line with market developments. Together with other digital regulation, this new UK framework is intended to provide business users, consumers, and government enforcers more tools to challenge perceived unfair business practices by large technology platforms.

Antitrust and Artificial Intelligence

Antitrust agencies around the world are paying close attention to the development of emerging and dynamic new technology, including artificial intelligence (AI) and its potential impact on competition. Stakeholders have raised concerns, for example, that big tech platforms could utilize their market strengths to capture the AI market and foreclose smaller players.

Reflecting enforcement interest in this area, on May 4, 2023, the UK CMA announced a market review into AI foundation models. This initial fact-finding exercise will examine the so-called foundation models underpinning AI and how the markets around those models are developing. The CMA will publish a short report setting out its findings in early September 2023.

Through its review, the CMA’s goal is to develop an early understanding of the opportunities and risks arising from the potential uses of the foundation models, which will in turn help guide its thinking around the guardrails and principles that are needed from a regulatory perspective to ensure continued innovation and effective competition in this space. In addition to considering submissions by interested parties, the CMA will seek views and evidence from a number of key stakeholders, including businesses, academics, developers, investors, and customers, through meetings and information requests.

The CMA’s Chief Executive, Sarah Cardell, has said that the review would not target “any particular companies.” If, through its review, the CMA receives information suggesting that the sector is not operating in a competitive manner, the CMA can opt to undertake more formal reviews of the sector, including a market study. That in turn could lead to a formal market investigation where it would be open to the CMA to pursue remedies, both behavioral and structural in nature.

In the US, FTC Chair Lina Khan recently authored an op-ed advocating for the FTC to use existing laws to rein in some of the perceived dangers of AI, such as enhancing the power of dominant firms and "turbocharging" fraud.³⁶ Her piece follows an April 2023 statement from the FTC and other regulators that outlined a commitment to enforce their respective laws and regulations to promote responsible innovation in AI.³⁷

Given regulators’ clear interest in this technology, any transactions involving products that incorporate AI should expect a close look from antitrust agencies around the world.

^[1] Complaint for a Temporary Restraining Order and Preliminary Injunction, FTC v. Meta Platforms Inc., Mark Zuckerberg, and Within Unlimited, Case No. 5:22-cv-04325 (N.D. Cal. July 27, 2022); for criticisms of the FTC’s challenge, see, e.g., Axios, Khan’s risky move on Meta (August 2, 2022), available at https://www.axios.com/2022/08/02/khan-ftc-meta-within-antitrust; Fortune, “I lead the Consumer Technology Association and I’ve never commented on an FTC lawsuit until now. Lina Khan’s new case against Meta is laughable” (August 3, 2022), available at https://fortune.com/2022/08/03/consumer-tech-cta-ftc-lawsuit-lina-khan-case-v-meta-acquisition-gary-shapiro/.
^[2] FTC v. Meta Platforms Inc. et al., 2023 WL 2346238 (N.D. Cal. Feb. 3, 2023).
^[3] Order Withdrawing Matter From Adjudication, In the Matter of Meta/Zuckerberg/Within, FTC Matter No. 2210040 (February 10, 2023), available at https://www.ftc.gov/system/files/ftc_gov/pdf/d09411-order-withdrawing-adjudication.pdf
^[4] 2023 Annual Antitrust Enforcers Summit, interview with FTC Chair Khan, at 17:45 (March 27, 2023), available at https://www.youtube.com/watch?v=bmPLUIEGxeo
^[5] Id.
^[6] https://www.gov.uk/government/speeches/berkeley-spring-forum-mergers-policy-and-practice.
^[7] https://ec.europa.eu/commission/presscorner/detail/en/IP_23_2705.
^[8] https://ec.europa.eu/commission/presscorner/detail/en/ip_23_2146.
^[9] The statutory deadline for the CMA’s decision is September 12, 2023, and the CMA’s goal is to publish its final report in August.
^[10] https://www.cmswire.com/digital-experience/how-does-adobes-20b-acquisition-of-figma-impact-ux-designers/.
^[11] https://techcrunch.com/2017/10/18/adobe-xd-designing-at-the-speed-of-thought/.
^[12] https://www.cmswire.com/digital-experience/how-does-adobes-20b-acquisition-of-figma-impact-ux-designers/.
^[13] https://www.bloomberg.com/news/articles/2022-11-18/adobe-receives-us-justice-request-for-more-data-on-figma-deal#xj4y7vzkg. ^[14] https://www.law360.com/articles/1603813/uk-launches-antitrust-probe-into-adobe-s-20b-figma-deal
^[15] https://ec.europa.eu/commission/presscorner/detail/en/mex_23_904.
^[16] https://www.bloomberg.com/news/articles/2023-02-23/doj-preparing-suit-to-block-adobe-s-20-billion-deal-for-figma?leadSource=uverify%20wall.
^[17] https://www.theregister.com/2023/03/16/adobe_reckons_itll_complete_20bn/.
^[18] https://www.wsj.com/articles/intercontinental-exchange-to-buy-mortgage-data-firm-black-knight-for-13-1-billion-11651694736.
^[19] https://www.blackknightinc.com/black-knight-and-intercontinental-exchange-announce-agreement-to-sell-black-knights-empower-los-business-to-constellation-software-inc-and-revised-terms-of-merger-agreement/.
^[20] https://www.ftc.gov/news-events/news/press-releases/2023/03/ftc-acts-block-deal-combining-two-top-mortgage-loan-technology-providers.
^[21] Id.
^[22] FTC Staff Seeks Court Order Preventing ICE from Consummating its Acquisition of Rival Black Knight Pending Agency Administrative Challenge | Federal Trade Commission.
^[23] Axon Enterprise, Inc. v. FTC, 215 L.Ed.2d 151 (2023). In this case, the Supreme Court held that parties having a transaction reviewed by the FTC can raise constitutional challenges to the FTC’s actions and administrative proceedings in federal court without first having to assert their claims in the FTC’s administrative proceeding challenging the transaction. Unsurprisingly, it has not taken long for the Axon decision to make its way into ongoing merger challenges by the FTC.
^[24] Remarks by Holly Vedova at 12th Annual GCR Live: Law Leaders Global Conference (ftc.gov).
^[25] https://www.justice.gov/opa/speech/assistant-attorney-general-jonathan-kanter-antitrust-division-delivers-remarks-new-york.
^[26] Remarks by Holly Vedova at 12th Annual GCR Live: Law Leaders Global Conference (ftc.gov), supra note 24.
^[27] https://www.inmarsat.com/en/news/latest-news/corporate/2021/viasat-inmarsat-to-combine.html.
^[28] https://assets.publishing.service.gov.uk/media/6400b7488fa8f527f7342f9a/Viasat_Imarsat_PFs_final_.pdf.
^[29] Id.
^[30] https://ec.europa.eu/commission/presscorner/detail/en/ip_23_768.
^[31] Id.
^[32] https://ec.europa.eu/commission/presscorner/detail/en/ip_23_2915.
^[33] https://www.gov.uk/government/news/new-bill-to-stamp-out-unfair-practices-and-promote-competition-in-digital-markets.
^[34] See, e.g., American Innovation and Choice Act, available at https://www.congress.gov/bill/117th-congress/senate-bill/2992.
^[35] https://www.accc.gov.au/inquiries-and-consultations/digital-platform-services-inquiry-2020-25.
^[36] Opinion | Lina Khan: We Must Regulate A.I. Here’s How. - The New York Times (nytimes.com).
^[37] FTC Chair Khan and Officials from DOJ, CFPB and EEOC Release Joint Statement on AI | Federal Trade Commission.

[View source.]