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Antitrust officials in the UK and Australia have raised concerns the takeover would give Microsoft an overwhelming advantage in cloud gaming, a nascent industry. That's an area of particular sensitivity for Federal Trade Commission Chair Lina Khan, who earlier this year sued to block Meta Platforms Inc. from acquiring a popular fitness app to gain an edge in the fledgling virtual reality market.

Although Khan hasn't commented specifically on the Activision deal, she said at an October conference that the FTC is focusing on ways digital platforms use mergers to maintain their dominance during periods of technical transitions.

"Right now we are seeing that period of technological transition -- be it in the context of the cloud or voice assistants or virtual reality," Khan said. "We have to be especially vigilant across the board, but particularly in the merger context."

Microsoft said it has offered a proposal that would keep Call of Duty on the Playstation for the next 10 years. But that kind of a settlement might not placate regulators, said Bloomberg Intelligence analyst Jennifer Rie.

"This is a deal that needs behavioral concessions and the FTC is not accepting behavioral concessions," Rie said. "They don't have any other choice but to sue."

Microsoft’s Activision Deal Hangs on Long-Shot FTC Settlement - Bloomberg