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On Wednesday, I wrote that Sony may live to regret the market definition and theory of harm it espouses in connection with Microsoft's acquisition of Activision Blizzard King (NASDAQ:ATVI), and that "the top three priorities for third-party interrogatories and depositions will be Sony, Sony, and Sony." Today it turned out that Sony--despite all of its efforts to lobby regulatory authorities over the deal--is indeed uncomfortable with its obligations as a highly relevant third party to the Federal Trade Commission's in-house adjudicative proceeding as well as the private antitrust lawsuit in the Northern District of California that is going forward in parallel.
On Friday, Sony Interactive Entertainment made a filing with the United States Federal Trade Commission's in-house court that just became public:
The filing says Microsoft served a subpoena on Sony on January 12, which according to Sony did not name the proper recipient and was not properly served, so Microsoft revised it and served Sony again last Tuesday (January 16). Sony would have had only until January 20 (Friday) to file a motion to quash or limit, or to otherwise respond to, the subpoena. That was the date Microsoft stated in the original subpoena as well as in the revised one. Sony understands, however, that Microsoft is fine with giving Sony a one-week extension, i.e., until this week's Friday, January 27. Therefore, Sony brought a motion for an extension of time that it described as unopposed ("agreed motion").
The fact discovery cutoff date in that adjudicative proceeding is April 7. Some of the time between now and that cutoff date may have to be spent on the resolution over this discovery dispute.
The motion notes that "[n]egotiations between [Sony Interactive Entertainment] and Microsoft as to the scope of [Sony Interactive Entertainment]’s production and a discovery schedule are ongoing." This tells us two things:
- Microsoft has apparently requested documents from Sony that the latter--the only vocal complainer over the transaction in question--isn't willing to provide without a fight. Alternatively or additionally, there could also be disagreements over Sony executives whom Microsoft's lawyers would like to depose.
- As the motion notes, the purpose of the extension is for the two companies to try and work it out (if not in whole, then at least in part). Should those efforts fail to result in a complete agreement on the scope of the discovery Microsoft's lawyers can conduct of Sony's business, Sony apparently intends to file--on Friday--a motion to quash or limit the subpoena. In that case, we'll get an idea as to what parts of Microsoft's subpoena Sony is unwilling to comply with.
Microsoft is the first-named defendant to the FTC's in-house complaint. It is part and parcel of Microsoft's fundamental rights as a defendant to be allowed to take discovery of third parties. All the facts must be put on the table in order for Administrative Law Judge (ALJ) D. Michael Chappell in Washington (and soon also United States District Judge Jacqueline Scott Corley in San Francisco, at some point with the assistance of a jury) to be able to make the right decisions.
If Sony doesn't like that, it can always cut things short by accepting the ten-year Call of Duty license that Microsoft has publicly offered. Without a single vocal complainer left, competition authorities would presumably not be interested in attempting to block the deal.
Sony's own business model is "fair game" for discovery in this context. Sony is essentially alleging that Microsoft would do with ABK's games what Sony is doing all the time with other games: Sony acquires studios to have more first-party titles, and enters into exclusive agreements over third-party titles or particular features of such titles (for example, Call of Duty - Modern Warfare II comes with various "exclusive benefits" for PlayStation gamers).
In connection with Microsoft-ActivisionBlizzard, Sony is just a third-party complainer and not directly exposed to any risks. But Sony finds itself on the receiving end of antitrust actions from time to time, such as the PlayStation You Owe Us class action in the UK. Some of Sony's dirty linen may get washed in public when those Activision Blizzard cases go to trial--and come back to haunt Sony.
Lawyers from the Cleary Gottlieb firm--the most senior one of whom appears to be D. Bruce Hoffman, a former Director of the FTC's Bureau of Competition--brought the motion on Sony's behalf. Cleary also made a filing for Sony with the UK Competition & Markets Authority (CMA). I have a lot of respect for that firm. I'm not surprised Sony retained Clearly, whose antitrust practice group has been adverse to Microsoft on various occasions, even including an EU case about 20 years ago. It's just that even the best lawyers can't make a case out of thin air, and can't help their clients avoid all of its discovery-related obligations.
Given that Sony doesn't want all of the facts about its own content-centric strategy to be discussed in public trials, and that there are no signs of Sony ever having reacted constructively to Microsoft's ten-year licensing offer, I strongly suspect that we will see a motion to quash or, more likely, limit the subpoena. The scope of that motion may, however, very well be narrowed a bit by the talks that are being held these days.
