Legal Issues &

Business Ethics
Microsoft Corporation’s acquisition
of Activision Blizzard Inc
SHENGELIA MARIAM
Table Of Contents

Introduction .................................................................................................. 2
Background of the Acquisition ..................................................................... 3
Figure 1 .............................................................................................................. 3
Legal issues ................................................................................................. 4
Misuse of the position of Dominance ................................................................... 4
Merger Control Laws ........................................................................................... 4
Data Privacy ....................................................................................................... 5
Employment and Labor Laws .............................................................................. 5
Implications of Ethical Business .................................................................. 7
Conclusion ................................................................................................... 9
Bibliography………………………………………………………………………………….….…10

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Introduction

Microsoft is a well-known multinational company, which was founded in 1975 by

Paul Gardner Allen and William Henry Gates III. The mission of the company is to
use technology to empower individuals and organizations worldwide so they can
achieve their full potential. Microsoft creates and sells a wide variety of hardware,
software, and service products to improve communication, entertainment, and
productivity. (Microsoft, 2013)

Microsoft is a worldwide company which operates in over 100 different countries.

It makes money from the design and sale of physical goods as well as from the
creation, licensing, and support of software products and services. Operating
systems for a range of computing devices, server apps, productivity apps, business
solutions, and software development tools are all part of its product line. Microsoft
also provides internet advertising services in addition to gaming and entertainment
items like the Xbox game system. (Forbes, 2024) The company also offers cloud-
based solutions. Microsoft Office 365, Windows Azure, Skype, and Xbox LIVE are
a few examples of cloud services. Application fees, advertising, and subscriptions
are the company's main sources of income.

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Background of the Acquisition

In January 2022, Microsoft said it would purchase Activision Blizzard Inc. for
around $68.7 billion. Activision Blizzard is a well-known producer and distributor of
interactive entertainment services and content for hit games like Call of Duty, World
of Warcraft, and Overwatch. Microsoft acquired what was interpreted as a
deliberate move to grow its market dominance and influence in the gaming
industry. (Trueman, 2023)

On October 13, 2023, the deal was finally closed. It had taken 20 months of legal
battles with US and UK regulators, but Microsoft has now closed its Activision
Blizzard acquisition after winning a US federal court case against the Federal Trade
Commission and rearranging the terms of the agreement to placate the UK's
Competition and Markets Authority. This was Microsoft's largest acquisition ever.

Figure 1

It considerably exceeds the billion it spent to acquire LinkedIn in 2016 and the 7.5
billion it paid to acquire Bethesda in 2021. This is also Microsoft's largest-ever
gaming effort, and the corporation stated at the time of the megadeal
announcement that it will now be the "third-largest gaming company by revenue,
behind Tencent and Sony. (Warren, 2023)

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Legal issues

The purchase of Activision Blizzard Inc. (ATVI) by Microsoft Corporation (MSFT)

represents important legal issues in company management. This part will
investigate the various problems underlying the merger in today’s business
environment. Specifically, having a special emphasis on potential abuses of
dominating market positions.

Misuse of the position of dominance

The main ethical and legal issue corresponding to Microsoft Corporation's
acquisition of Activision Blizzard Inc. is the potential abuse of the dominant
marketplace. As it was mentioned above, Microsoft is a key player when it comes
to the technology industry. Thus, the acquisition of Blizzard made Microsoft's
position even more strong. Accordingly, it imposed concerns about anti-competitive
and monopolistic behaviors. Generally, under the lawsuit, particularly in
jurisdictions like the United States and the European Union, it is prohibited for one
company to have such power in a market. As it mainly discourages competition,
limits customer choice, and initiates unfair approaches to harm competitors.
Correspondingly, these can take many forms, such as price fixing, exclusive trading
arrangements, or using market dominance to achieve a disadvantage in another.
(Commission, n.d.)It is important to comply with the regulations, as fines can be
extremely severe. For instance, The European Commission fined Microsoft €561
million for failing to comply with its promise to provide customers with a browser
choice screen to select their favorite web browser. (Commission, 2023) Microsoft
even could be fined under The Sherman Antitrust Act of 1890 a law made by the
government to stop companies from doing things that could hurt competition
between businesses. It says that companies can't make agreements or work
together in ways that stop trade between states or countries. If companies break
this law, they can get in big trouble and must pay heavy fines. Although most
enforcement actions are civil, people and corporations who violate them may face
prosecution from the Department of Justice (DOJ). (School, 2018)

Merger Control Laws

Planning the acquisition of one of the most well-known and big company that
logically, makes legislative parties to be concerned. Thus, merger control
departments, which regulate the mergers and acquisitions that could reduce
competition (Commission, 2013), face a big dilemma in terms of legal
considerations. The primary focus in merger control is to encourage “healthy”
competition and ensure consumer welfare. But when we talk about this type of
issue, not every legal entity could have the same approach and attitude. The same
happened to the Microsoft case. Initially, the Competition & Markets Authority,
which helps organizations and people in the UK by encouraging competitive
markets and preventing unfair activity. (GOV.UK, n.d.) It blocked Microsoft from
buying Blizzard, as it believed that this acquisition would change the future of the

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growing cloud gaming industry, which would result in less innovation and
possibilities for UK gamers. In July 2022, CMA started collecting information on this
acquisition. In September, after extensive research, CMA concluded that the
merger of these two companies had a high probability of limiting the competition in
the gaming industry. And suppose CMA wins the process or the other legislative
forces block this deal. In that case, Microsoft will have to pay a termination bill of
$3 billion, as this termination would be the result of an “injunction arising from
Antitrust Laws." (Trueman, 2023). On the other hand, the European Commission
had approved the acquisition of Activision Blizzard. This decision was based on in-
depth analysis and hard evidence from consumers, competitors, and developers
in the game industry. The commission concluded that Microsoft would be unable
to harm competing gaming devices. Specifically, Microsoft would continue
distribution of Blizzard games to Sony. Simultaneously, they revealed that Microsoft
will increase its dominance in the PC operating system industry and may hurt
competitors in the game distribution space through cloud game streaming services.
However, the European Commission still gave a chance to Microsoft and
addressed the issue of hindering competition company was offered a 10-year
licensing commitment. It involved a free license that would let users stream in the
European Economic Area (EEA) and a complimentary license for cloud gaming
providers. (Commission, 2023) Thus, CMA was the only hurdle for Microsoft to
deal with the close of the acquisition. The company sued the association to
reconsider its decision. The CMA had initially vetoed the deal in April but said it's
prepared to evaluate new proposals from the companies after a US judge gave the
merger the green light on Tuesday. but regulators warned that any antitrust fixes
would trigger a new probe, potentially further delaying the biggest gaming deal in
history. (Gemmell, 2023)

Data Privacy
Microsoft’s case of acquiring Activision Blizzard could also go against the concept
of data minimization outlined in Article 5 of the General Data Protection Regulation
(GDPR). Microsoft gained more data about the users which are concerning
because when a company can collect large amounts of data from several channels
on a single person, the privacy concerns of data aggregation increase. Thus, it
becomes easy for such massive information to be misused or get into the wrong
hands. Moreover, such vast information which is personal and, in most cases,
sensitive, should be stored safely. For secure information, GDRP and the California
Consumer Privacy Act (CCPA) try to regulate this issue. However as mentioned
above, it is very difficult to control the amount of data that Microsoft acquired.
Moreover, as the company gains more size and power, it gains more data, thus
making it nearly impossible for competitors to thrive. (Chaudhary, 2022)
Employment and labor laws
The acquisition of Blizzard has major implications for labor and employment
legislation. When it comes to mergers, especially two influential companies in
gaming, rules about the workforce should be carefully evaluated. Usually,
acquisition is linked to job losses for several reasons. First, to improve efficiency
and reduce costs, companies consolidate departments, functions, and roles, which

5
results in layoffs. Moreover, when two large companies are merged, they often face
difficulties having different organizational structures and cultures. Thus,
incompatibilities between systems lead to workforce adjustments, to align with
organizational structure. This was the case with Microsoft’s acquisition of Blizzard.
Microsoft announced a major layoff in 2024 in its gaming division, which is
approximately 1 900 employees, specifically 8% of the total workforce in this
division. The following step aims to reduce the number of roles in this workforce.
Additionally, Blizzard announced the resignation of Chief Design Officer, Allen
Adham, and Blizzard President Mike Ybarra. Furthermore, as mentioned above,
uncertainty and cultural changes are quite often in mergers and acquisitions. Each
company has its’ own values, beliefs, and culture, thus combining two
organizational behaviors can impose serious issues. In the current case, while
Microsoft was fighting for the acquisition, Blizzard has been under inspection since
July 2021, because of claims of illegal and toxic conduct around its workplace. It
caught public attention because of official legal complaints made by U.S. regulatory
authorities, such as the Securities and Exchange Commission, the U.S.
Employment Commission, and the Department of Fair Employment and Housing
in California. Specifically, accusations were related to sexual harassment, racism,
bullying, and insulting conduct. Thus, the previously mentioned problems lead to a
walkout of the staff members, withdrawal of support from esports sponsors, and
the resignation and termination of other high-profile personnel from various studios.
(Goslin, 2022) the accident, for Microsoft, poses a challenge, because it needs to
resolve the issues in Blizzard after the acquisition and then try to align the cultures
of the organizations. Such allegations are hard to manage and resolve, they require
time and affect the reputation of the company as well. So, for Microsoft, it was not
beneficial to merge with an organization whose culture witnessed such a
breakdown.

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Implications of Ethical Business

Managing legal frameworks and using the right legal instruments are important for
encouraging ethical behaviors in the field of business ethics. The various legal
strategies and instruments can be applied to the case of Microsoft’s acquisition of
Blizzard. Maintaining ethical standards and promoting responsible business
behaviors need commitment and awareness of these legal tactics, which can range
from compliance with antitrust laws to adherence to employment laws and data
privacy.

Firstly, Microsoft was fighting for the acquisition for around 2 years to get the
acceptance of legislative parties. As it was a hard win, the merger is still watched
closely and in order of a small leak, or failure to comply with regulations, Microsoft
would be fined immensely. Thus, the company should at all costs follow the rules
addressed by CMA and FTC. Antitrust laws are quite severe, especially Sherman
Act Violations, in which penalties could range from 10 to 100 million (Justice, 2024),
and European Commission antitrust fines which are 10% of the annual turnover.
(Commission, 2021)This fine can even exceed the billions, as Google has been
fined 2.42 billion euros for breaking the antitrust laws.

Moreover, in the acquisition process, it is crucial to ensure compliance with

employment and labor laws, especially when the company could face accidents
like the Blizzard workforce situation. Microsoft’s merger with Blizzard seems to
result in employee migrations, and layoffs, which as mentioned before already
started. To reduce legal risks and maintain moral conduct, the company should
adhere to requirements regulating employment contracts, collective bargaining
agreements, and severance packages. Furthermore, Microsoft needs to take into
account the Worker Adjustment and Retraining Notification (WARN) Act in the US,
which requires employers to warn affected workforce and relevant government
agencies in advance of mass layoffs (Labor, n.d.), which is the case as Microsoft
announced the layoff of 1900 employees. Breaking employment rules is quite
dangerous not only from a financial point of view but also in terms of employee
morale that can suffer, legal issues might arise, and the reputation of the company
can be harmed or even destroyed.

Regarding data privacy, it is crucial to comply with customer data. It is a highly

ethical business conduct, especially in the gaming and technology industry. To
protect user data and privacy rights, Microsoft with Activision Blizzard are required
to follow security laws, such as the General Data Protection Regulation (GDPR) in
the European Union, which established guidelines for both the free flow of personal
data and the protection of natural people, and similar legislation in other
jurisdictions. (Consulting, n.d.)

Corporate Social Responsibility (CSR) is becoming more and more popular in the
business world. It incorporates different methods by which corporations include
social and environmental issues into their daily operations and stakeholder
relations. Implementing CSR practices is essential not only to make this world a
better place but also to help the company with its reputation and engage

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stakeholders. (Mishra, 2023) In this case, Microsoft is actively engaged in CSR,
funds focused on sustainability had more than 53 billion dollars worth of Microsoft
shares in 2019. The company strives to contribute to world sustainable
development, while Activision Blizzard is performing far worse than the industry
average, providing less ESG data and implementing fewer rules. Accordingly, it
may take years for Microsoft to bring Blizzard in alignment with company practices.
So, starting from Activision’s engagement in CSR would be beneficial to reach a
certain level of sustainability practices. (Holger, 2022)For instance, they are
encouraging diversity in the workplace, where Blizzard had issues as mentioned
previously, focusing on environmental sustainability, adhering to philanthropic
activities, or establishing community-engaging programs.

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Conclusion

To sum up, Microsoft’s strategic decision to acquire Activision Blizzard posed some
legal and ethical issues. These include antitrust laws, labor, and employment laws,
data privacy rules, and misuse of dominance. When it comes to two big companies
uniting, it always raises some concerns, especially for legislative parties. Every
step that Microsoft makes should be carefully analyzed and considered, otherwise,
consequences can be harsh. Despite legal obstacles and possible threats,
Microsoft still has opportunities to show its dedication to ethical behavior by being
open to legal rules, handling employee relations with credibility and respect, and
protecting individuals’ privacy and data rights. Adopting Corporate Social
Responsibility (CSR) programs may improve Microsoft’s reputation with
stakeholders and build their trust, and that will support sustainable business
practices and positive societal impact. This is the way of strategically applying
successful business performance in compliance with legal objectives. Microsoft
can effectively use CSR practices to turn the threats connected to legal and ethics
into opportunities that will help the company to successfully implement the
acquisition of Blizzards.

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