Washington regulator aims for more control of Microsoft and Meta

It’s part of the FTC's aggressive campaign against corporate dealmaking.

SAN JOSE, Calif. — Lina Khan's Federal Trade Commission has two headline-making cases underway right now: Its trial against Meta in a California courtroom, and a new suit to block a Microsoft megadeal.

But Khan's long game appears to be even bigger. She wants to win unprecedented powers to review and potentially block any future deals by two of tech’s most acquisitive companies.

Buried in court filings for both cases — a lawsuit to block Microsoft’s takeover of video game company Activision Blizzard, and a trial against Meta’s takeover of Within, maker of the virtual reality fitness app Supernatural — Khan's push for new authorities shows how much more aggressive the agency is under her watch.

If the FTC can score a victory in either proceeding — though there's likely a long way to go before either reaches that point — Khan and her team would do more than just block these deals, they'd be arming themselves with broad investigative authority over future acquisitions at Meta and Microsoft. For two tech giants that have built some of their most successful enterprises around buying companies, it would be a radically new regulatory process compared to how they've done business in the past.

As it stands now, current law requires companies to notify the FTC and the Justice Department when a deal is valued at more than $101 million, and the agencies have a narrow 30-day window to decide whether to open an in-depth probe.

But the FTC could make reviews of their deals mandatory and remove any limitations around the size of the deal. At the same time, Khan wants to widen the scope of potential deals that can be reviewed under the process — called "prior approval" in the world of antitrust law.

Previously, the FTC often included similar review requirements as standard language in complaints filed in its in-house court. But the agency typically limited those extra review requirements to future mergers in the markets relevant to a particular lawsuit.

Khan wants to dial back those limitations, giving her agency a much broader mandate to investigate.

In the Microsoft case that means not only could the companies be subjected to the more burdensome reviews in future gaming deals, but also potentially “in related business activity and markets.” The FTC doesn’t define what that means, but given the focus on cloud gaming in the case, it could for example encompass any deal involving Microsoft’s Azure cloud business. The exact scope of a prior approval requirement would be up to a federal judge.

In fact, just a day after the FTC filed its lawsuit, Microsoft announced the acquisition of Lumenisity, which makes high-speed data transmission cables which “will expand Microsoft’s ability to further optimize its global cloud infrastructure.” The purchase price was not disclosed, but it’s the type of deal that the FTC could subject to extra scrutiny under a prior approval provision.

A Microsoft spokesperson declined to comment on the outcome of the FTC case or whether U.S. regulatory approval is currently required for the Lumenisity deal.

Broad use of prior approval circumvents the modern merger review process, implemented in the 1970s under the Hart-Scott-Rodino Act, said Steve Cernak, a lawyer at Bona Law whose practice is focused in part on merger reviews. “It’s a significant change in the FTC’s process for reviewing transactions.”

Identical language is also used in the FTC’s case against Meta. A broad interpretation of “business activity and markets” related to virtual reality apps could encompass just about any future deal the company hopes to do.

Spokespeople for Meta and the FTC declined to comment.

None of this should be a surprise to companies, however, with Khan outlining the plan in a policy statement last year.

Still, the FTC is a long ways from actually getting what it wants, especially in the Microsoft case, which it just filed in it’s in-house administrative court. Yet even if they win there, the agency must still convince a federal judge to block the deal.