Activision Blizzard’s games would no longer be available on non-Microsoft gaming consoles if the deal goes through, said regulators.
The Activision purchase was set to be the biggest in Microsoft’s history.
The company said it would fight to complete the $69bn (£56bn) deal.
Microsoft president Brad Smith said the company had “complete confidence in our case and welcome the opportunity to present our case in court”.
US President Joe Biden promised to take a tougher line against monopolies, and the complaint against Microsoft is a prime example.
The planned deal had already raised concerns in other countries, including the UK.
Activision Blizzard owns some of the most popular games in the world, including the Call of Duty series, World of Warcraft, Overwatch, and Candy Crush.
Activision is one of a very small number of developers who produce high-quality games for multiple devices, according to the Federal Trade Commission, the US consumer watchdog that filed the complaint.
The deal would give Microsoft “both the means and motive to harm competition” by manipulating pricing, making games worse on its competitors’ video game consoles, “or withholding content from competitors entirely, resulting in harm to consumers,” the agency said in a press release.
The FTC pointed to Microsoft’s acquisition of ZeniMax, which owns the video game studio Bethesda Softworks. Microsoft has said several of the studio’s future games will be exclusive to Microsoft consoles.
Call of Duty will be available for 10 years on Nintendo if Microsoft’s deal with Nintendo goes through, and Sony has received a similar offer from Microsoft.
“This sounds alarming, so I want to reinforce my confidence that this deal will close,” Activision Blizzard chief executive Bobby Kotick wrote in a letter to staff that was shared on the company’s website.
Our belief is that we will win this challenge because the allegations that this deal is anticompetitive are unfounded.”
Historically, you would choose which games to buy depending on which bit of hardware you owned – whether that was a Nintendo, Sony, Sega (remember them?), or Microsoft. Back then you could argue consoles were king.
In recent years, big titles like FIFA, Call of Duty, and Fortnite have offered the same experience across multiple platforms, making the device you own less of an issue.
Consequently, we’ve seen a fight over content, with big companies like Tencent, Sony, and Microsoft acquiring game developers to try and differentiate themselves from their competitors.
What’s different here is the sheer scale of the purchase and the massive mainstream appeal of the games under discussion.
Given everything that has been said publicly by Microsoft and Activision, it is unlikely that should this deal go through it would mean that one day shortly PlayStation users would be unable to play the latest Call of Duty.
However, it could mean that people who pay for Microsoft’s GamePass get the game first, as part of the subscription price, or have some bespoke content unique to them.
PlayStation and now the FTC claims that this in and of itself is enough to distort the market. Microsoft argues it boosts player choice.
Now it is up to a judge to decide.
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According to Microsoft, the deal aims to expand the number of games available on GamePass, its Netflix-style subscription gaming service, and to meet the increasing number of people who play games on their phones.
The takeover was set to make the company the third largest gaming firm in the world by revenue, behind China’s Tencent and Japan’s Sony, which owns PlayStation and has criticized the deal.
It could be forced to pay a breakup fee of as much as $3bn if the deal fails.
In favor of filing the lawsuits were FTC chair Lina Khan and two Democratic commissioners, who have repeatedly criticized the US government’s failure to reign in Big Tech. The Republican commissioner opposed the move.
