A federal judge has handed Microsoft a major victory by declining to block its looming $69 billion takeover of video game company Activision Blizzard. Regulators sought to ax the deal saying it will hurt competition.

U.S. District Judge Jacqueline Scott Corley said in a ruling that the merger deserved scrutiny, noting it could be the largest in the history of the tech industry. But federal regulators were unable to show how it would cause serious harm and wouldn’t likely prevail if they took it to a full trial, she wrote.

The Federal Trade Commission, which enforces antitrust laws, “has not raised serious questions regarding whether the proposed merger is likely to substantially lessen competition” between video game consoles or in the growing markets for monthly game subscriptions or cloud-based gaming, Corley said.

A ruling favorable to Microsoft was not a surprise after the company’s lawyers had the upper hand in a 5-day San Francisco court hearing that ended late last month. The proceeding showcased testimony by Microsoft Chief Executive Officer Satya Nadella and longtime Activision Blizzard CEO Bobby Kotick, who both pledged to keep Activision’s blockbuster game Call of Duty available to people who play it on consoles — particularly Sony’s PlayStation — that compete with Microsoft’s Xbox.

“Our merger will benefit consumers and workers. It will enable competition rather than allow entrenched market leaders to continue to dominate our rapidly growing industry,” Kotick said in a written statement after Tuesday’s ruling.

The FTC had asked Corley to issue an injunction temporarily blocking Microsoft and Activision from closing the deal before the FTC’s in-house judge can review it in an August trial.

Both companies suggested that such a delay would effectively force them to abandon the takeover agreement they signed nearly 18 months ago. Microsoft promised to pay Activision a $3 billion breakup fee if the deal doesn’t close by July 18.

The FTC hasn’t said whether it will appeal Corley’s ruling.

“We are disappointed in this outcome given the clear threat this merger poses to open competition in cloud gaming, subscription services, and consoles,” FTC spokesperson Douglas Farrar said in a prepared statement. “In the coming days we’ll be announcing our next step to continue our fight to preserve competition and protect consumers.”

The decision is a setback for the FTC’s heightened scrutiny of the technology industry under Chairperson Lina Khan, who was installed by President Joe Biden in 2021 because of her tough stance on what she sees as monopolistic behavior by tech giants such as Amazon, Google and Facebook parent Meta.

Another judge rebuffed the FTC’s attempt earlier this year to stop Meta from taking over the virtual reality fitness company Within Unlimited. And on Thursday, Khan is expected to face tough questioning from Republicans in Congress who have called her to testify at a House hearing about the commission’s record of enforcement actions as well as her management of the agency staff.

Corley, herself a Biden nominee, expressed skepticism about the FTC’s case during the proceedings, particularly about the hypothetical harms caused if Microsoft were to remove Call of Duty from rival platforms or offer a subpar experience on competing consoles.

“The gist of the FTC’s complaint is Call of Duty is so popular, and such an important supply for any video game platform, that the combined firm is probably going to foreclose it from its rivals for its own economic benefit to consumers’ detriment,” Corley wrote in her ruling.

But she said the FTC hadn’t make a strong case that Microsoft would likely pull Call of Duty from rival Sony’s PlayStation. As antitrust investigations and legal challenges mounted in the U.S. and around the world, Microsoft pledged that Call of Duty would appear on Nintendo’s Switch console, Nvidia’s cloud gaming service and other platforms for at least a decade.

In that way, the “scrutiny has paid off,” Corley concluded in her ruling, repeating a message she relayed to regulators in the courtroom last month.

“In many ways you won,” Corley had told the FTC’s lead trial attorney on the case, James Weingarten.

“I don’t think we won,” Weingarten responded, saying there was no evidence that the “hastily agreed to” contracts would sufficiently protect the market.

Microsoft valued the deal at $68.7 billion when it announced the acquisition in early 2022, “inclusive of Activision Blizzard’s net cash,” though Microsoft agreed to pay $95 in cash for each share of the gamemaker, closer to $75 billion.

Shares of Activision Blizzard Inc. jumped more than 11% Tuesday on the ruling, a high for the year.

The ruling removes the biggest, but not the only obstacle, to the merger.

A number of other countries and the European Union have approved the Activision Blizzard takeover, but it still faces opposition from the U.K.’s Competition and Markets Authority. The company was set to challenge that decision at a tribunal hearing scheduled for later this month but the FTC’s ruling appeared to have forced a rethink.

The British regulator and Microsoft both said Tuesday they have jointly applied to put the hearing on hold while they work out a way to resolve their differences so that the deal can go ahead.

“We stand ready to consider any proposals from Microsoft to restructure the transaction in a way that would address the concerns” outlined in the merger decision, the CMA said in a prepared statement.

Microsoft President Brad Smith said in a statement that the company is looking to modify its transaction “in a way that is acceptable to the CMA,” though it disagrees with the agency’s concerns.

Canadian regulators are also investigating the transaction and have concluded it is “likely to result” in preventing or lessening competition, according to a letter to Microsoft filed in the U.S. case late last month that echoed the FTC’s concerns.

In the U.S., advocates for tougher antitrust enforcement are urging the FTC to ask an appeals court to pursue an emergency stay of Corley’s decision so that a trial can proceed. Some are calling attention to a perceived conflict of interest involving the judge’s son, who works for Microsoft. Corley disclosed the relationship in court.

“The fact that Judge Corley’s son works for Microsoft taints the outcome at a time when judicial ethics are top of mind for many,” said a prepared statement from Lee Hepner, legal counsel at the American Economic Liberties Project.

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Microsoft is paying the enormous sum of nearly $70 billion for Activision Blizzard, the maker of Candy Crush and Call of Duty, a deal that would immediately make it a larger video-game company than Nintendo while raising questions about the deal’s possible anti-competitive effects.

The all-cash $68.7 billion deal will turn Microsoft, maker of the Xbox gaming system, into one of the world’s largest video game companies. It will also help it compete with tech rivals such as Meta, formerly Facebook, in creating immersive virtual worlds for both work and play.

If the deal survives scrutiny from U.S. and European regulators in the coming months, it could be one of the biggest tech acquisitions in history. Dell bought data-storage company EMC in 2016 for around $60 billion.

Activision has been buffeted for months by allegations of misconduct and unequal pay. Microsoft CEO Satya Nadella addressed the issue Tuesday in a conference call with investors.

“The culture of our organization is my No. 1 priority,” Nadella said, adding that ”it’s critical for Activision Blizzard to drive forward” on its commitments to improve its workplace culture.

Activision disclosed last year it was being investigated by the Securities and Exchange Commission over complaints of workplace discrimination and in September settled claims brought by U.S. workforce discrimination regulators. California’s civil rights agency sued the Santa Monica-based company in July, citing a “frat boy” culture that had become a “breeding ground for harassment and discrimination against women.”

Wall Street saw the acquisition as a big win for Activision Blizzard Inc. and its shares soared 25% in trading Tuesday, making up for losses over the past six months since California’s discrimination lawsuit was filed. Shares of Microsoft slipped about 2%.

Last year, Microsoft spent $7.5 billion to acquire ZeniMax Media, the parent company of video game publisher Bethesda Softworks, which is behind popular video games The Elder Scrolls, Doom and Fallout. Microsoft’s properties also include the hit game Minecraft after it bought Swedish game studio Mojang for $2.5 billion in 2014.

The Redmond, Washington, tech giant said the latest acquisitions will help beef up its Xbox Game Pass game subscription service while also accelerating its ambitions for the metaverse, a collection of virtual worlds envisioned as a next generation of the internet. While Xbox already has its own game-making studio, the prospect of Microsoft controlling so much game content raised questions about whether the company could restrict Activision games from competing consoles, although Nadella promised the deal would help people play games “wherever, whenever and however they want.”

The acquisition would push Microsoft past Nintendo as the third-largest video game company by global revenue, behind Playstation-maker Sony and Chinese tech giant Tencent, according to Wedbush Securities analyst Daniel Ives.

“Microsoft needed to do an aggressive deal given their streaming ambitions and metaverse strategy,” Ives said. ”They’re the only game in town that can do a deal of this size with the other tech stalwarts under massive tech scrutiny.”

Meta, Google, Amazon and Apple have all attracted increasing attention from antitrust regulators in the U.S. and Europe, but the Activision deal is so big that it will also likely put Microsoft into the regulatory spotlight, Ives said. Microsoft is already facing delays in its planned $16 billion acquisition of Massachusetts speech recognition company Nuance because of an investigation by British antitrust regulators.

Microsoft is able to make such a big all-cash purchase of Activision because of its success as a cloud computing provider. But after years of focusing on shoring up its business clients and products such as the Office suite of email and other work tools, Ives said Microsoft’s failed 2020 attempt to acquire social media platform TikTok may have “really whet the appetite for Nadella to do a big consumer acquisition.”

Pushback against the deal was immediate from consumer advocacy groups.

“No way should the Federal Trade Commission and the U.S. Department of Justice permit this merger to proceed,” said a statement from Alex Harman, competition policy advocate for Public Citizen. “If Microsoft wants to bet on the ‘metaverse,’ it should invest in new technology, not swallow up a competitor.”

White House press secretary Jen Psaki had no comment on Microsoft’s announcement at her briefing Tuesday, but emphasized the Biden administration’s recent moves to strengthen enforcement against illegal and anticompetitive mergers.

Started in 1979 by former Atari Inc. employees, Activision has created or acquired many of the most popular video games, from Pitfall in the 1980s to Guitar Hero and the World of Warcraft franchise. Bobby Kotick, 59, has been CEO since 1991.

Microsoft said it expects the deal to close in its 2023 fiscal year, which starts in July. It said Kotick will continue to serve as CEO. After the deal closes, the Activision business unit would then report to Phil Spencer, who has led Microsoft’s Xbox division and will now serve as CEO of Microsoft Gaming.

Kotick survived a number of executive shakeups at Activision last year after a series of controversies stemming from allegations of a toxic workplace culture. A shareholder lawsuit in August said the company failed to disclose to investors that it was being investigated in California and that it had workplace culture issues that could result in legal problems.

Activision reached a deal in September with the U.S. Equal Employment Opportunity Commission to settle claims that followed a nearly three-year investigation. The agency said Activision failed to take effective action after employees complained about sexual harassment, discriminated against pregnant employees and retaliated against employees who spoke out, including by firing them.

Microsoft has also been investigating its own practices toward sexual harassment and gender discrimination, opening an inquiry last week sought by investors at its annual shareholders meeting in November. The company committed to publishing a report later this year on how it handles harassment claims, including past allegations involving senior leaders such as co-founder Bill Gates.

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