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Microsoft to Inherit Activision’s Legal Woes in Gaming Megadeal

Jan. 19, 2022, 2:49 PM

Microsoft Corp.’s $69 billion deal for Activision Blizzard Inc. will bring a host of legal and public relations headaches as the tech giant inherits the state and federal lawsuits, shareholder litigation, and intense public scrutiny over allegations of sexual harassment and discrimination that hit the video game publisher.

Lawyers and industry watchers said Microsoft faces tough decisions ahead on how best to resolve the legal issues involving Activision and the broader questions about the workplace culture in gaming and the tech industry.

Some of the deal’s finer points are still unclear, but the move likely means Microsoft will assume liability for the lawsuits Activision is facing, said Dr. Ann Olivarius, chair and senior partner of McAllister Olivarius.

“Generally in this kind of situation, it’s probably going to be a full purchase and they’ll assume the liabilities of the lawsuit,” Olivarius said. “Unless they’re just buying the assets, then they’d have to leave a pool of money to pay off the claimants.”

The size of the deal also gives Microsoft incentive to move quickly to resolve those lawsuits.

“Remember we’re talking millions of dollars in lawsuits, and billions of dollars in the purchase price,” Olivarius said. “The lawsuits are really car fare, to be frank.”

Microsoft Safeguards

Business attorney Rick Hoeg said Microsoft will likely have safeguards to protect itself over the liabilities, with the purchase agreement probably including contingencies, indemnification clauses, or purchase price adjustments that relate to how the various lawsuits play out.

“If the suits aren’t sorted out by the time the deal closes, there will be changes to it, and if it’s settled before the purchase goes through, that will be adjusted in a separate way,” Hoeg said.

“Activision remains in the same legal mess as it was before all of this happened,” he added.

Microsoft and Activision Blizzard didn’t respond to requests for comment.

When the transaction closes, Microsoft will become the world’s third-largest gaming company by revenue behind Tencent Holdings Ltd. and Sony Group Corp., the company said in its official announcement.

“We’re investing deeply in world-class content, community and the cloud to usher in a new era of gaming that puts players and creators first and makes gaming safe, inclusive and accessible to all,” Microsoft Chairman and CEO Satya Nadella said.

Incentives to Settle

Activision is facing lawsuits from California’s Department of Fair Employment and Housing, the federal U.S. Equal Employment Opportunity Commission, and shareholders, as well as a Securities and Exchange Commission investigation. The DFEH is also contesting a decision blocking it from intervening in an $18 million settlement between Activision and the EEOC.

The purchase price of $95 per share likely gives the claimants who are seeking favorable settlements in the various lawsuits against Activision leverage as well, said Olivarius. “It may make a positive difference for the size of the potential settlement.”

Hoeg, in Michigan, said the lawsuits themselves could have paved the way for the acquisition talks.

“You could speculate that Microsoft bought into the low market value,” Hoeg said. “If you look at the price they’re paying, $95 per share, that’s pretty equivalent to Activision’s stock price at the height of the lockdown video game boom, before all of the legal troubles started.

“Presumably, Microsoft thinks it can cleanse Activision of most of its baggage and get ‘Call of Duty,’ ‘World of Warcraft’ and ‘Candy Crush’ without all of the culture issues depressing its value,” he added.

‘Adult in the Room’

Microsoft also brings a more established and diversified voice to the table as Activision and regulators work to resolve workplace issues and the lawsuits over sexual harassment, Hoeg said.

Microsoft is older than most gaming studios, and has a breadth of experience dealing with lawsuits, government agencies, and other legal and regulatory challenges, he added.

“Microsoft is the adult in the room that’s been through all this,” said Hoeg. With Microsoft at the negotiating table, “you’re probably not getting an angry fiery letter after a lawsuit from California, even though Microsoft has had its run-ins with all sorts of laws.”

In addition to resolving the legal claims outstanding against Activision, Microsoft also faces the prospect of an intensive review from the Biden administration’s antitrust regulators.

The acquisition announcement comes at an interesting time, with Biden officials looking hard at antitrust issues in Silicon Valley, and Microsoft itself facing questions about its sexual harassment policies, said Olivarius.

Microsoft earlier this month said it had hired law firm Arent Fox LLP to review the company’s sexual harassment and gender discrimination policies, and to review a 2019 board investigation into co-founder Bill Gates over allegations involving his interactions with a female employee.

As Microsoft moves to close the deal and win public support and regulatory approval, how it handles the Activision suits and the assurances it offers to ensure problems with workplace sexual harassment at the unit are addressed will be closely watched.

Microsoft in past acquisitions has emphasized autonomy, said Hoeg, who predicted a different tack on the Activision deal.

“I suspect Microsoft is going to take a heavier hand, and that’s where they see the value proposition.”

To contact the reporter on this story: Maeve Allsup in San Francisco at

To contact the editors responsible for this story: Meghashyam Mali at; Jay-Anne B. Casuga at