Microsoft and a UK regulator have been granted more time to resolve Activision merger issues

Microsoft and the UK's antitrust regulator have conditionally been granted a two-month pause on their legal battle as the company looks to resolve the Competition and Markets Authority's (CMA) concerns over its proposed $68.7 billion acquisition of Activision Blizzard. Judge Marcus Smith of the Competition Appeal Tribunal (CAT), which hears appeals on the CMA's decisions, wants proof from the watchdog that this is the right course of action, but still paused the legal battle for now.

Smith wants the CMA to justify its adjournment application by providing evidence that shows a material change in circumstances or "special reasons" for delaying the litigation. He also wants the regulator to detail any new consultation process it plans to undertake "so that everybody is clear as to how it will work," according to Reuters. The judge asked the CMA to submit evidence on Thursday.

Microsoft appealed the CMA's decision in April to block the merger over cloud gaming concerns. The CAT was due to hear that case starting on July 28th. However, shortly after the Federal Trade Commission lost an attempt to stall the acquisition in the US last week, the CMA said it would consider a modified merger agreement from Microsoft. The CMA, Microsoft and Activision all asked the CAT for more time and the tribunal has granted the request.

CMA lawyer David Bailey told the CAT that the FTC's court loss "formed no part of the CMA's thinking" in terms of its willingness to review a new proposal from Microsoft. "Based upon the discussion to date, both sides — Microsoft and the CMA — have confidence that Microsoft notifying a restructured transaction is capable of addressing the concerns that the CMA has identified," he said.

It emerged during Monday's hearing that Microsoft has yet to submit an amended proposal to the CMA, even though the deadline for the merger is tomorrow, July 18th. It seems unlikely that everything will be resolved by then. If not, Microsoft and Activision will either have to agree to an extension of their current agreement (the most likely outcome given how eager they are to get the deal over the line) or renegotiate terms. Otherwise, Activision can walk away from the deal with a fat $3 billion breakup check from Microsoft in its pocket.

“We’re grateful the UK’s Competition Appeal Tribunal has conditionally agreed to pause the formal appeal process subject to additional information," a Microsoft spokesperson told Engadget. "As we’ve said before, we are considering how the transaction might be modified to address the CMA’s concerns. Microsoft and Activision Blizzard have agreed with the CMA that this is in the best interest of finding a prompt path forward.”

Reports have suggested Microsoft may sell some cloud gaming rights in the UK to satisfy the CMA's concerns. Microsoft has signed deals with third-party cloud gaming companies to offer its games on their platforms, which was enough for the European Union to approve the merger.

Meanwhile, the FTC is still slated to hold its own evidentiary hearing over the acquisition starting on August 2nd. The agency sued to block the merger and it sought a preliminary injunction to prevent Microsoft and Activision Blizzard from closing the deal until it could bring the case to trial, but it was unsuccessful.

As such, Microsoft and Activision will surely be eager to seal things up by the beginning of August. There were suggestions that they'd try to close the merger by the initial deadline despite the CMA dispute and find a workaround to keep doing business in the UK, but with all parties willing to find an amicable resolution, that seems unlikely at this point. The CMA has given itself an extra six weeks, until August 29th, to make a final decision on the case.

Update 7/18 9:18AM ET: Added Microsoft's statement.