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From Antitrust Law Daily, December 6, 2018

U.S. faces uphill battle to overturn decision in AT&T-Time Warner merger challenge

By Jeffrey May, J.D.

Department of Justice attorney Michael F. Murray faced tough questioning from a panel of federal appellate court judges today as he attempted to persuade the District of Columbia Circuit to overturn a district court’s decision dismissing the government’s challenge to the combination of AT&T Inc. and Time Warner Inc. Judges Judith W. Rogers, Robert L. Wilkins, and David B. Sentelle heard from Murray and Sidley & Austin’s Peter Douglas Keisler, counsel for AT&T, as well as representatives of groups of scholars supporting each side. The judges seemed skeptical of the government’s contention that the district court’s decision to allow the vertical merger to proceed was clear error but also appeared concerned about the decision’s impact on future merger enforcement and the telecommunications industry (U.S. v. AT&T Inc., Case No. 18-5214).

In June, Senior District Judge Richard Leon of the U.S. District Court in Washington, D.C. rejected the Justice Department’s attempt to block the transaction. Among other things, the government unsuccessfully argued that the acquisition would likely result in a substantial lessening of competition by enabling Time Warner’s Turner Broadcasting cable network to charge AT&T’s rival distributors—and ultimately consumers—higher prices for its content. Rival distributors could be threatened with blackouts if they did not pay higher prices.

Much of today’s argument focused on whether the threatened future harm based on Turner’s leverage with rival distributors was negated by commitments made by Turner to arbitrate disputes. During the argument, Keisler contended that Turner had relinquished the source of its leverage to extract higher prices by taking the threat of a permanent black-out off the table when resolving disputes with distributors through the arbitration agreement. "We’re judicially estopped from not honoring" the agreements. The government remained concerned that there was no finding as to what the real-word impact of the arbitration agreements will be and that the agreements were solely private pacts.

Judge Rogers expressed concern about the lower court’s references to savings to consumers resulting from the merger. The lower court opinion, for instance, stated that the merger would result "in $352 million in annual savings for DirecTV's customers." The government argued that the figure represented savings to AT&T and that the court should have focused on savings passed on to customers. In questioning, the government’s attorney would not state that this was sufficient grounds for remand. However, Murray did call the reference potentially problematic in rebuttal.

The government argued that letting the district court’s decision stand will have wide-ranging consequences. According to the government, the $108 billion merger will shape the industry for decades to come. Thus, the district court's decision clearing the deal should be free of inconsistencies, Murray argued.

This case is about very specific evidence, said AT&T’s attorney. If this case is affirmed, it is not going to prevent the government from bringing factually-supported cases in the future, Keisler added.

Attorneys: Michael F. Murray for U.S. Department of Justice. Peter Douglas Keisler (Sidley Austin LLP) for AT&T, Inc. and DirecTV Group Holdings LLC.

Companies: AT&T Inc.; Time Warner Inc.

MainStory: TopStory Antitrust AcquisitionsMergers AntitrustDivisionNews DistrictofColumbiaNews

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