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From Antitrust Law Daily, March 19, 2018

Trial starting this week in Justice Department’s case against AT&T/TWI merger

By Peter Reap, J.D., LL.M.

The trial in the Justice Department’s attempt to block AT&T, Inc.’s proposed acquisition of Time Warner, Inc. (TWI), kicked off this week. The agency is challenging the acquisition, arguing that it would lead to American consumers "paying hundreds of millions of dollars more than they do now to watch their favorite programs on TV" and that the "development of emerging competition will slow down." Many observers see more at stake in the high profile litigation than just the amount consumers pay for cable television service, predicting that the outcome of the litigation could either strengthen or weaken the Justice Department’s antitrust regulation efforts for many years to come.

Joint statement on the burden of proof. In the Joint Statement on the Burden of Proof at Trial, filed last week, the Justice Department agreed with the defendants that, in a vertical merger case, there is no "shortcut" way to establish anticompetitive effects, as with horizontal mergers. "Rather, the government must prove its prima facie case by a fact-specific inquiry into whether there is an appreciable danger of anticompetitive effects," according to the agency. If the defendants try to show that the merger is justified as a result of pro-competitive efficiencies or synergies, they will have an uphill climb, according to the agency, which noted that no court has ever found efficiencies that justified the anticompetitive effects of a merger.

Stating their positions on the burden of proof, the defendants emphasized that the government must show that the acquisition is likely to substantially lessen competition. They argued that the government must account for the pro-competitive synergies and efficiencies in carrying its burden of proving the merger is likely to substantially lessen competition. The defendants also quoted from the Justice Department’s own 2011 policy guide to merger remedies, stating that "[a]ny equitable remedy chosen to address a violation of the antitrust laws should ‘preserve the efficiencies created by a merger, to the extent possible, without compromising the benefits that result from maintaining competitive markets.’"

Justice Department trial brief. In its brief filed on March 9, the Justice Department cited statements by AT&T prior to its agreement with TWI that vertical integration of programming distributors and content producers create the incentive and ability for the integrated company to use its "control as a weapon to hinder competition." Directv, before its acquisition by AT&T, made similar arguments, the Justice Department said.

The Justice Department said that these previous concessions by AT&T and DirecTV regarding the potential for vertical integration of programming and distribution to harm consumers and competition "will be backed up and reinforced at trial by confirming evidence — internal documents from the files of defendants and others, informed opinions from expert witnesses who have carefully studied the industry generally and this transaction in particular, and, most importantly, multiple knowledgeable industry participants who work in the marketplace day in and day out. Thus, expertise and real-world experience alike will demonstrate that this proposed transaction poses an unacceptable threat to competition and consumers."

Defendants’ trial brief. In their own pretrial brief, AT&T, DirecTV, and TWI said, "Modern antitrust law recognizes that mergers between suppliers, such as Time Warner, and distributors, such as AT&T, almost always create efficiencies and synergies that lead to lower consumer prices and greater innovation. For these reasons, as the government itself has explained, such vertical mergers ‘should be allowed to proceed except in those few cases where convincing, fact-based evidence relating to the specific circumstances of the vertical merger indicates likely competitive harm,’" citing a note submitted by the U.S. delegation to the Organisation for Economic Co-operation and Development Competition Committee in 2007. "There is no fact-based evidence that this merger will harm competition. Nothing will be withheld from competitors; consumer prices will not go up. To the contrary, the government now concedes it would not be profitable for the new company to withhold its television networks from pay-TV distributors and that the new company’s prices to its own television customers will go down. As a result, the government’s suit to block this merger is not only baseless in fact, but it is affirmatively contrary to consumer welfare, making it difficult for the government even to allege a viable antitrust claim, much less prove one," the companies said.

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

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