Pressure on DOJ, AT&T/TW to Settle, but Likelihood Up in Air

DOJ and AT&T have big motivations for settling the agency's lawsuit to stop the takeover of Time Warner, and doing so could depend on Justice flexibility, antitrust experts told us. Whether the sides are still discussing a settlement isn't clear as neither commented, with no consensus among antitrust experts about the likelihood. Meanwhile, the Brookings Institution Friday recommended antitrust enforcement reforms.

Neither side mentioned settlement in a status conference Friday before U.S. District Judge Richard Leon of the District of Columbia. DOJ antitrust attorney Craig Conrath said discovery is ongoing and depositions have started. AT&T/TW outside counsel Dan Petrocelli of O’Melveny said the two sides combined have a preliminary witness list of 57.

Once DOJ files suit to block a proposed deal, there usually isn't much settlement discussion except possibly as the trial date nears, said George Hay, Cornell Law School professor. Neither side commented.

There likely wouldn’t be settlement talks now, a cable lawyer with M&A experience told us. It was apparent from public statements that a big effort took place before the lawsuit to see if there was a route to compromise, but nothing has changed that would suggest a deal is any closer, the lawyer said.

But it would be surprising if there aren't still settlement talks, said antitrust lawyer Ethan Glass of Quinn Emanuel. While both sides have staked out positions, "it's a terminology issue," with structural and conduct remedies often overlapping, Glass said. The department's 2010 Ticketmaster/Live nation consent decree included the requirement Ticketmaster license its technology for several years to another ticketing firm -- which could be characterized as both structural and behavioral, Glass said: "There is always a lot more nuance to this than 'that's clearly structural or clearly conduct.'"

Justice and the defendants see high risks with litigation since either side could lose everything, an antitrust lawyer noted. Cases that go to trial tend to be ones where there's a fundamental difference between how the two sides see the world, the lawyer said.

Very few acquisition cases end up going to trial, Hay said. Of the 1,500 deals a year big enough to warrant DOJ notification, about 3 percent receive a second request for data, with Justice subsequently clearing half of those, Hay said. Of the rest, parties in most cases walk away from the deal, and a handful of transactions in any given year end up in litigation, Hay said. A chief reason is that existing antitrust case law "is very, very DOJ friendly," Hay said, saying Justice guidelines are more amenable than the case law to mergers.

Whether Justice and the defendants can agree will depend largely on whether DOJ will accept some behavioral conditions -- which could be a challenge since antitrust chief Makan Delrahim voiced antipathy to behavioral conditions (see 1711160056), Hay said. The agency might worry that a ruling in AT&T's favor by U.S. District Judge Richard Leon of Washington could establish broad precedent for vertical deals going through, Hay said. AT&T almost surely would agree to behavioral terms like nondiscriminatory requirements, so "the ball really is back to DOJ," he said.

Most federal judges don’t see it as their role to create conditions and typically don't try to engineer a settlement, though they might encourage parties to settle, an antitrust lawyer said. Once Comcast and DOJ worked out a settlement in the MVPD’s buy of NBCUniversal, they revisited it after a rebuke from Leon (see 1107290089). Congress said the judge isn't to be a rubber stamp and under the Tunney Act should independently assess proposed settlements to see if they are in the public interest, but judges give substantial deference to DOJ, the expert said, saying it's not common for a judge to question a settlement the way Leon did in Comcast/NBCU.

The effectiveness of the Comcast/NBCU conditions could be a significant issue in AT&T/TW, said antitrust lawyers who represented clients in Comcast/NBCU. There hasn't been any public evidence suggesting those conditions weren't effective, one such lawyer said, saying even a behavioral consent decree can make a sizable difference in a company's behavior.

AT&T "was completely justified" in being surprised at DOJ objections, since the agency hasn't actively enforced antitrust regulations on vertical deals in recent years, said paper co-author William Galston of the Brookings Institution’s Governance Studies Program. Updated guidelines on vertical mergers would have likely meant the deal being structured differently, or not even pursued, since DOJ's position would have been clearer from the beginning, Galston told us. Delrahim has “a reasonable position but not one that was foreshadowed in any way," he said.

Brookings said there has been a massive wave of consolidation since 1980 -- with the Fortune 100s share of gross domestic product over the past 20 years going from 33 to 46 percent -- and a corresponding decline in competition. It recommended a lower threshold at which prospective deals are subject to rigorous regulatory scrutiny and making approvals conditional and reversible if subsequent evidence shows anticompetitive effects. It said non-horizontal mergers shouldn't be presumed to be pro-competitive and the combining parties in non-horizontal deals should have the burden of proof of demonstrating pro-consumer effects. It urged creation of an enforcement regime to tackle predatory pricing and reinstatement of the rule allowing automatic appeals of district courts' antitrust decisions to the Supreme Court as a means of reducing the cost of antitrust enforcement.