AT&T, DOJ at Odds Over Who Bears the Burden of Benefit/Harm Proof

DOJ is trying to fit AT&T's buy of Time Warner, a vertical merger, into a horizontal merger hole and put the burden on the defendants to prove the case for why the deal is good, when it's up to the government to prove why it's bad, AT&T/TW outside counsel Dan Petrocelli of O'Melveny said Tuesday during evidentiary hearings on the trial's second day. He said the sides have a fundamental legal disagreement on the issue. DOJ attorney Craig Conrath said New AT&T has both positive and negative competitive effects, but the positive effects are quite small, and AT&T has to show those benefits will reach consumers.

AT&T/TW don't have an efficiencies defense and case law doesn't require providing one in a vertical merger, Petrocelli said. He said the government is trying to argue all it has to prove is that consumers will see higher prices . Petrocelli said there will be higher cosumer prices, but trivial ones of $5 a year. He said while the government can't put the burden of persuasion on the companies, AT&T/TW will still provide "a substantal amount of concrete evidence" of benefits in the form of everything from cost savings to DirecTV subscribers to new and innovative programming types,

Petrocelli aso said the offer of basebal-style arbitration and no blackuots isn't a behavioral conditn but a contractual obligatio. He said 20 small distributors have signed up for such Turner terms so far, with the expcatiaon many more will once the New AT&T deal goes through. Conrath said those 20 acceptances out of 1,000 offer lettrs sent out is a strong sign of "people voting with their feet."

Tuesday's evidentiaary discussions pivoted into each side criticizing how the other sees the video marktetplace and ultimatley the heart of its arguments. Whether Turner can't reach an agreement with a distributor and ends up blacked out as part of Time Warner or as part of New AT&T post merger, "either case is a disaster" for the programmer. He said the market power of the FAANG tech companies -- Facebook, Apple, Amazon, Netflix and Google -- vastly overshadows traditioanl companies like Hollywood studios or even New AT&T, and it's questionable what kind of market power TW has in that new marketplace.

Conrath said while both video programmers and distirbutors lose out in blackouts, the lost subscribers distribtuors suffer is more of a lingering effect than the temporary loss of revenues programmers feel.

The DOJ and . The two sides also spent time going back and forth with the judge about how to handle third-party tesetimony that involves potentially confidential informaiton. Opening arguments and testimony are expected to begin Wednesday.

Among the defense witnesses will be AT&T CEO and Time Warner CEO Jeff Bewkes, Petrocelli said.

Conrath pushed for allowing some third-party witness tesetimony to be held in closed court since the testimony could reveal neogtiation strategies or other busnesss-sensitive informaiotn. He said keepig such testimony inopen court would forestall gettingat details and facts like how New AT&T will affect the competitie landscape and Turner leverage, Petrocelli said he expected very little of what third party witnesses have to say is actually confidnetial -- such as providing financial analysis information -- and is more based on business experience. The need for closed court is "being vastly overstated," he said. Leon said he would prefer a day or two heads up from counsel about a witness coming who would be poentialy speaking about confidental issues.