Judicial Weighing of AT&T/TW Economic Predictions the '$64,000 Question'

Faced with competing scenarios of what happens to consumers and the video market if AT&T and Time Warner combine, the judge overseeing U.S. v. AT&T and TW is likely trying to see which set of predictions best lines up with the facts, experts told us. How U.S. District Judge Richard Leon of Washington weighs DOJ and AT&T/TW economic expert predictions is "the $64,000 question," emailed Konkurrenz Group founder Allen Grunes. DOJ expert economist Carl Shapiro (see 1804110025) and companies' expert economist Dennis Carlton (see 1804120023) testified last week.

Shapiro and Carlton "have impeccable credentials," so Leon's decision is whether their testimony is consistent with the rest of the evidence, such as the documents and what executives testified, said Cornell Law School professor George Hay. Hay said judges can take a dislike to a particular expert if there's been an inconsistency between that testimony and what the expert said in other contexts, or if the expert is caught in a minor mistake and doesn't acknowledge it. But those scenarios don't seem at play in AT&T, he said.

Hay said there's "tension" around the idea of whether the MVPD or programming arm of New AT&T would take the other into account when doing deals. Shapiro's model assumed they would, and Leon seemed uneasy that Shapiro's model wasn't in accord with the testimony, Hay said. He also said Shapiro's findings rely on other witnesses, and if their assertions are shaken, that puts Shapiro on shaky ground, too.

Judges ultimately give more weight to the expert they believe made the more convincing interpretation of the case's theory and facts, emailed William Kovacic, director, George Washington University Competition Law Center. That is "very strongly" a judgment call, he said. Sometimes, the contrasting expert interpretations "simply cancel each other out," but other times, the judge concludes that one expert's interpretation is more persuasive and cites that expert as supporting the result in the judge's decision, he said.

Shapiro played a major role in a judge's 2014 decision agreeing with DOJ that online review company Bazaarvoice's proposed buy of competitor PowerReviews could hurt competition. U.S. District Judge William Orrick of San Francisco said both sides' analyses had "unavoidable flaws," but Shapiro's approach was more persuasive. The decision at length recapped both Shapiro's assertions, plus those of Bazaarvoice expert economist, Ramsey Shehadeh. The decision repeatedly cited Shapiro's findings.

Courts "have really been all over the map" in weighing competing models in antitrust cases, Grunes said. In a 1997 Staples case, District Court judge said government and defense witnesses largely canceled each other out and relied on other evidence, he said. In a 2007 Whole Foods case, the District Court judge did largely the opposite, relying heavily on the economic evidence and downplaying other evidence, Grunes said, also saying the judge took a middle ground in a 2015 Sysco case.

Hay said judges at times have ignored expert testimony, but in AT&T, the testimony and model are so critical to the Justice case that seems unlikely: "The theory is pretty critical to the case."

Some recent merger case opinions, such as in U.S. v. Anthem and Cigna (see here), signal "a high level of sophistication" by judges on things like market definitions and competitive effects, said Diana Moss, president of American Antitrust Institute, which opposes AT&T/TW. She said a similar grasp should be expected with AT&T since Leon has media merger experience overseeing Comcast/NBCUniversal.

Antitrust circles often talk about "the battle of the models," Moss said, saying there's "no magic criteria" for judges' weighing of the models and evidence and the arguments about the data and assumptions. She said judges sometimes appointed a neutral expert to help weed through those issues. She said the increased efficiencies defense claimed in the transaction is getting increasingly hard to make given high levels of concentration in some markets. She said the judge's assessment of claimed harm to competition vs. claimed increased efficiencies must be put in the context of the markets where the deal is taking place and whether that market is heavily concentrated. She said generally, the more competitive harm or potential harm, the bigger those efficiencies need to be. In the case of New AT&T, "that's a heavy lift" because of the size of the transaction and the limited number of competitors, she said. AT&T/TW counsel asserted throughout trial that New AT&T's relevant market is not MVPDs but the broader video distribution market, also including virtual MVPDs and subscription VOD. "That's Strategy 101 for beating a case against a merger -- convincing a judge this is not a narrow market: 'We compete with everyone,'" Moss said.