Judge Has Numerous Options in AT&T/TW; Companies Likely Winners?

The judge overseeing DOJ's lawsuit seeking to block AT&T's buy of Time Warner has a variety of options other than simply blocking or allowing the transaction, and it's not clear what he will do. Multiple trial watchers told us they believe Justice failed to prove the deal would harm competition. There was no consensus on whether U.S. District Judge Richard Leon's opinion -- whatever it is -- will be appealed.

The judge can order whatever remedies he deems appropriate, antitrust experts said. A former DOJ antitrust lawyer who has been following U.S. v. AT&T/TW said it's within Leon's authority to decide the merger would likely harm competition and the remedy is to modify Turner's arbitration agreement to make it less blind. The judge seemingly was contemplating that option during the trial (see 1804040022). It's not clear what that decree would look like, since AT&T and DOJ aren't in agreement on this, and the judge could very well direct the two sides to come up with the terms and present it to him, the former DOJ lawyer said.

It's more likely the judge will say DOJ didn't meet the burden of proof of its case since there are too many questions about the government's economic model predicting harm and too many ways to turn the predicted harms into consumer benefits by changing some of the variables, the lawyer said. DOJ did a good job showing that negotiations are a balance of power and important content gives a programmer more power, but it didn't succeed in showing that being part of New AT&T also changes that power balance, the lawyer said.

Judges in merger trials usually either let the deal go through or block it, and it would be unusual for a judge to take a middle ground and impose a consent decree, said antitrust expert and lobbyist Seth Bloom. He said it's unlikely the judge, if he found the deal does substantially lessen competition, would opt to order a divestiture, as DOJ floated in its closing arguments Monday (see 1804300020). But Leon "has shown himself to be his own judge" and could opt for ordering new arbitration terms, Bloom said. Leon is "notoriously difficult to predict," but the odds seem to be in AT&T's favor since there are real doubts DOJ met its burden of proof, he said.

AT&T effectively showed the DOJ model's assumptions aren't solid enough to justify confidence it's an accurate predictor, and if DOJ can't prove harm, the companies win, said a former FCC staffer and trial watcher. There was nothing fundamentally wrong with the DOJ theory, but the proof wasn't there, and the government might not have had enough time to pull together the economic support for the perceived harm. the former FCC staffer said. It's not clear how Leon will look at the issue of harm and the arbitration offer -- whether he considers whether the deal as proposed causes competitive harm, as the government argued, or whether the arbitration offer gets considered simultaneously -- the former FCC staffer said, saying arbitration may not come up in his considerations at all, given that DOJ fell short.

The Supreme Court's 1972 Ford decision on the automaker's entry into the spark plug business is often used as precedent for a judge to do whatever is necessary to stop or enjoin a harm to competition, said antitrust lawyer Robby Robertson of Hogan Lovells. In pre-acquisition cases, judges usually "take the easy way out" of blocking the deal as a route to preventing anticompetitive harm, he said. Some critics of the suit argued it's largely unheard of to challenge vertical mergers (see 1711170059), but Robertson said a major motivation for the last Clayton Act revisions, in 1950, was vertical mergers and worries about large conglomerate companies. The previous version of the act referred only to horizontal mergers and acquisition of competitors, he said. But few vertical deals have gone to trial, largely because they're difficult to challenge, he said.

The significance of Leon's ruling on issues like remedies in vertical mergers will depend on what he says in it, said Tim Brennan, public policy and economics professor, University of Maryland-Baltimore County. There's particular concern among antitrust authorities about vertical mergers in healthcare, given that industry's huge role in the economy, and Leon's decision could make bringing cases there easier or harder, said Brennan, a former FCC chief economist.

Given the importance of the case, the losing side is likely to appeal, emailed Michael Carrier, co-director, Rutgers University Institute for Information Policy and Law. Hogan Lovells' Robertson agreed an appeal is likely. But he said the U.S. Court of Appeals for the D.C. Circuit "is a real mixed bag" of judges, with some leaning against antitrust enforcement and others who believe there hasn't been enough. "It's luck of the draw if you get a good panel on either side," he said. Bloom said it would be unusual for DOJ to appeal an adverse merger decision, though the law is more settled for horizontal mergers, so the agency might appeal an adverse decision since this case is precedent-making.

The former Justice attorney said there's a disincentive for the agency to appeal if it loses outright on the harm issue, since it could result in bad case law for vertical mergers since a loss at the appellate level would be binding to District judges in the D.C. Circuit. The D.C. Circuit is also especially important, and what it says will be attended to by other circuits, the lawyer said. Conversely, a loss sets a bad precedent for the district where the government would typically bring the vast majority of its merger challenges, since its staff is there, the lawyer said. If the judge sides with DOJ but orders the modified arbitration terms as remedy, the agency could at least claim victory in a close case, the former DOJ attorney said. The former FCC staffer said if DOJ loses, the decision to appeal is made by the Solicitor General, but that decision will likely reflect whatever recommendation comes from Justice's antitrust division.

Brennan said he had hoped to see the argument brought up that New AT&T's supposed benefit by use of HBO against rival MVPDs through limiting their ability to employ HBO as a promotional tool falls flat against the fact TW hadn't already entered into an exclusive agreement already with any MVPD seeking that benefit.