From 'Cabined' Decision or Greenlight, Divided Views Seen on AT&T/TW Outcome

The U.S. District Court decision last week greenlighting AT&T buying Time Warner (see 1806120060) was center stage at a Technology Policy Institute event Tuesday, with some experts saying it paves the path for more vertical deals, and others questioning its antitrust significance. If the government had prevailed, regulatory approval of deals like Comcast/Fox or Disney/Fox would have been more a question mark, but the decision's emphasis on empirical analyses helps such cases, said Christopher Yoo, University of Pennsylvania Law School Center for Technology, Innovation and Competition director.

Judge Richard Leon's decision will likely end up "cabined in its scope and reach," and future parties in vertical mergers won't look to it for support since it says little of consequence about law and economics and is focused on a very specific fact pattern, said American Antitrust Institute President Diana Moss. She criticized it as "riddled" with inconsistencies, errors and misunderstandings about antitrust. She was critical of the decision taking a broader definition of relevant markets than even DOJ and the companies had agreed to. The decision never questions the notion that efficiencies ascribed to the deal could be had by other means, such as contracts, she said. The ruling emboldens future transactions by putting an outsized burden on the plaintiff to show anticompetitive behaviors are certain or probable, she said, saying it's "troubling" Leon didn't buy into the common-sense idea the companies will have motive and means to jointly maximize revenue and instead took at face value defendant assurances they will operate separately.

The ruling was "very cautious," which reflects that any big changes in merger law will have to come from Congress, not the courts, said William Kovacic, George Washington University Competition Law Center director and former FTC chairman. He said the decision goes into DOJ's economic modeling "in exacting detail," making it easy to imagine another judge could have found the model convincing and ruled differently. He said if there's a lesson from the trial, it's that a defendant should "expand the circle" when defining the affected market and that incumbent products don't necessarily represent where the market's going.

Leon didn't dismiss the government's bargaining theory, but the role of anecdotal evidence took "a huge hit," with the jurist seemingly brushing DOJ anecdotal evidence aside and giving the companies' anecdotal evidence "a wholesale lovefest," Moss said. Yoo disagreed, pointing to Leon citing anecdotal evidence that backed up the companies' case.

AT&T's win wasn't unexpected, though the length and tone of the decision "might be on the heavier side" than anticipated, Yoo said. He said that during the trial, it became clear the importance of empirical analysis over theory, and DOJ's model was very sensitive to small changes in the assumptions -- a natural characteristic of theory models. Potential harms are easy to hypothesize, and the decision took a disciplined look at whether those are provable, Yoo said.

It's not that the decision threw out DOJ's bargaining leverage theory but "facts matter" in proving it, said Tim Brennan, University of Maryland-Baltimore County professor of public policy and economics and former FCC chief economist. He said Leon's decision was predictable in part because the lack of credibility of the threat of TW content being withheld.

DOJ staffers he talked with knew the trial hadn't gone well and anticipated that kind of ruling, said Kovacic. He said the lack of new national merger jurisprudence is "astonishing." The rise of settlements has frozen Supreme Court doctrine in place, added Yoo.

If antitrust prosecution is ultimately for consumer benefit, with such cases to involve primarily strong economic analyses, DOJ's lawsuit to block AT&T's Time Warner buy "was a shambles," Corbin Barthold of Washington Legal Foundation blogged Tuesday. Aware its case against the deal was weak, Justice "resorted to legalistic maneuvering and chicanery," playing up internal communications of lower-level employees and misleadingly characterizing past TW actions, he said. The ruling in favor of allowing the deal "is an occasion for blushes at the Justice Department," he said. American Enterprise Institute adjunct scholar Bronwyn Howell blogged that the ruling shows the strength of the U.S. antitrust approach of analyzing outcomes in markets facing uncertain futures vs. the more restrictive approaches taken by New Zealand or Europe. New Zealand in 2017 blocked a Vodafone/Sky deal because of that nation's "extremely precautionary line being taken with regard to uncertainty," chilling transactions and reducing the incentives for innovation, she said.

Leon's decision was "one of the worst antitrust opinions I’ve ever read," Cleveland State University law professor Chris Sagers blogged Tuesday, noting a "rambling stream of factual reasoning didn’t make sense and several times seemed obviously wrong." He said it was "obsessively, relentlessly, lopsidedly predisposed against the government" by insisting on an extraordinary burden of proof. The fault lies not with Leon but with the "extravagant burden of proof" created in the U.S. Court of Appeals for the D.C. Circuit's 1990 U.S. vs. Baker Hughes. He said the department's loss means a path is greased for more vertical combinations without parties having to agree to behavioral conditions since defendants will be emboldened to fight a DOJ challenge.