DC Circuit Judges Question at Length DOJ Case in AT&T/Time Warner Appeal

Challenging DOJ on multiple fronts, the three-judge U.S. Court of Appeals for the D.C. Circuit panel hearing oral argument Thursday on the antitrust challenge to AT&T buying Time Warner showed skepticism. "You have to put in some evidence beyond just an economic theory," Judge Judith Rogers said. A former DOJ antitrust trial lawyer told us that since the decision likely will affirm U.S. District Judge Richard Leon's June decision allowing the merger (see 1806120060), it could come within a month or two.

Judges had some challenges for AT&T. Robert Wilkins called it "troubling" Leon seemingly assumed AT&T savings will be passed on to consumers.

Asked about how to account for what was a changing media market, Antitrust Deputy Assistant Attorney General Michael Murray acknowledged "the industry is evolving." DirecTV is still the "cash cow" AT&T has incentives to protect, he said. Predicting New AT&T wouldn't use TW and DirecTV combined to try to maximize profit means the company willingly would "leave money on the table" in negotiations, he said.

Murray and Judge David Sentelle went back and forth repeatedly over how DOJ looked at the maximization in which new AT&T would engage. Murray said DOJ wasn't arguing there would be more TW blackouts but that the threat of such blackouts will let TW hike programming prices. An empty threat of blackouts won't amount to anything, Sentelle said.

Murray and Wilkins clashed over whether Leon's decision finds AT&T's arbitration offer makes blackouts not feasible. Wilkins said Leon's decision seems to conclude the arbitration offer is "real, tangible, enforceable" and would affect the market. Not enough language in the opinion supports that conclusion, Murray said. Wilkins said DOJ ignores the existence of the arbitration terms when it argues that post-transaction the threat of blackouts doesn't change. Murray said AT&T is elevating footnotes by Leon about the arbitration offer when they "played a bit part" in the lower court's decision.

Wilkins asked Murray about the feasibility of a court estoppel forcing New AT&T to honor the arbitration offer terms. Murray said there are other problems with the arbitration offer, such as that, unlike the arbitration terms in the Comcast/NBCUniversal consent decree, New AT&T wouldn't be bound by FCC oversight.

Asked by Rogers about Leon's assertion that even if one accepts the agency's bargaining model and ignores the arbitration terms, Justice still didn't show net retail prices will increase because of the deal, Murray said government doesn't have to quantify the harm, just show the threat is there. Sentelle and Murray seemed to disagree whether the government had a quantification burden, with Murray saying there was no quantification in Anthem's failed bid for Cigna or in Brown Shoe. Replied Sentelle, "You have to have some numbers."

When Rogers said Leon's decision laid out why he rejected some DOJ expert testimony, Murray replied they were the kind of evidence government puts on frequently.

Leon's rationale for rejecting the Nash bargaining model is legally and economically wrong, especially when it ignores or misunderstands that the model predicts blackouts will be very rare, said Eric Citron of Goldstein & Russell, representing 27 law professors in support of the department (see 1811260029). The bigger issue is "the stakes of failing to agree, not the odds of failing to agree," he said. Stakes for Turner decreasing post-merger because a blackout at another MVPD could help AT&T's DirecTV pick up new customers from that rival MVPD, Citron said. He said before arbitration terms are accepted as a balm to fix antitrust concerns, they must be "ironclad" and irrevocable.

AT&T outside counsel Peter Keisler of Sidley said arbitration terms negate the focus Murray and Citron put on the threat of a blackout, since Turner "truly can't walk away now." Asked by Rogers what guarantees that AT&T won't modify the arbitration terms or end it, Keisler said, "We don't make an offer like this .. with our fingers crossed." He also said the arbitration offer makes DOJ's economic model moot since it didn't account for the arbitration terms. Keisler said there also were problems with that model and its predicted price hikes being way out of line with past vertical transactions. He said an affirmation of Leon's decision would reinforce that litigation models have to be shown to be valid, and there's not just an assumption they are.

"The facts just weren't here," said appellate lawyer Andrew Pincus of Mayer Brown, representing 37 amici economists backing AT&T (see 1809270004). He said Leon's decision didn't make broad statements on economic theory but narrowly ruled on the facts. He said DOJ should have considered the FCC's program access rules, plus how arbitration agreements and most-favored nation clauses have worked out in other programming negotiations.