On June 12, 2018 the District Court for the District of Columbia released the much anticipated opinion in the AT&T and Time Warner merger case. United States v. AT&T Inc., et al., No. 17-2511 RJL (D.D.C. 2018). Justice Richard Leon approved the historic “marriage” in a 172 page opinion that was rife with exclamatory statements, much to the Government’s chagrin.
In this case, the Government sought to enjoin the merger based on Section 7 of the Clayton Act, 15 U.S.C. § 18. Section 7 prohibits “acquisitions, including mergers, ‘where in any line of commerce or in any activity affecting commerce in any section of the country, the effect of such acquisition may be substantially to lessen competition.’” The Government claimed, in essence, that permitting AT&T to acquire Time Warner would likely substantially lessen competition in the video programming and distribution market nationwide by enabling AT&T to raise its rivals’ video programming costs or drive them to use DirecTV.
Defendants’ viewed the proposed merger as an essential response to Netflix, Hulu and Amazon, who are threatening the amount of traditional video subscribers Defendants’ could retain, and the value of television advertisements. By acquiring Time Warner, AT&T executives testified that the company will gain access to high-quality content and an extensive advertising inventory. In addition, Defendants claimed that the merger will increase not only innovation but competition in this marketplace for years to come by allowing AT&T to more efficiently pursue what it sees as the future of video programming and distribution: increased delivery of content via mobile devices.
The Court concluded that the Government had failed to meet its burden to establish that the proposed transaction is likely to lessen competitions substantially. Lacking any modern judicial precedent regarding vertical merger challenges (the Antitrust division hasn’t tried a case in four decades) Justice Leon found that evidence indicating defendants recognition that it could possibly act in accordance with the Government’s theories of harm is a far cry from evidence that the merged company is likely to do so. The Court found the Government’s expert, Professor Shapiro, unpersuasive. Specifically, the Court chastised Shapiro’s “bargaining model” saying that it “lacks both reliability and factual credibility and thus fails to generate probative predictions of future harm associated [with the merger].” In its concluding paragraphs, the Court announced that “the defendants have won” but goes on to warn the government of the irreparable harm that could result in an appeal of this decision – a $500 million breakup fee AT&T would owe Time Warner if the merger did not go through by June 21, 2018. Justice Leon notes that he “hope[s] and trust[s] that the Government will [exercise] good judgement, wisdom and courage to avoid such a manifest injustice but in his own words; “[T]he process is not quite over yet!”