Court Urged to Clear Way for AT&T-Time Warner Merger

WASHINGTON (CN) – AT&T accused the Justice Department Thursday of mischaracterizing and ignoring key findings by the judge who cleared the way in June for telecom giant’s $85 billion buyout of Time Warner.

Encouraging the D.C. Circuit to reject an appeal of that ruling by the Justice Department, attorneys for AT&T described the government’s arguments as “both narrow and fragile.”

Filed by attorney Peter Keisler with Sidley Austin, the 71-page brief argues that the government failed to prove the deal would harm competition or consumers over six weeks of trial.

U.S. District Judge Richard Leon strongly agreed, approving the merger in June without any preconditions after the government had asked the court to block the deal outright. The companies consummated the deal shortly thereafter.

Attorney Keisler has not responded to a request for comment, but AT&T General Counsel David McAtee issued a statement this afternoon. “We were pleased to respond to the government’s opening brief and look forward to oral argument,” he said.

The government’s appeal hinges on showing that Leon made erroneous factual findings in the first antitrust case the government has brought against a vertical merger in four decades.

Most antitrust suits target horizontal mergers involving competing companies, but the AT&T-Time Warner deal combines two companies inhabiting different parts of an industry – the former’s distribution network with the latter’s content.

Leon was not persuaded by the government’s bargaining theory, which claims that the merged company will be able to extract higher prices from distributors during carriage negotiations by threatening to blackout popular Turner Broadcasting networks, like TNT, TBS and CNN.

Persuaded by the defense, Leon cast doubt on the model used by the government’s key economic expert witness to determine that consumers would shoulder price increases of up to $571 million.

Experts for AT&T and Time Warner argued that this theory failed to account for real-world conditions, including existing contracts that include no-blackout commitments, as well as AT&T’s offer to enter baseball-style arbitration with distributors if pricing disputes emerged during negotiations.

AT&T argued Thursday that the government “has no plausible basis” to challenge Leon’s conclusion that the model used inflated margins, diversion and subscriber loss rates. As to Leon’s finding that the government disregarded existing licensing agreements, AT&T says this point was simply ignored.

The government ultimately predicted overall retail price increases for consumers of 0.2 percent, but AT&T says that the input errors alone are adequate grounds for the D.C. Circuit to affirm Leon’s ruling.

“Correcting any of those errors nullifies (or all but nullifies) DOJ’s projected 0.2% increase in overall retail prices,” the brief says (emphasis in original). “Correcting them all produces a predicted overall retail price decrease greater than DOJ’s projected increase.”

The brief also resurrects the issue of whether politics played a role in the Justice Department suing to halt the merger. Leon had blocked defense attorneys from probing the matter, but AT&T wasted no time Thursday reminding the D.C. Circuit that President Donald Trump criticized the deal openly.

“The Department of Justice’s suit to block the transaction was the United States’ first litigated challenge to a vertical merger in four decades, prompting many press outlets to question whether the White House had improperly influenced DOJ’s decision to bring the case,” the brief says.

Trump has been a frequent critic of CNN, one of the channels owned by Turner Broadcasting Networks, which is under the Time Warner umbrella.

Delving deeper into the issue, AT&T shot back at the government’s assertion that U.S. District Judge Richard Leon had developed a penchant for ruling against prosecutors on procedural issues.

“Defendants sought discovery on whether political animus against CNN unconstitutionally influenced DOJ’s decision to sue rather than negotiate a consent decree like the one DOJ found sufficient in Comcast-NBCUniversal,” the brief says. “But the district court barred that discovery at DOJ’s behest.”

The brief contains a footnote with an excerpt from a speech Trump gave the day the merger was announced.

“As an example of the power structure I’m fighting, AT&T is buying Time Warner and thus CNN, a deal we will not approve in my administration because it’s too much concentration of power in the hands of too few,” Trump had said.

Trump’s campaign followed his comments up by characterizing CNN as “wildly anti-Trump,” according to the brief.

The government took its antitrust case against AT&T and Time Warner to the D.C. Circuit in July, arguing that the District Court had relied on faulty logic in determining the deal would not harm competition.

The D.C. Circuit has agreed to expedite the case. Final briefs are due by Oct. 18, but oral arguments have not yet been scheduled in the case.

The Justice Department did not immediately respond to a request for comment.

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