Feds Lose Bid to Block AT&T-Time Warner Merger

(AP Photo/Mark Lennihan, File)

WASHINGTON (CN) – The D.C. Circuit on Tuesday upheld AT&T’s $85 billion purchase of Time Warner, bringing to a close the government’s effort to stop the blockbuster merger.

“Because the district court did not abuse its discretion in denying injunctive relief … we affirm the district court’s order denying a permanent injunction of the merger,” the 35-page opinion says.

U.S. District Judge Richard Leon had approved the merger last June, following a six-week trial in one of the most high-profile vertical merger cases the Justice Department had litigated in decades.

Leon strongly rejected the government’s theories of the case, including an economic model from a key witness who testified that the merger could lead to increased prices for consumers.

Key to the government’s argument was its theory that the merger would give AT&T increased leverage over competitors during carriage negotiations, including the ability to black out or demand higher prices for popular Time Warner-owned Turner networks like CNN, TNT and TBS.

On appeal, the government argued that the district court had misunderstood key economic principles in its analysis of the alleged anticompetitive effects of the merger.

But a unanimous three-judge panel of the D.C. Circuit found the argument unpersuasive Tuesday, saying the government failed to counter evidence AT&T presented during trial that showed vertical mergers within the industry had “no statistically significant effect on content prices.”

The panel also noted that the government had no answer for why it failed to account for AT&T’s offer to enter “baseball-style arbitration” over pricing disputes – in which each party submits a proposed monetary award and the arbitrator chooses one award without modification – along with already existing no-blackout arbitration agreements. 

Tuesday’s opinion states that AT&T had represented that its arbitration offer, which it extended for seven years, is legally enforceable.

“Consequently, the government’s challenges to the district court’s treatment of its economic theories becomes largely irrelevant, at least during the seven-year period,” U.S. Circuit Judge Judith Rogers wrote.

Rogers was joined on the panel by U.S. Circuit Judges Robert Wilkins and David Sentelle.

During trial, University of California, Berkeley economics professor Carl Shapiro had acknowledged that a new economic model would be required to account for the arbitration offer.

The appeals panel said the no-blackout arbitration agreements essentially invalidate the government’s argument that Turner would have increased bargaining leverage.

The Justice Department and AT&T did not immediately respond Tuesday to a request for comment.

Gigi Sohn, a distinguished fellow with the Georgetown Law Institute for Technology Law and Policy, said the ruling shows that merger guidelines need reform.

“It has become nearly impossible for the government to meet its burden of showing that a merger violates the antitrust laws, especially when it comes to vertical mergers,” Sohn said in a statement.

She urged Congress to pass the Consolidation Prevention and Competition Act of 2019, which she said would place the burden on merging parties to demonstrate a lack of anticompetitive harm, and would change the standard for illegal mergers to ones that are materially likely, rather than substantially likely, to reduce competition. 

Sohn added that the D.C. Circuit’s opinion “also validates the need for the Justice Department to update its vertical merger guidelines, which as the court noted, are 35 years old and grossly outdated.”

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