AT&T Gains Upper Hand On DOJ In Appeals Court Arguments Of Lawsuit Over Time Warner Deal

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A panel of three judges hearing the government’s appeal of its lawsuit aiming to block the AT&T-Time Warner merger peppered a Department of Justice lawyer with critical questions while going notably easier on the attorney for AT&T.

This morning’s nearly two-hour session at the District of Columbia Circuit of the U.S. Court of Appeals, which was live-streamed on the court’s website, included solo appearances by lawyers for both sides as well as two “amici” representatives of antitrust experts.

The U.S. Court of Appeals in Washington.

Representing the DOJ, Michael Murray faced a steady stream of feedback from the bench as he attempted to show that U.S. District Court Judge Richard J. Leon had made clear errors in his June ruling allowing the merger to proceed.

The arguments are a key stage of the appeal in the lawsuit filed in the fall of 2017 aiming to block the $81 billion merger, a deal that was first proposed in October 2016. The judges did not rule at the close of the arguments, but are now expected to take a period of weeks to render their decision. They have several options, including outright affirming Leon’s ruling (meaning the merger would stand) or remanding the case back to Leon (meaning the deal could face more hurdles or even possibly be unwound).

Undoing the deal seems to be a far less likely outcome after the arguments. “The problem is, where was the evidence to show that the district court clearly erred?” asked Judith W. Rogers at one point, before advising Murray, “It’s not enough to cite the principle. You have to show it fits within the context.”

The notion of theory versus empirical evidence cropped up repeatedly in the judge’s questions for Murray. During his initial 20-minute allotment of time, he rarely was able to speak for more than a few seconds at a time before being interrupted. The judges seemed particularly vocal on the matter of whether the DOJ could prevail in its complaint merely by demonstrating that the economic harm is not zero.

“The government had to show that the proposed merger was likely to substantially lessen competition by increasing Turner’s bargaining leverage in affiliate negotiations,” Rogers said. “Some of those adverbs appear to be flying in the face of your statement that if all the numbers aren’t zero, you win.”

Judge David B. Sentelle also scolded Murray for contending that “if the number is anything greater than zero, you’ve carried your burden. That doesn’t follow.” He added, “Remember where the burdens are.” At issue, Sentelle said, was the government’s reliance on the Nash model, which is named after mathematician John Nash, the subject of the book and film A Beautiful Mind, to show how AT&T would use Turner to gouge rivals and therefore consumers. “The bare theorem of John Nash doesn’t prove anything in a particular case,” Sentelle said. “You have to have numbers to make a model work.”

Speaking on behalf of AT&T, Peter Keisler leaned on a key pillar of the defense argument during the trial last spring, emphasizing the seven years of baseball-style arbitration that Turner has offered distributors as a hedge against any potential merger effects. The goal of that offer is to ensure that Turner, working in concert with DirecTV, the No. 1 U.S. satellite distributor, wouldn’t be able to maneuver to punish rivals.

“We will honor it. The other side will invoke it. And it will have real-world effects,” Keisler said of the arbitration plan. And Turner will have “less leverage as a result of a merger.” He added, “That is one thing by itself that should be enough to resolve the case.”

The third judge, Barack Obama appointee Robert L. Wilkins, appeared to be the least openly critical of the government’s case and even suggested to Keisler that the government’s overreach with Nash should not condemn the lawsuit. He was also the only one of the judges to favorably cite the amici curiae brief filed by 27 scholars supporting the DOJ. “Sometimes, lawyers over-try their cases,” Wilkins reasoned in response to Keisler’s assertions. “They go for the belt and suspenders and then the suspenders break and they say, ‘Judge, don’t worry about my broken suspenders. I’ve still got the belt.’ ”

Keisler replied, “This was not a case where the government over-tried its case, your honor. If you take the model out, there is really nothing here that demonstrates anything other than a concern and a theory that there might be increased leverage. There has to be a demonstration of two things: one, a substantial lessening of competition, and two, once the government has conceded significant consumer benefits … then it has to balance the harms against the benefits.”

In his five-minute rebuttal at the end of the proceeding, Murray said, “AT&T is asking the court to make findings that are not there. … There’s no finding about what the real-world effect of the arbitration will be.” Rival distributors testified at trial that the arbitration offer “imposes on the arbitrator a standard of fair-market value” that is difficult to calculate because some pay-TV distributors are national (DirecTV and Dish) and others are regional (cable companies like Charter).

AT&T agreed with the DOJ as a condition of Leon’s ruling to put Turner in a corporate silo separate from DirecTV to avoid any overlaps as the appeal unfolds. The terms of that agreement expire February 28.

Shortly after the arguments concluded, AT&T issued a straightforward statement: “We appreciate the Court’s attention to the arguments of counsel and look forward to receiving its decision.”

In a similar vein, Department of Justice spokesman Jeremy M. Edwards said the DOJ “appreciates the court’s careful consideration of this important case, and will await the court’s decision.”

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