Thursday, April 05, 2018

Judge Indicates Willingness to Consider Behavioral Remedies in AT&T/Time Warner Merger Trial

The trial over the Department of Justice’s antitrust challenge to the AT&T/Time Warner merger is now in its third week of what is expected to be a six to eight week trial. U.S. District Judge Richard Leon is presiding over the trial in federal court in the District of Columbia.
As I have noted before, the DOJ challenge is unprecedented in the modern antitrust era. The last vertical merger challenged by U.S. antitrust agencies was in 1979, when the FTC lost its challenge to truck trailer manufacturer Fruehauf’s acquisition of a brake component supplier. The last vertical merger successfully challenged was in 1972, when Ford Motor Company bought a supplier, Autolite, and was forced to sell off some of the assets after DOJ challenged the merger.
Instead, U.S. antitrust agencies have either allowed vertical mergers to proceed without challenge, as was the case with the 2017 acquisition of Whole Foods by Amazon, or have agreed to behavioral restrictions. For example, Comcast’s 2011 acquisition of NBC and NewsCorp’s 2004 acquisition of DirecTV raised similar alleged competitive issues as the AT&T/Time Warner merger, and both were settled with behavioral restrictions that allowed the mergers to proceed without structural changes. However, the current head of the DOJ’s Antitrust Division has stated that he is skeptical about behavioral conditions and strongly prefers that any relief be structural.
At trial this week, however, Judge Leon asked questions of a witness about whether behavioral conditions would be sufficient. Judge Leon had previously denied a motion by DOJ to exclude evidence the merger parties plan to present that they are offering to agree for seven years to arbitration in any Turner Networks carriage disputes with cable systems and other programming distributors that compete with ATT’s DirecTV and U-Verse. This week, Judge Leon asked a witness for the DOJ to address whether such relief would alleviate his company’s concerns about the merger, which may indicate that the judge is willing to consider such relief to resolve the case.
For a substantive analysis of the merger, including an assessment of behavioral and structural relief in vertical merger cases, see my February 8, 2018 Perspectives from FSF Scholars entitled “The Proper Context for Assessing the AT&T/Time Warner Merger.”