United States v. AT & T Inc.
| Decision Date | 12 June 2018 |
| Docket Number | Civil Case No. 17–2511 (RJL) |
| Parties | UNITED STATES of America, Plaintiff, v. AT & T INC., et al., Defendants. |
| Court | U.S. District Court — District of Columbia |
Alexis K. Brown–Reilly, Anna Elizabeth Sallstrom, Barry James Joyce, Caroline J. Anderson, Cerin Milliejane Lindgrensavage, Craig William Conrath, Curtis Wayne Strong, David Joseph Shaw, Dylan Matthew Carson, Eric Damian Welsh, Ihan Kim, Jared A. Hughes, Justin T. Heipp, Lauren Georgia Schussl Riker, Lawrence Andrew Reicher, Lisa A. Scanlon, Matthew Robert Jones, Matthew David Siegel, Nathan Daniel Brenner, Peter Joseph Schwingler, Samer Makram Musallam, Sanford Marshall Adler, Scott Alan Scheele, Shobitha Bhat, Timothy B. Walthall, Claude F. Scott, Jr., Julie Scharfenberg Elmer, Melanie Marie Kiser, Richard Cameron Gower, Ruediger Ralf Schuett, U.S. Department of Justice, Frederick Sherwood Young U.S. Department of Justice, Telecommunications & Media Enforcement, Washington, DC, Jennifer Hane, U.S. Department of Justice, San Francisco, CA, for Plaintiff.
Aaron Martin Panner, Kenneth Matthew Fetterman, Kellogg, Hansen, Todd, Figel & Frederick, P.L.L.C., Kenneth R. O'Rourke, Pro Hac Vice, Katrina M. Robson, O'Melveny & Myers LLP, Washington, DC, Andrew J. Frackman, Pro Hac Vice, O'Melveny & Myers LLP, New York, NY, Daniel M. Petrocelli, Pro Hac Vice, M. Randall Oppenheimer, Pro Hac Vice, O'Melveny & Myers LLP, Los Angeles, CA, Michael L. Raiff, Pro Hac Vice, Robert C. Walters, Pro Hac Vice, Gibson, Dunn & Crutcher LLP, Dallas, TX, for Defendants.
If there ever were an antitrust case where the parties had a dramatically different assessment of the current state of the relevant market and a fundamentally different vision of its future development, this is the one. Small wonder it had to go to trial!
On November 20, 2017, the U.S. Department of Justice's Antitrust Division brought this suit, on behalf of the United States of America ("the Government" or "the plaintiff"), to block the merger of AT & T Inc. ("AT & T") and Time Warner Inc. ("Time Warner") as a violation of Section 7 of the Clayton Act, 15 U.S.C. § 18. The Government claims, in essence, that permitting AT & T to acquire Time Warner is likely to substantially lessen competition in the video programming and distribution market nationwide by enabling AT & T to use Time Warner's "must have" television content to either raise its rivals' video programming costs or, by way of a "blackout," drive those same rivals' customers to its subsidiary, DirecTV. Thus, according to the Government, consumers nationwide will be harmed by increased prices for access to Turner networks, notwithstanding the Government's concession that this vertical merger would result in hundreds of millions of dollars in annual cost savings to AT & T's customers and notwithstanding the fact that (unlike in "horizontal" mergers) no competitor will be eliminated by the merger's proposed vertical integration.
Not surprisingly, the defendants, AT & T, Time Warner, and DirecTV, strongly disagree. Their vision couldn't be more different. The video programming and distribution market, they point out, has been, and is, in the middle of a revolution where high-speed internet access has facilitated a "veritable explosion" of new, innovative video content and advertising offerings over the past five years. Trial Tr. ("Tr.") 1397:1–4 (Montemagno (Charter) ). Vertically integrated entities like Netflix, Hulu, and Amazon have achieved remarkable success in creating and providing affordable, on-demand video content directly to viewers over the internet. Meanwhile, web giants Facebook and Google have developed new ways to use data to create effective—and lucrative—digital advertisements tailored to the individual consumer.
As a result of these "tectonic changes" brought on by the proliferation of high-speed internet access, video programmers such as Time Warner and video distributors such as AT & T find themselves facing two stark realities: declining video subscriptions and flatlining television advertising revenues. Id. at 3079:18 (Bewkes (Time Warner) ). Indeed, cost-conscious consumers increasingly choose to "cut" or "shave" the cord, abandoning their traditional cable- or satellite- TV packages for cheaper content alternatives available over the internet. At the same time, Facebook's and Google's dominant digital advertising platforms have surpassed television advertising in revenue. Watching vertically integrated, data-informed entities thrive as television subscriptions and advertising revenues declined, AT & T and Time Warner concluded that each had a problem that the other could solve: Time Warner could provide AT & T with the ability to experiment with and develop innovative video content and advertising offerings for AT & T's many video and wireless customers, and AT & T could afford Time Warner access to customer relationships and valuable data about its programming. Together, AT & T and Time Warner concluded that both companies could stop "chasing taillights" and catch up with the competition. 2/16/18 Hr'g Tr. 34:16 [Dkt # 67]. Those were the circumstances that drove AT & T, a distributor of content, and Time Warner, a content creator and programmer, to announce their historic $108 billion merger in October 2016 (the "proposed merger" or "challenged merger"). Those are the circumstances that cause them to claim today that their merger will increase not only innovation, but competition in this marketplace for years to come.
Section 7 of the Clayton Act assigns this Court the "uncertain task" of weighing the parties' competing visions of the future of the relevant market and the challenged merger's place within it. United States v. Baker Hughes Inc. , 908 F.2d 981, 991 (D.C. Cir. 1990). Nothing less than a comprehensive inquiry into future competitive conditions in that market is expected. And the Government has the burden of proof to demonstrate that the merger is likely to lessen competition substantially in that uncertain future.
Since announcing the transaction in late October 2016, defendants have delayed closing on the merger agreement for about 18 months as a result of the Government's investigation and suit. The deal is now set to expire if not consummated on or before June 21, 2018—a turn of events that would require AT & T to pay Time Warner a "break-up fee" of $500 million. The parties have engaged in a highly accelerated discovery schedule to prepare themselves to try this case in March and April of this year. The trial itself lasted nearly six weeks. Both sides put on a case-in-chief and the Government put on a rebuttal case as well. At the conclusion of the trial, I advised the parties I would issue a ruling, if not an opinion, no later than June 12, 2018 so that the losing side would have the agreed-upon time remaining to pursue its appellate rights before the merger or the $500 million break-up fee went into effect.
The following is the Court's Opinion. Initially, I provide context for this suit by reviewing the background of the video programming and distribution industry, the proposed merger, and the procedural history of this case. Thereafter, I discuss the legal standards governing a suit under Section 7 of the Clayton Act, emphasizing in particular the considerations at play in evaluating vertical mergers. With that in place, I next analyze each of the Government's three theories of harm to competition, balancing, as appropriate, the conceded proconsumer benefits of the merger with the consumer harms alleged and the evidence offered to support them. Ultimately, I conclude that the Government has failed to meet its burden to establish that the proposed "transaction is likely to lessen competition substantially." Baker Hughes , 908 F.2d at 985.
As such, based on that conclusion, and for all the reasons set forth in greater detail in this Opinion, the Court DENIES the Government's request to enjoin the proposed merger.
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