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With a review of a federal judge’s decision to allow the merger between AT&T and Time Warner now fast-tracked, the U.S. government delivered its opening brief on Monday.
“This appeal arises from the first vertical merger case the United States has needed to litigate to judgment in four decades, a fact that reflects the government’s high standard for bringing such actions and the widespread harm this merger will cause,” states the government’s introduction. “The outcome of this appeal will shape the future of the media and telecommunications industries for years to come by setting the standard for determining whether industry participants will be permitted to merge into vertically integrated firms that control valuable programming content as well as the means of distributing that content to consumers.”
The Justice Department believe the marriage between the nation’s largest telecom and the owner of Warner Bros., Turner Networks (CNN, TBS, TNT) and HBO is a violation of Section 7 of the Clayton Act. Specifically, the government lawyers raise concern that the merger will mean hundreds of millions of dollars more in annual consumer payments for television programming.
After a 23-day bench trial in March and April that saw 32 fact and expert witnesses, U.S. District Court Judge Richard Leon came to a different conclusion in a June 12 opinion that rejected the antitrust contentions.
The issue now on appeal: “[W]hether the district court’s fundamental errors of economic logic and reasoning rendered clearly erroneous its conclusion that the government failed to show AT&T’s acquisition of Time Warner was reasonably likely to lessen competition substantially by increasing Time Warner’s bargaining leverage in negotiations with AT&T’s rival distributors, thereby raising their programming costs.”
In its brief, the government argues it proved the merged AT&T-Time Warner would have the “incentive and ability to lessen competition,” that its economic expert quantified the harm inflicted on consumers, but that Judge Leon “erroeneously concluded that the merger will not give Time Warner any increased bargaining leverage.”
“It is fundamental to the economics of bargaining that a party derives leverage in a negotiation from the ability to walk away,” writes Justice Dept. lawyer Mary Helen Wimberly. “The court agreed that Time Warner enjoyed bargaining leverage before the merger, but it illogically and erroneously concluded that Time Warner will have no increased leverage post-merger because blackouts are ‘infeasible’ so Time Warner cannot credibly threaten them. The court’s reasoning makes no sense, rendering clearly erroneous its analysis of the evidence on increased bargaining leverage.”
In the brief, the government also attacks the judge’s decision not to treat as admissions anything from past FCC filings made by AT&T and DirecTV. Additionally, Leon is faulted for having “strictly limited expert economic testimony,” for refusing to allow the government to question AT&T’s economic expert about analysis sponsored by DirecTV in connection with the Comcast-NBCU merger, and refusing to close the courtroom at certain points in the trial so that the government could elicit testimony concerning confidential business information.
Find the government’s full brief below. According to the schedule accepted by the D.C. Circuit Court of Appeals, AT&T and Time Warner will respond by Sept. 20 with the government then replying Oct. 11. A date for oral arguments hasn’t been set.
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