AT&T Spars With U.S. Government Over Evidence at Merger Trial

Randall Stephenson - Time Warner News Conference - Getty - H 2017
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The trial over the proposed AT&T/Time Warner merger trial began Monday. Well, sort of.

Last week, U.S. District Court Judge Richard Leon didn't take kindly to a Reuters report that the trial was being delayed by two days. He called it "fake news" and suggested the reporter get educated on civil procedure. That said, opening statements in the trial won't occur until Wednesday with the first two days of "trial" being reserved for a discussion of what evidence can be admitted in a proceeding that could last as long as eight weeks. Many would consider evidentiary preclusion to be a pre-trial matter, but the judge appears to take an expansive definition of what constitutes a trial.

And so, Leon began hearing arguments on what can and can't be presented at the media industry's most significant antitrust trial in decades.

One of the big initial points of controversy between the parties is the relevance of AT&T subsidiary DirecTV's eight-year-old comments to regulators about Comcast's acquisition of NBCUniversal.

The trial team for the Justice Department being led by Craig Conrath wish to admit regulatory statements as well as old expert reports as "admissions" from defendants that a vertical merger can have harmful marketplace impact, including higher prices for consumers.

Daniel Petrocelli, representing both AT&T and Time Warner, argued that not only were those statements hardly admissions and coming at a completely different era in the media industry, but also that DirecTV had yet to be acquired by AT&T. As such, he stressed to the judge that AT&T couldn't be deemed as making such statements in the first place.

The attorney went further.

"DirecTV has no business being a defendant in this case," Petrocelli told Leon. "DirecTV isn't acquiring or selling anything. ... I suspect that the only reason DirecTV is a defendant is so [those statements] can be admitted."

Petrocelli signaled that after the government rested its case, he would be bringing a motion on the pleadings to dismiss DirecTV from the lawsuit.

Judge Leon indicated he was inclined to only allow old regulatory advocacy statements — and not old expert reports — as related to DirecTV but not AT&T, and pressed the government over whether it really needed this evidence or merely just wanted it.

Even if those old comments aren't heavily featured at trial, however, the ghost of Comcast's purchase of NBCU will be present throughout the trial. That's because AT&T plans to showcase a lack of competitive harm from the Comcast/NBCU merger. Also, one of the three big allegations that the government is making is that AT&T/Time Warner might tacitly coordinate with Comcast to withhold content from online rivals.

Ironically, Leon was the same judge who oversaw the government's case over the Comcast/NBCU deal. That one quickly settled, but not before Leon almost blew up the negotiated deal wherein the government extracted concessions.

Many of the other evidentiary issues discussed today were painstakingly dry: Do emails count as business records or unauthenticated hearsay? What about confidentiality concerns by third parties including Fox, Disney and Sony?

As these questions got addressed, a packed courtroom began thinning out. Nevertheless, interest in the trial remains high and the judge is running a tight ship for the attending reporters and hedge fund analysts. In fact, one was already kicked out of the courtroom for using a cellphone.

Judge Leon knows the significance of his ruling later this year. 

At one point, he told everyone that this case is "important to the future of the industry," and to the prospect that more witnesses to authenticate might slow things down, he added, "There's too much at stake. ... That's the price we have to pay."