Justice Department Appealing Decision Allowing AT&T-Time Warner Merger

A federal judge rejected the government's antitrust contentions in June. The case is now headed to the D.C. Circuit Court of Appeals.
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AT&T chairman-CEO Randall Stephenson (left) and Time Warner CEO Jeffrey Bewkes

The U.S. government is appealing its big loss in the antitrust lawsuit that sought to stop the merger between AT&T and Time Warner. On Thursday, a notice of appeal was filed that indicates the dispute would be taken up by the D.C. Court of Appeals.

On June 12, U.S. District Court Judge Richard Leon handed down his much-anticipated ruling allowing the merger to move forward over the government's objection. In a decision that imposed no conditions, Leon came to the conclusion that the government hadn't proved its case that the vertical merger between the two companies was likely to lessen competition.

The decision came after a six-week trial that saw AT&T CEO Randall Stephenson and Time Warner CEO Jeffrey Bewkes take the witness stand. Dueling economists submitted testimony alongside industry executives that predicted what would happen if the merger were allowed to go through. The government aimed to show that consumers would pay hundreds of millions of dollars more for popular programming each year. One of the key claims was that once under AT&T's thumb, Time Warner would be more willing to hold back content in licensing negotiations with cable and satellite rivals of AT&T subsidiary DirecTV. The government also alleged that AT&T would use its new assets to hinder the growth of digitally distributed live programming. The defendants claimed this was all nonsense — contending that AT&T could achieve price decreases through efficiencies and that it was interested in advancing technologically, especially in the face of competition from the likes of Facebook, Google, Netflix and Amazon.

This was a closely watched case that held enormous significance on all fronts: political (since President Donald Trump promised his administration would block the merger); legal (since this was the first government challenge in court to vertical integration in decades); and corporate America M&A (since the outcome would be a guidepost for other executives pursuing deals).

After Leon's ruling, and in the face of a mutually agreed deadline to close the AT&T-Time Warner transaction, the government acquiesced to allowing the companies to merge by not immediately pursuing a stay from an appeals court. However, at the time, AT&T and Time Warner did pledge to allow Turner Networks to operate independently until late February. That represented a middle ground that would allow the merger to happen, but make an unwinding more easy if an appeals court should later reverse Leon's decision. 

Nevertheless, the government's decision to appeal — in the face of a particularly embarrassing loss — surprised many, including AT&T as well as investors. (Stock prices for AT&T and Time Warner in after-hours trading immediately moved upon the news.)

"The Court’s decision could hardly have been more thorough, fact-based, and well-reasoned," said AT&T general counsel David McAtee in reaction to the appellate notice. "While the losing party in litigation always has the right to appeal if it wishes, we are surprised that the DOJ has chosen to do so under these circumstances. We are ready to defend the Court’s decision at the D.C. Circuit Court of Appeals.”

Although it is a ways down the road, one thing bears watching if this case ultimately ends up at the U.S. Supreme Court. According to disclosure reports, Chief Justice John Roberts owns a significant amount of Time Warner stock. He didn't recuse himself from the Aereo decision despite his ownership stake and a case that impacted the broadcast industry. Nevertheless, this antitrust dispute is meaningful for Time Warner shareholders and he could face much louder calls for recusal this time.