AT&T and Time Warner’s arguments using Comcast/NBCUniversal’s 2011 merger as a reason for their own tie-up are irrelevant in the current litigation against the two companies, antitrust observers said on Wednesday.
The Department of Justice’s antitrust division sued last week in an attempt to block the merger, saying that AT&T would use its control over Time Warner to block rival distributors from accessing Time Warner subsidiary Turner Broadcasting's popular programming.
The companies filed their answer to the government’s complaint in Washington, DC federal court on Tuesday. They argued that the vertical integration of two companies cannot harm competition unless both possessed sufficient market power, and that the government’s complaint failed to allege that Time Warner has such power.
In their answer, the companies also pointed to the Comcast/ NBCU tie-up – which the DOJ allowed to be consummated in 2011, conditioned on behavioural remedies – as a reason why the AT&T/Time Warner merger should also be permissible.
“Based on that precedent—as well as the government’s own guidelines to consider ‘tailored conduct remedies designed to prevent conduct that might harm consumers while still allowing the efficiencies that may come from [a vertical] merger to be realised’ — AT&T and Time Warner fully expected to resolve the government’s review of this merger by agreement, rather than litigation,” counsel to the companies wrote.
Cleveland State University law professor Christopher Sagers said the claim that AT&T and Time Warner were legally entitled to the same treatment as one of their competitors is irrelevant to the case. Rather, he said it’s a “claim that antitrust defendants grumble about”.
For example, when the DOJ sued to block US Airways' acquisition of American Airlines in 2013, the companies noted that other carriers had been permitted to merge in recent years, and asked the court to force the Antitrust Division to turn over documents collected during the course of four previous airline merger investigations that had resulted in clearances. The DOJ ultimately settled the US Airways/American case with divestitures.
In AT&T and Time Warner’s answer to the DOJ this week, they also listed what behavioural remedies they would take with Turner Broadcasting. As in Comcast/NBCU, Time Warner would extend protections to third-party distributors, the companies said.
“Turner’s commitment eliminates even the theoretical risk that lies at the heart of the government’s case,” the companies argued.
Sagers said that provision was also inappropriate and surprising.
“It appears that the defendants, in negotiating with the DOJ, were proposing this in their settlement,” Sagers said. “What they wanted was the same deal that NBCU/Comcast got.”
Now, they want the court to adopt the same behavioural remedy that was adopted in the Comcast/NBCU merger, Sagers said.
However, Kelley Drye & Warren partner David Evans said the behavioural remedies laid out in the Comcast/NBCU merger will be difficult to achieve, considering that’s precisely the merger solution that Antitrust Division Chief Makan Delrahim has recently railed against.
Evans noted that conservative antitrust practitioners have an “abject hatred of behavioural remedies” and in taking this case, the DOJ has paved the way to attack the behavioural remedies used in the Comcast/NBCU merger. The goal, he said, is to completely eliminate the use of behavioural remedies as a regulatory tool.
Evans agreed with Sagers that using Comcast/NBCU as an example of why the current deal between AT&T and Time Warner should be approved is a weak argument, noting that he believes that defendants used that argument to portray the government as hypocritical. Though the deal involves similar markets, they are different companies, he said.
“The factual differences between the two are pretty vast,” he said.
Counsel to AT&T and Time Warner
O’Melveny & Myers
Partners Daniel Petrocelli and Randall Oppenheimer in Los Angeles; Katrina Robson in Washington DC
Counsel to Time Warner
Cravath Swaine & Moore
Partners Christine Varney, Kevin Orsini and Peter Barbur in New York
Counsel to AT&T and DirecTV
Gibson Dunn & Crutcher
Partners Robert Walters and Michael Raiff in Dallas, Texas