By Brent Kendall and Jacob Gershman
WASHINGTON -- The Justice Department's lawsuit against the
combination of AT&T Inc. and Time Warner Inc. drew a split
reaction among antitrust experts a day after the government
unveiled its high-stakes case.
Advocates of aggressive antitrust enforcement voiced support for
the Justice Department's challenge, which sets up a rare court
battle over a vertically integrated merger.
The government argued in its Monday suit that combining AT&T
video distribution strength with Time Warner's stable of popular
cable channels would give one company too much control of the media
landscape, which it warns would lead to higher prices and less
innovation.
Gene Kimmelman, a critic of the AT&T deal and a former
Justice Department antitrust official in the Obama administration,
said the government's legal theory of harm to competition "is well
established and has been used in numerous mergers," including when
the Obama-era department raised objections to Comcast Corp.'s
takeover of NBCUniversal.
The department back then was willing to settle the case in
exchange for restrictions on Comcast's business conduct. The
current Justice Department opposed that kind of settlement with
AT&T, insisting the telecom giant sell off assets instead,
something the company was unwilling to do.
"The only difference is the Justice Department decided to sue
instead of agreeing to a consent decree," said Mr. Kimmelman, now
the president of Public Knowledge, a public interest group.
AT&T argues the lawsuit is an abrupt departure from the
Justice Department's focus on mergers of rivals that would suppress
head-to-head competition.
Critics of the government case say there's a good reason the
Justice Department hasn't fully litigated a vertical merger case in
decades, and that's because mergers between distributors and
suppliers can produce efficiencies that benefit consumers.
Joshua Wright, an outspoken conservative on antitrust issues and
a former member of the Federal Trade Commission, said he had no
doubt that the department reviewed the case carefully, "but my
initial reaction is that the complaint is underwhelming and not
likely to prevail in federal court."
Mr. Wright, a George Mason University professor who was
considered by the Trump administration as a candidate for the
Justice Department's top antitrust job, said the government case
lacked the needed theoretical foundation and economic evidence.
"There is simply not enough there beyond concerns about firm
size and that Time Warner owns some popular content to satisfy the
demands of a modern vertical antitrust claim," he said.
President Donald Trump's public objections to the merger, and
his repeated criticisms of Time Warner's CNN, could complicate the
case. Mr. Trump as a candidate had pledged his administration would
block the deal, but the White House would typically play no role in
a Justice Department merger review. The department has said the
president didn't influence its decision to file a case.
On Tuesday, Mr. Trump weighed in on the deal shortly before
departing the White House to spend Thanksgiving in Florida. The
president said in response to a shouted question from a reporter
that he should not comment on the litigation. Then he added:
"Personally, I've always felt that that was a deal that's not good
for the country."
Adding to the intrigue in the case, the companies' lead trial
attorney is Daniel Petrocelli of O'Melveny & Myers LLP, who
represented Mr. Trump in private litigation involving fraud claims
against the now-defunct Trump University for-profit real estate
school. Mr. Trump settled the case a year ago for $25 million. He
denied the allegations and made no admission of wrongdoing in the
settlement.
On Tuesday, the AT&T case was assigned to U.S. District
Judge Richard Leon, a George W. Bush appointee in Washington, D.C.
It's not the first major media merger that has come before his
bench.
In 2011, he threatened to hold up the Comcast-NBC deal, saying
he was concerned that the Obama administration's settlement lacked
strong enough protections for online video distributors like
Netflix Inc. He ultimately signed off on the deal but required
additional oversight of the settlement's arbitration terms. A
review of the effectiveness of the Comcast settlement could be a
key issue in the AT&T case.
AT&T and Time Warner believe their deal should have been
allowed with Comcast-style conditions if there were any legitimate
government antitrust concerns. The Justice Department believes the
Comcast settlement has proven ineffective, according to people
familiar with the matter.
The last fully litigated government case against a vertical
merger came in 1979, a trucking industry case the government lost.
The Justice Department won a vertical case at the Supreme Court in
1972, involving Ford Motor Co.'s acquisition of a company that made
spark plugs.
More recently, courts have looked at the potential
anticompetitive harms of vertical mergers in private antitrust
actions brought by competitors.
In 2000, for example, a New York federal judge refused to
dismiss allegations by an independent Manhattan theater owner of an
anticompetitive vertical merger between Sony Pictures Entertainment
Corp. and Cineplex Odeon, which at the time was Manhattan's second
largest theater chain.
The judge found it plausible that Sony and Cineplex would
exploit its "new commanding position in the film industry" as a
film distributor and exhibitor to prevent independent theater
operators from booking "quality movies." Another judge dismissed
the case in 2004 for lack of evidence.
--Louise Radnofsky contributed to this article.
Write to Brent Kendall at brent.kendall@wsj.com and Jacob
Gershman at jacob.gershman@wsj.com
(END) Dow Jones Newswires
November 21, 2017 17:57 ET (22:57 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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