By Brent Kendall and Jacob Gershman
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (November 22, 2017).
WASHINGTON -- The Justice Department's lawsuit against the
combination of AT&T Inc. and Time Warner Inc. sets the stage
for the biggest antitrust contest in Washington since the
department sued Microsoft Corp. in 1998.
The suit against the merger drew a split reaction from antitrust
experts a day after the government unveiled the 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 suit Monday that combining
AT&T's 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 who was a 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 was willing to settle that 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 instead sell off assets, 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 previous focus on horizontal mergers of rivals
that risk suppressing head-to-head competition.
Critics of the government case say there is a good reason the
Justice Department hasn't fully litigated a vertical merger case in
decades, namely 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 for the Justice Department's
top antitrust job, said the government case is lacking a
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. As a candidate, he vowed that a Trump administration would
block the deal, while acknowledging that the White House typically
plays no role in a Justice Department merger review. The department
has said the president didn't influence its decision to file the
AT&T 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 shouldn't 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 a twist to the case, the deal partners' 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 to come before his bench. In
2011, Judge Leon threatened to hold up the Comcast-NBCUniversal
deal, saying he was concerned that the Obama administration's
settlement didn't afford enough protection 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.
In 2000, for example, a New York federal judge refused to
dismiss anticompetitive allegations by an independent Manhattan
theater owner against a 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 22, 2017 02:47 ET (07:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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