DOJ’s Appeal Brief Says Judge’s AT&T-Time Warner Decision Was ‘Clearly Erroneous’
WASHINGTON — The Justice Department said a federal judge erroneously ignored “fundamental principles of economics and common sense” in siding with AT&T and Time Warner, a decision that allowed the massive media transaction to be completed in June.
The government made the argument in a 73-page brief filed on Monday, the opening salvo, as it appeals the ruling of U.S. District Judge Richard Leon.
Leon concluded that the DOJ failed to show that the merger would substantially lessen competition, based on an argument that the combined company would have increased bargaining leverage and drive up the prices that rival distributors pay for CNN, TNT, TBS, and other channels.
“The lower court’s errors colored its view of the facts, leading to a decision that is simply wrong in light of the evidence the government presented at trial,” Makan Delrahim, the chief of the DOJ’s Antitrust Division, said in a statement.
He said Leon “disregarded the economics of bargaining that defendants themselves had endorsed in prior regulatory proceedings,” and that the judge “disregarded the foundational principle that a corporation with multiple divisions operates them to maximize the corporation’s overall profits.”
The filing also offered a sense of why the Justice Department decided to appeal.
In its brief, it said the outcome “will shape the future of the media and telecommunications industries for years to come by setting the standard for determining whether industry participants will be permitted to merge into vertically integrated firms that control valuable programming content as well as the means of distributing that content to consumers.”
In its appellate brief, the government said, while Leon agreed that Time Warner had bargaining leverage before the merger, the judge “illogically and erroneously concluded that Time Warner will have no increased leverage post-merger because blackouts are ‘infeasible’ so Time Warner cannot credibly threaten them. The court’s reasoning makes no sense, rendering clearly erroneous its analysis of the evidence on increased bargaining leverage.”
During the trial, the Justice Department argued that the threat of such blackouts could be used by AT&T-Time Warner as a weapon to extract higher fees from distribution rivals. AT&T-Time Warner’s legal team, led by Daniel Petrocelli, said it would not be in the company’s interest to actually remove channels from carriage, as they would lose millions in carriage fees and ad revenue.
The DOJ also said Leon wrongly concluded that Time Warner “would not maximize the profits of the combined entity as a whole by extracting higher fees from rival distributors when negotiating with them for Turner content.”
“Corporate-wide profit maximization is an established principle of corporate and antitrust law, but the court rejected it on the basis of self-serving testimony from defendants’ executives,” the government said. The DOJ also said Leon’s reasoning was “internally inconsistent,” as the judge accepted that the merger would save costs because of the efficiencies between Time Warner and DirecTV.
David McAtee, AT&T’s general counsel, said in a statement, “Appeals aren’t ‘do-overs.’ After a long trial, Judge Leon weighed the evidence and rendered a comprehensive 172-page decision that systematically exposed each of the many holes in the Government’s case. There is nothing in DOJ’s brief today that should disturb that decision.”
AT&T’s response brief is due on Sept. 20.
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