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By Liz Crampton
AT&T Inc. has a unique weapon in its battle to be allowed to buy Time Warner Inc. — Christine Varney, the former antitrust division head who vetted and approved a similar deal six years ago.
Varney, now a partner at Cravath Swaine and Moore, is one of an army of attorneys helping AT&T and Time Warner take on the government in a high-stakes antitrust case that will shape the Justice Department’s competition policy and reputation in President Donald Trump’s administration.
Her role has lessened now that the initial government investigation is over and litigation has begun. Cravath partner Peter Barbur is taking the lead in the litigation with Dan Petrocelli at O’Melveny & Myers, who heads overall effort.
The Justice Department in November sued to stop AT&T and Time Warner, saying the merged entity would create too much dominance over must-have content like HBO’s “Game of Thrones” or CNN. DOJ is also concerned that the deal would enable AT&T to impede competition from other online video distributors, which would reduce choices for consumers.
AT&T and Time Warner believe they should get the same treatment that Comcast Corp. and NBCUniversal did when the Justice Department signed off on their merger after extracting promises about distribution and pricing.
The facts of the AT&T-Time Warner and Comcast-NBCUniversal deals are similar because both involve the “vertical” combination of a content distributor and a content creator. AT&T and Time Warner say it’s an “abrupt departure from precedent” for the government to treat the deals differently. They want a settlement rather than a fight in court.
Varney’s role flipped from the government official who signed off on the Comcast-NBCUniversal settlement to advising companies on a similar merger that the government opposes. She is the lead Cravath signature on AT&T and Time Warner’s response to the DOJ lawsuit, which specifically cites Comcast-NBCUniversal as an example of how AT&T and Time Warner should be treated.
Varney was President Barack Obama’s first antitrust chief from April 2009 to August 2011 and set in motion several significant enforcement actions.
Her first step was to roll back guidance crafted under the Bush administration and to remove hurdles that kept the government from going after monopolies. Advocates were hopeful that the DOJ would follow through with a monopolization suit against a big company, but such a case never materialized.
The antitrust division under Varney’s direction accused credit card companies of anticompetitive behavior in forbidding merchants from steering customers toward certain types of payments to avoid swipe fees. Visa Inc. and Mastercard Inc. settled those claims, but American Express Co. continued the litigation. The U.S. Supreme Court will hear a case against American Express early next year.
In health care, the Justice Department under Varney sued Blue Cross and Blue Shield of Michigan for allegedly forcing hospitals to charge higher prices to Blue Cross’s competitors. The DOJ eventually withdrew after Michigan passed a law that barred insurers from the conduct.
Some controversial mergers were approved during Varney’s tenure, prompting criticism from advocacy groups that had expected Obama’s Justice Department to be a more aggressive antitrust enforcer.
The government sought behavioral conditions in exchange for approval of the merger of Live Nation Entertainment Inc. and Ticketmaster Entertainment Inc. It did the same in allowing Google Inc.’s acquisition of airline search software company ITA. And it approved Comcast and NBCUniversal with conditions.
Consumer groups agreed with some of her decisions, such as the rolling back the Bush-era guidance on monopolies, but they were critical of her use of behavioral remedies for vertical mergers like Comcast and NBCUniversal.
Varney’s record “was somewhat mixed,” said Bert Foer, former president of the pro-enforcement American Antitrust Institute, which favors aggressive antitrust enforcement.
Foer dubbed the division’s practice of applying behavioral fixes to vertical deals “The Varney Doctrine.”
“We thought it was not a good idea for various reasons,” Foer told Bloomberg Law. Such settlements “put the court into a regulatory position to make sure that the behavioral aspects were followed through,” and they’re also difficult to enforce, he said.
The DOJ’s position in Comcast-NBCUniversial was that the merger might stifle new online competition, but the safeguards in the settlement would prevent that. “The settlement we are announcing today ensures that the transaction will not chill the nascent competition posed by online competitors — competitors that have the potential to reshape the marketplace by offering innovative online services,” Varney said at the time.
A potent reluctance to police merging companies’ actions has surfaced with the current top government antitrust lawyer, Makan Delrahim, who was confirmed to the post in September. Delrahim wants companies to give up assets to lessen the anticompetitive effects of deals rather than make promises of good behavior. In several speeches, he’s made it clear that behavioral remedies will be acceptable only in isolated circumstances.
That stance prompted the AT&T and Time Warner lawsuit after AT&T refused to divest Turner Broadcasting. When the suit was announced, Delrahim said “the only appropriate action for the Department of Justice is to seek an injunction from a federal judge blocking the entire transaction.”
The judge who will decide the fate of the AT&T-Time Warner deal is also a familiar figure. U.S. District Court for the District of Columbia Judge Richard Leon presided over the Comcast-NBC Universal case, ultimately approving the DOJ’s settlement with the companies.
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