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The lead economic experts slated to testify in the Justice Department’s high-profile antitrust suit to stop AT&T Inc.'s $85.4 billion purchase of Time Warner Inc. are no strangers to the courtroom or to merger review.
Expert witnesses are critical to both sides in a merger case, which typically features a shifting burden of proof between the plaintiff and the defendant. Each side must convincingly forecast what the relevant markets will look like after the merger.
“It’s impossible to do a merger case without an expert,” Donald Baker, an antitrust litigator and former head of the DOJ’s antitrust division, told Bloomberg Law. He is at the law firm Baker & Miller in Washington.
However, experts don’t come cheap, often earning more per hour than the private lawyers on a merger case, people familiar with expert testimony told Bloomberg Law. Both the DOJ’s antitrust division and Federal Trade Commission have line items in their proposed budgets for outside economic experts.
The FTC asked Congress for $3.4 million to hire experts in fiscal 2019. “The services of these expert witnesses are critical to the successful investigation and litigation of merger cases,” the commission’s request said.
AT&T’s primary economic expert will be Dennis Carlton, an economics professor at the University of Chicago and a senior managing director with the consulting group Compass Lexecon.
The Justice Department’s primary expert will be Carl Shapiro, an economics professor at the University of California, Berkeley, and senior consultant at the firm Charles River Associates.
The attorneys for both sides named their lead experts at a Feb. 2 status hearing. The trial is slated to begin March 19.
Both witnesses are familiar with the DOJ. Carlton, AT&T’s expert, was the DOJ antitrust division’s chief economist during the President George W. Bush’s administration from 2006 to 2008. Shapiro, the DOJ’s expert, held the same job from 1995 to 1996 under President Bill Clinton and again during the Obama administration from 2009 to 2011.
The government will use Shapiro’s testimony to establish the boundaries of markets in which the merged AT&T-Time Warner would allegedly wield market power. Then it needs to show the court that the merger would harm competition in those markets.
AT&T will use Carlton’s analysis to show cost savings and other “efficiencies” from the deal, arguing that they offset any harm the government alleges. AT&T has already said it expects to pass the benefits of its merger on to customers in lower costs.
AT&T also can attack the DOJ’s analysis, claiming the market is drawn improperly or that its method of showing market harm is flawed.
Shapiro is known in the antitrust community for his testimony opposing mergers. He has been a witness for the government in several cases, including the FTC’s 2015 court bid to block the merger of Staples Inc. and Office Depot Inc.
In that case, the district court accepted the government’s argument, with Shapiro’s help, that the tie-up would reduce competition in a narrow market of large corporate purchasers who buy in bulk nationwide. The parties abandoned the merger after the district court blocked it.
AT&T is making a similar argument to one the court rejected in 2015. Staples and Office Depot contended that they should be permitted to merge because regulators had cleared a similar deal in the recent past. AT&T is arguing to the court that its purchase of Time Warner is no different from Comcast Corp.'s merger with NBCUniversal, which the DOJ permitted to close with conditions in 2011.
Shapiro also was the government’s expert in its 2013 court action to undo the completed merger of Bazaarvoice Inc. and PowerReviews Inc., two companies that provide rating and review platforms for online merchants. The court held that the merger would violate antitrust law, citing Shapiro’s testimony at length in its opinion.
Like AT&T-Time Warner, both the Staples and Bazaarvoice cases involved mergers in already concentrated industries.
Carlton is a frequent expert in antitrust cases that run the gamut from private cartel cases to merger cases. He most often defends mergers or testifies on behalf of antitrust defendants, according to selected cases compiled and reviewed by Bloomberg Law.
For example, Carlton provided an economic report defending the merger of US Airways and American Airlines Group Inc. in 2013, which the DOJ and several states challenged in court. The parties settled when the airlines surrendered takeoff and landing slots and gates at several airports to alleviate regulators’ competition concerns.
Carlton has also defended many mergers outside the courtroom, making the case to the DOJ or the FTC that they should not sue to block a deal. For example, he led a team in defending Expedia Inc.'s acquisition of competing online travel site Orbitz Worldwide Inc. before the DOJ in 2015. The DOJ cleared that merger without conditions after a six-month investigation.
Carlton and Shapiro also worked together representing defendants in a private case attacking the merger of Alaska Airlines and Virgin Airlines in 2016, according to Bloomberg Law research. The parties settled, and the airlines merged.
The two economists, both well known to the antitrust bar, have also served together on panels and roundtable discussions about antitrust economics and policy through the years.
Both AT&T and the DOJ will field a team of additional experts in the trial. The Justice Department will have seven experts, including Shapiro. Three of them will be used to rebut evidence AT&T might introduce, DOJ attorneys said.
AT&T lawyers will have four experts, including Carlton, to provide testimony on advertising, media and entertainment, and cost savings/efficiencies from the merger, they said in court. The company also may bring in others to rebut the government’s case, the lawyers said.
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