Fair Play: One Narrow Legal Question for Appeals Court in AT&T Case

ATT Blog 2

Antitrust attorneys generally agree on one thing about U.S. District Court for the District of Columbia Judge Richard Leon’s decision quashing the Justice Department’s suit to stop AT&T Inc. from buying Time Warner Inc. – it’s very close to appeal-proof.

Nonetheless, the DOJ announced last week that it would appeal the decision, sparking several legal analysts to opine that it may be a fool’s errand. If the appeals court says Leon was right, it will make it even more difficult for the antitrust division to argue that mergers across lines of business like AT&T and Time Warner are anticompetitive.

Leon relied heavily on his views of the facts presented at trial, which aren’t appealable, in deciding that AT&T and Time Warner should be allowed to merge. He said, for example, that the government’s witnesses didn’t reliably support its theory that an AT&T-Time Warner merger would give the combined company increased leverage over distributors. “There is a threat that such testimony reflects self-interest rather than genuine concern over harms to competition,” he said.

Once he determined that the government didn’t establish that the merger was anticompetitive, Leon took his analysis no further, leaving little room for the DOJ to argue that he got the legal reasoning wrong.

There’s one complex area of the law that Leon waded into that could wind up being the focus of an appeals court review. It turns on an economic theory that basically says a combined AT&T-Time Warner would save money – and perhaps pass those savings on to consumers – by being under the same umbrella. If HBO needs to up its subscriber charge, for example, AT&T’s DirecTV doesn’t have to.

Leon found that argument convincing, in part because the AT&T economist offered evidence showing that prior “vertical integration” of media companies in different parts of a supply chain didn’t lead to price increases and in some cases led to decreases.

But the DOJ said the merger increased the leverage of AT&T-Time Warner over competitors that need content like HBO, which could lead to increased costs for them. Leon said that government’s evidence didn’t support that claim, in part because he didn’t see the statements at trial from competing distributors as credible.

But some economists say Leon didn’t give the government the same treatment he gave AT&T. If it’s true the combination offers cost savings, as AT&T argued, they say it also should be true that the combination gives the company more opportunities to maximize its profits, which in turn could hurt competitors, as DOJ argued.

If Leon made an error, it might be there.

An appeal can’t argue that the judge evaluated the evidence wrong, much like a batter in baseball can’t contest that an umpire mistook a ball for a strike. But the appeal can argue that the judge used an erroneous standard in making his determination. Is it OK that Leon accepted AT&T’s economic evidence rebutting the government’s case without accepting the government’s evidence based on the same economic theory?

The law states that the defendant’s rebuttal should only come into consideration after it’s determined that the plaintiff made a plausible showing of harm. Leon said the government didn’t make that showing, meaning that technically he didn’t even need to acknowledge AT&T’s evidence. Yet he quoted extensively from AT&T’s expert witness to state that AT&T’s economics were more convincing. The order in which he put his reasoning could be considered an error in applying the law, even if reordering the arguments gives the same result that the merger doesn’t harm competition.

It’s a long shot, but it also shows that even the most fact-based opinion can touch on aspects of the law. The way economic evidence is analyzed will be important to cases in the future, which may explain why the DOJ is giving it a go.

What’s Happening

On Wednesday, all five Federal Trade Commission commissioners will appear before the House Energy and Commerce Committee’s digital commerce subcommittee. It’s expected to focus mostly on data protection and privacy issues.

Quote of the Week

“While the losing party in litigation always has the right to appeal if it wishes, we are surprised that the DOJ has chosen to do so under these circumstances.”

--AT&T General Counsel David McAtee

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