United States v. AT&T, Inc.
916 F.3d 1029 (2019)
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Rule of Law:
In a vertical merger challenge under Section 7 of the Clayton Act, the government's prima facie case based on theoretical economic models predicting anticompetitive harm may be rebutted by the defendant's fact-specific, real-world evidence, such as econometric analyses of similar past mergers and post-litigation conduct remedies that undermine the premises of the government's theory.
Facts:
- AT&T Inc., a major video distributor owning DirecTV and U-verse, announced its plan to acquire Time Warner Inc., a major content programmer that owns Turner Broadcasting System.
- Turner Broadcasting controls popular and highly-valued networks such as CNN, TNT, and TBS, which are considered 'must-have' content for competing video distributors.
- The video programming and distribution industry had become dynamic in recent years, with the emergence of new competitors like virtual MVPDs (e.g., YouTube TV) and SVODs (e.g., Netflix, Hulu).
- A similar vertical merger occurred in 2011 when Comcast (a distributor) acquired NBC Universal (a programmer), a transaction that was subject to certain conduct remedies.
- In prior regulatory proceedings concerning the Comcast-NBCU merger, AT&T and DirecTV had argued that such vertical integration would give a merged firm the incentive and ability to raise rivals' costs.
- One week after the government filed its lawsuit to block the AT&T-Time Warner merger, Turner Broadcasting sent irrevocable letters to approximately 1,000 distributors offering 'baseball style' arbitration with a no-blackout guarantee for seven years in the event of a negotiation impasse.
Procedural Posture:
- The United States sued AT&T Inc. and Time Warner Inc. in the U.S. District Court for the District of Columbia, seeking a permanent injunction to block the proposed merger.
- The government's complaint alleged that the merger would violate Section 7 of the Clayton Act by substantially lessening competition.
- The district court held a six-week bench trial.
- Following the trial, the district court denied the government's request for a permanent injunction, entering judgment in favor of the defendants.
- The United States (appellant) filed an appeal of the district court's decision to the U.S. Court of Appeals for the D.C. Circuit, with AT&T and Time Warner as appellees.
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Issue:
Does the proposed vertical merger of AT&T Inc. and Time Warner Inc. violate Section 7 of the Clayton Act by creating a reasonable probability of substantially lessening competition in the multichannel video distribution market?
Opinions:
Majority - Rogers, Circuit Judge
No, the proposed merger does not violate Section 7 of the Clayton Act. The government failed to meet its burden of proving that the merger is likely to substantially lessen competition. The district court did not clearly err in finding the government's evidence, which relied heavily on theoretical economic models, was less persuasive than the defendants' real-world evidence. The court found the government's quantitative model, which predicted consumer price increases, was unreliable because it used flawed inputs and, critically, failed to account for Turner Broadcasting's post-litigation, irrevocable no-blackout arbitration offers, which neutralized the government's primary theory of harm based on blackout threats. Furthermore, the district court properly credited the defendants' econometric analysis of the similar Comcast-NBCU merger, which showed no statistically significant effect on content prices, over the government's less-supported predictions for this dynamic and evolving industry.
Analysis:
This decision significantly raises the evidentiary bar for the government in challenging vertical mergers under the Clayton Act. It signals a judicial preference for empirical, real-world evidence over theoretical economic modeling, particularly in rapidly changing industries. The court's willingness to credit post-litigation behavioral remedies, such as the arbitration offers, suggests that defendants can proactively undermine the government's case even after a suit has been filed. This ruling makes it more difficult for antitrust enforcers to block vertical mergers based on predictions of increased bargaining leverage, pushing them to provide more concrete proof of probable anticompetitive effects.
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