[Below is the
Introduction and Summary
to this latest FSF
. A PDF version of the complete
, with footnotes, is
Introduction and Summary
The U.S. Department of Justice lost its antitrust lawsuit challenging the merger of AT&T and Time Warner. DOJ had surprised many when its challenge was originally filed, and it surprised many more when it appealed its loss to the Court of Appeals for the District of Columbia Circuit.
The DOJ claimed that the merger would allow AT&T to use Time Warner programming content to raise the costs of the programming to AT&T’s rivals, and also that after the merger AT&T would withhold Time Warner programming from rivals to place them at a disadvantage. As a result, DOJ argued, cable television subscribers would be harmed by having to pay higher prices and less video content would be developed after the merger. But as Free State Foundation
before the trial, DOJ’s case was weak, especially because the video market has become increasingly competitive and dynamic. Consumers now have more alternatives for receiving information and entertainment programming than ever before.
The decision by District Court Judge Richard Leon, who presided over the trial, is firmly grounded in antitrust precedent on all issues of substantive antitrust law. Nonetheless, this decision is important for future vertical merger cases, as well as all other merger challenges under the Clayton Act, for its strong statement that antitrust challenges must be based on persuasive economic evidence that is specific to the particular merger. It is not enough for the government to rely on so-called "hot" documents, evidence of harm from past vertical mergers that may not apply today, or general economic principles about possible antitrust harm that possibly might result from vertical mergers.
That DOJ even brought the original challenge to the AT&T/Time Warner merger was somewhat surprising, given that no other vertical mergers had been challenged in court by the government since 1979 and given the arrival of popular new alternative video services giving consumers more abundant choices than ever before. Indeed, at the outset of his opinion, Judge Leon referred to the "veritable explosion" of innovative new video content and advertising offerings in just the last five years due to proliferation of high-speed Internet access. And taking note of the emergence of Netflix, Hulu, Amazon, and other online video programmers and distributors, Judge Leon declared the video market had undergone "tectonic changes."
That DOJ continues to oppose the merger, even after losing badly at trial, is rather unusual for at least four reasons. First, there does not appear to be any clear antitrust principle at stake. Judge Leon’s opinion emphasized that vertical mergers can raise significant antitrust concerns, but the question for the court is whether the economic evidence supports DOJ’s claim that this particular merger will lead to more harm than benefits. Judge Leon carefully grounded his analysis in standards from established antitrust precedent, which DOJ does not appear to dispute, before proceeding to carefully lay out the factual basis for his conclusion that DOJ had not met its burden.
Second, on appeal DOJ has to show that the district court’s ruling was "clearly erroneous." As a legal matter, the district court is the finder of fact. Judge Leon’s careful explanation of the reasons why he found certain data at the heart of DOJ’s case to be unreliable is entitled to considerable deference.
Third, Judge Leon took the unusual step of explicitly encouraging DOJ not to appeal this decision. While Judge Leon acknowledged that DOJ has the right to appeal, he concluded his decision by declaring his hope that DOJ "will have the good judgment, wisdom, and courage" to forego such an appeal.
Finally, that DOJ continues to try to block this merger lends credence to the claims that it is acting under pressure from President Trump, perhaps in reaction to the coverage of the President by CNN. To be clear, I do not see any evidence that the decisions made by the DOJ in litigating this case and appealing the outcome were motivated by improper political considerations. Even so, given that DOJ's case was questionable in the first place and the appeal unlikely to succeed, it seems rather unusual for DOJ to pursue this appeal when continuing to litigate it may raise concerns in the minds of some about its motivations.
For the most part, DOJ’s appellate brief criticisms of Judge Leon’s decision miss the mark because they do not address the detailed reasons he gave for why he found specific data that DOJ relied upon to be unreliable. The short section near the end of the brief where the DOJ finally gets around to addressing these data issues falls far short of showing that Judge Leon’s findings regarding this data was clearly erroneous.
DOJ had a weak case at trial, as I and others have discussed at length. But after Judge Leon wrote such a narrow and fact-specific opinion that avoided any controversial claims about antitrust law, DOJ’s decision to appeal becomes more puzzling. Because most of DOJ’s brief does not even address the specific shortcomings Judge Leon identified, DOJ’s thinking in bringing its appeal is even more puzzling.
* Theodore R. Bolema is a member of the Free State Foundation’s Board of Academic Advisors and Executive Director of the Institute for the Study of Economic Growth at Wichita State University.
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