U.S. District Judge Richard Leon in Washington said he and his team “worked mightily” to pen a 172-page opinion on the Justice Department’s challenge to AT&T Inc.’s takeover of Time Warner Inc. before the deal’s June 21 deadline.
Quoting Bob Dylan at times and warning that “perfect is the enemy of the good” (in reference to his own ruling) he left no doubt that the government utterly failed to make its case.
- “You don’t need a weatherman to know which way the wind blows,” Leon wrote, describing the changing industry at the center of the case. The judge backed AT&T’s and Time Warner’s view that the deal was justified by “tectonic changes” and a “veritable explosion” of innovation among vertically integrated competitors.
- “If ever there were an antitrust case where the parties had a dramatically different assessment of the current state of the relevant market and a fundamentally different vision of its future, this is the one. Small wonder it had to go to trial!”
- “Together AT&T and Time Warner concluded that both companies could stop ‘chasing tail’ lights and catch up with the competition,” the judge said.
- “Several witnesses testified that competition in the industry is more intense today than ever before,” Leon wrote, undercutting a suit in which the threat of lessened competition was the central claim.
Too Much Leverage
Leon, whose skepticism about the government’s case was clear during the trial, didn’t buy any aspect of the the government’s theory that a combined company would give AT&T too much leverage in programming talks with competitors of Time Warner’s Turner Broadcasting.
- “The government has not pointed to any prior trial in federal district court in which the Antitrust Division has successfully used this increased-leverage theory in the context of a Section 7 challenge to a vertical merger.”
- “The government’s proof at trial falls far short of establishing the validity of its increased-leverage theory.”
- “It is not sufficient for the government to put forward evidence that Turner has important content and thus bargaining leverage — that fact is true today, pre-merger.”
- “Permanent blackouts are a vanishingly rare occurrence,” he said. “Turner has never engaged in a long-term blackout with a distributor.”
- “Based on the evidence, I agree with defendants that Turner’s content is not literally ‘must have’ in the sense that distributors cannot effectively compete without it.”
Harm to Virtual MVPDs
Leon was also unimpressed with the government’s theory that AT&T would use its ownership of Time Warner to withhold content from streaming multichannel video programming distributor services like DISH’s Sling TV, Hulu Live and Google’s YouTube TV.
- “The government’s evidence on its unilateral withholding theory is fatally anemic.”
- “The entire premise of the proposed merger — allowing AT&T to go mobile with video content — provides yet another reason to reject the government’s unilateral merger theory.”
- “The government’s skinny bundle point also overlooks the fact that Turner — like other programmers – already fights tooth and nail to get all of its networks into all of the packages of every distributor,” he said. “Simply put, the government has not produced sufficient evidence to show that the challenged merger is likely to make a meaningful difference to that dynamic.”
- “Industry trend lines point to increased video consumption in the future — and AT&T aims to ride those tailwinds.”
Restricting HBO Promotions
The judge dismissed the government’s theory that the combined company would lessen competition by restricting the ability of competing networks to use HBO as a promotional tool.
- “The government has failed to show that the merged entity would have any incentive to foreclose rivals’ access to HBO-based promotions.”
- “The government simply fails to explain why AT&T would jeopardize — much less jettison — the promotional model on which HBO ‘absolutely’ depends.”
- “The government’s evidence is too thin a reed for this court to find that AT&T has, in that well worn turn of phrase, either the ‘incentive’ or the ‘ability’ to withhold HBO promotional rights in order to ‘lessen competition substantially.’”
Star Government Witness
Leon did not have kind words for the government’s star witness, University of California at Berkeley Professor Carl Shapiro.
- “After hearing Professor Shapiro’s bargaining model described in open court, I wondered on the record whether its complexity made it seem like a Rube Goldberg contraption.”
- “The evidence at trial showed that Professor Shapiro’s model lacks both reliability and factual credibility.”
Leon slammed any potential attempt by the government to keep the merger on hold pending appeal, saying the Justice Department had had its chance.
- “The government has taken its best shot to block the merger based on the law and facts, and within the time allowed. The defendants did their best to oppose it. The court has spoken.”
- “I hope that the government will have the good judgment, wisdom, and courage to avoid such a manifest injustice. To do otherwise, I fear, would undermine the faith in our system of justice of not only the defendants, but their millions of shareholders and the business community at large.”