The Department of Justice (DOJ) released court documents Monday detailing its challenge to the District of Columbia’s District Court Judge Richard Leon’s ruling that approved the AT&T – Time Warner Cable merger.
The appeal is likely to go to court, but it is unclear whether the move will result in an overturn of Leon’s ruling.
The DOJ claims the district court “erroneously ignor[ed] fundamental principles of economics and common sense. These errors distorted its view of the evidence and rendered its factual findings clearly erroneous, and they are the subject of this appeal.”
In the DOJ’s view, it doesn’t matter that Leon found no evidence that the merger would weaken competition in the video distribution-programmer market — what matters it that the merger could weaken competition and “lead to hundreds of millions of dollars of net harm passed through to consumers annually.”
The DOJ cites Section 7 of the Clayton Antitrust Act of 1914 as the grounds for its appeal, which “prohibits any merger the effect of which ‘may be’ to lessen competition substantially. 15 U.S.C. § 18. The legal standard under Section 7, therefore, is ‘reasonable probability.’ To establish a Section 7 violation, a plaintiff need not show that the merger will have an anticompetitive effect, such as increased prices. ‘All that is necessary is that the merger create an appreciable danger of [higher prices] in the future. A predictive judgment, necessarily probabilistic and judgmental rather than demonstrable, is called for.'”
Because there is a danger AT&T could raise prices and use its ownership of Time Warner to gain more leverage over negotiations with programmers, the DOJ argues, the merger never should have been approved in district court.
“Important evidence that the government proffered — but the district court refused to admit — included, among other things, AT&T’s own analyses of the potential competitive effects of vertical integration,” the brief reads.
The brief also calls out AT&T for backtracking on its original belief that vertically integrated mergers are harmful to consumers.
“The merger will empower AT&T to use Time Warner’s valuable programming to raise its rival distributors’ costs for obtaining programming, while also enabling AT&T to protect its high-margin satellite-television business from competition by upstart rivals — all to the detriment of American consumers,” the brief reads. “AT&T endorsed this theory of harm six years ago when it warned federal regulators that such a vertically integrated firm would use its ownership of programming to raise fees to rival distributors and limit competition in the distribution market. AT&T changed its tune once its own merger was under scrutiny.”
Andrew Jay Schwartzman, the Benton Senior Counselor at Georgetown University’s Institute for Public Representation, told InsideSources that “the odds are against reversal,” the DOJ’s challenge is not purely politically motivated.
“The judge in this case wrote a very backed, laden decision, clearly with an eye towards protecting it from reversal because review in courts defers to trial judges on their facts finding,” Schwartzman said. “I think the DOJ brief demonstrates this is a nonfrivolous appeal, meaning that it’s not off the wall. They have a prospect of getting a reversal.”
The DOJ is likely to push for a reversal of Leon’s ruling based on legal analysis rather than facts, as Leon’s ruling was very meticulous in using the evidence to refute the DOJ’s antitrust fears.
Schwartzman thinks it is a “good brief with a good case for reversal,” but said if he had to bet money, the D.C. Court of Appeals will likely affirm the original ruling. At the same time, he said, the outcome of the appeal really depends on which appellate judge hears it.
“Anybody’s assessment of the likelihood of the success of an appeal adjusts it once you find out who’s going to hear the case,” Schwartzman said.
The current ideological split is between seven more liberal judges and three more conservative ones.
“The more left-oriented judges, in very broad general terms, are more sympathetic to reversal and would include Cornelia Pillard and Patricia Millet,” Schwartzman said. “Of the judges who likely would be leaning toward affirmance, it would include David Sentelle and Douglas Ginsburg, who used to be Assistant Attorney General of the Antitrust Division during the Reagan administration, and it would have also been Judge Brett Kavanaugh but he won’t be hearing the case.”
Regardless the appeal’s likelihood to garner a reversal, the DOJ is convinced that the original ruling did not evaluate its evidence fairly, insisting that “the district court substantially constrained the government’s presentation of evidence showing that the merged entity would have greater bargaining leverage.”
But depending on who hears the case, the DOJ still may not get the fair hearing it thinks it deserves.