Antitrust Alert: Court Rejects DOJ Antitrust Challenge to AT&T/Time Warner

After eighteen months of investigation and litigation, a federal district court has rejected the Justice Department's challenge to AT&T's $108 billion acquisition of Time Warner Inc. Although the government could appeal, the merger is likely to close before the parties' June 21 termination date.

This "vertical" merger combines companies at different distribution levels. Time Warner is an entertainment company with rights to video content (CNN, TNT, TBS, HBO). AT&T is a distribution company, providing wireless, broadband, and pay-TV services to customers (including DIRECTV and U-Verse). This marked DOJ's first vertical merger trial in forty years and attracted substantial interest from the business community.

DOJ believed postmerger Time Warner would have more leverage to charge higher prices for its "must have" content to other distributors (Charter cable, Dish satellite, others), which would be passed on to customers. To the extent Time Warner failed to reach a deal with distributors, lost revenues (content fees and advertising revenues) would be offset as some customers switched to AT&T video distribution.

In a 170-page opinion, the court was unpersuaded by DOJ's theory and evidence, including documents and testimony from the parties and industry participants and the government's expert economist.

Key Takeaways

1. Vertical mergers, which have built-in efficiencies, are harder to challenge than horizontal mergers, where market share presumptions help the plaintiff. The court relied on DOJ's concession that AT&T/Time Warner brings significant efficiencies.
2. This DOJ's policy decision to avoid behavioral remedies (a commitment to behave competitively postmerger) limited its options here to a divestiture or structural remedy (not always the best fit for a vertical merger) and litigation to block the deal.
3. Each merger is different, but this decision may temper future vertical challenges.
4. The decision should have little impact on horizontal mergers, where this DOJ has been consistent with mainstream Republican enforcement.

Lawyer Contacts

For more information, please contact your principal Jones Day representative or any of the lawyers listed below. 

Kathryn M. Fenton
Washington
+1.202.879.3746
kmfenton@jonesday.com

Michael H. Knight
Washington
+1.202.879.5553
mhknight@jonesday.com

J. Bruce McDonald
Houston / Washington
+1.832.239.3822 / +1.202.879.5570
bmcdonald@jonesday.com

Ryan C. Thomas
Washington
+1.202.879.3807
rcthomas@jonesday.com

Thomas D. York, an associate in the Dallas Office, assisted in the preparation of this Alert. 

Jones Day prepares summaries of significant antitrust enforcement, litigation, and policy events as a service to clients and interested readers, to provide timely insight on antitrust and competition law developments relevant to business, but not as legal advice on any specific matter.  Please visit our Publication Request form to add your name to our distribution list.