Federal Appeals Court Questions DOJ Economic Concerns Regarding AT&T/Time Warner Union

Federal Appeals Court judges Dec. 6 questioned lawyers representing the Department of Justice about the government’s economic concerns regarding AT&T’s $85 billion acquisition of Time Warner.

The Justice Department’s antitrust division filed an appeal of a district court judge’s June approval of the merger that resulted in the formation of WarnerMedia — citing the deal would lead to higher pay-TV pricing and content blackouts for consumers, among other issues.

Government attorney Michael Murray argued U.S. District Court Judge Richard Leon erred in “economic logic and reasoning” in relation to possible blackouts of consumer access to content occurring during carriage disputes between content holders and pay-TV and over-the-top video distributors.

“‘Incentives remain the same’ for a super company to threaten a ‘blackout,’ in which it withholds content from distributors, in order to cripple rivals,” said Murray, as reported by CNN Business.

But D.C. Circuit Court of Appeals Judge Robert Wilkins countered that there exist arbitration procedures in place for carriage disputes  — systems Wilkins said Judge Leon used in his decision.

“So how can we just ignore that and say the district court has irrationally switched positions?” asked Wilkins.

Speaking Dec. 4 the UBS 46thAnnual Global Media and Communications confab in New York, AT&T Randall Stephenson remained optimistic the appeals court would validate the merger.

Specifically, Stephenson said the appellate court is looking for errors in law, not whether the district court judge “gets the facts right or not.” He said AT&T hired appellate lawyers during the original trial to consult on the strength of their case as it applied to the rule of law.

“We feel like Judge Leon wrote a pretty tight order and it was an order that was very fact-specific to the AT&T/Time Warner case, and so we feel like we have an order that should stand up well in the appellate review,” Stephenson said. “And so, we’re anxious to get this piece of it behind us.”

 

Judge in AT&T/DOJ Trial Ups Questioning

U.S. District Court Judge Richard Leon April 4 questioned witnesses for the government in the AT&T/Time Warner antitrust trial probing questions about negotiations involving programing distribution.

At the center of the government’s regulatory concern is the contention that a combined AT&T/Time Warner, whose assets include DirecTV, AT&T U-verse, Turner (TNT, CNN, TBS), HBO, Warner Bros., could unfairly leverage content access to pay-TV distributors in favor of its own distribution channels.

With Tom Montemagno, EVP, programing acquisition at Charter Communications, on the stand for the government, Leon asked details about Turner’s revised arbitration rules to pay-TV operators – updated after the DOJ filed the lawsuit – guaranteeing against blackouts and content disruption to consumers in the event of an impasse in license negotiations.

Specifically, Turner’s so-called “blind” arbitration rules enable each side to make an offer with the arbitrator deciding which offer to accept. Distributors such as Charter have expressed concern that a combined AT&T/Time Warner would have an unfair advantage in arbitration since it is party to fiscal information on both sides of the issue.

Under questioning by Leon, Montemagno agreed that a more transparent “mutually beneficial, mutually fair” process would be better for all parties involved.

The matter is significant, reports CNN, as it is reminiscent to 2011 when Leon presided over the antitrust settlement agreement between the DOJ and Comcast, which was acquiring NBC Universal.

In that case, which Leon ruled in favor of Comcast, the judge ordered the cable giant and government to collect data on arbitration cases involving digital distribution services such as Netflix, Hulu and Amazon Prime Video.

“Since neither the court nor the parties has a crystal ball to forecast how this final judgment [Comcast/NBC Universal] … will actually function, I believe that certain additional steps are necessary,” Leon wrote in a memo accompanying his order, according to CNN.

Leon’s skepticism about the arbitration process suggests the judge could either allow the AT&T/Time Warner acquisition to close without conditions, or rule against it unless additional guidelines are put in place. There is no jury in this case.