AT&T judge's answer could be something other than yes or no
6 April 2018. By Curtis Eichelberger.
US District Judge Richard Leon, who is handling the trial over whether AT&T will be permitted to buy Time Warner, has more options than giving a thumbs-up or thumbs-down, and he has shown at least a few signs that he might be willing to pursue them.
The Department of Justice sued to block the deal, arguing that once the acquisition is complete, Time Warner can increase prices or withhold programming, driving some consumers to AT&T's DirecTV satellite service.
The companies have proposed that any competition concerns associated with their merger could be resolved with legal agreements between Time Warner and the distributors of that company's content. Distributors, however, have pushed back against the actual agreements that Time Warner has proposed.
Tom Montemagno, Charter Communications' executive vice president for programming acquisition, testified on Wednesday that the Time Warner offer, which includes binding arbitration of disputes, was insufficient because, among other problems, it only involved Turner Broadcasting, and not HBO.
Leon wondered if the agreement could be modified to produce a satisfactory result: “Is there a way you can see arbitration restructured to be reasonably fair?” he asked.
“Yes,” Montemagno said, but he added that Time Warner had been unwilling to negotiate.
Leon's question, however, suggests that the judge himself might be interested in seeing negotiations between AT&T and the DOJ.
“Federal judges are constantly nudging and cajoling and suggesting to the parties this is a good time to settle and here is how you might frame that,” said Randy Picker, a law professor at the University of Chicago. “Is the judge trying to hint to DOJ that 'I’m listening in to what’s going on here, and I’m not seeing it?' I don’t know. But looking at a path to settlement is an exercise in normal case management.”
Leon had previously signed off on a deal that allowed the 2011 merger of Comcast and NBCU, but that came through a consent agreement instigated by the companies and the DOJ.
There are potential advantages to both sides in a settlement. AT&T could complete the deal, and the DOJ could get better terms than the company has currently put on the table. And if the DOJ fears defeat, it could avoid creating a troublesome precedent.
Precedents are sparse, but some observers think that the judge could impose his own solution. In that view, if the judge finds that the merger violates the law, he could issue an order saying that to remedy the violation, a modified arbitration provision is appropriate.
Court-mandated remedies aren't unusual in cases involving anticompetitive conduct, where a judge can fashion a solution to restore competition in a market that has been harmed. They are rare, however, in merger suits.
In a case pending in Richmond federal court, a jury in February found that the 2012 merger between Jeld-Wen and Craftmasters International violated antitrust law. US District Judge Robert E. Payne is now considering whether he can impose some form of equitable relief beyond damages to plaintiff Steves & Sons, such as requiring Jeld-Wen to divest facilities in an effort to create a new doorskin manufacturer to enhance competition.
University of Pennsylvania law professor and antitrust expert Herbert Hovenkamp said that in the AT&T case, if the judge finds the merger illegal, his job is to enjoin it. Full stop. At that point, the case would be subject to appeal and the parties could negotiate a settlement, but the judge’s power is limited to encouraging a settlement.
Any settlement might be a hard sell to Assistant Attorney General Makan Delrahim, who has gone out on a limb to fight this merger.
AT&T and Time Warner play different roles. Time Warner produces content; AT&T distributes it. No competitors are being eliminated, and dominance of a particular market is not being alleged. These so-called vertical mergers are often resolved with the sort of fix that Time Warner proposes, but Delrahim has come out strongly against such so-called 'behavioral' remedies when a vertical merger is deemed illegal.
Delrahim argues that the DOJ doesn’t have the resources or expertise to monitor a company years into the future and would prefer to resolve antitrust issues with a structural fix, where the offending pieces of the business are sold off and the antitrust concerns are fixed permanently.
The government asked Leon to bar the companies from arguing in favor of the arbitration proposal at trial. The DOJ said that considering the companies' arbitration offer would "put the cart before the horse" by allowing the court to adjudicate a remedy for an anticompetitive merger before actually finding that the merger was anticompetitive — a legal strategy known as 'litigating the fix' because it allows a court to consider approving a merger with conditions proposed by the companies involved.
Leon denied the government's request, and the arbitration offer has become a central focus of the trial.
Distributors say that beyond the agreement's failure to include premium cable channel HBO, Time Warner would have an edge in arbitration because it has access to the financial details of deals with other distributors. Competitive markets should be decided by price, not an arbitrator, they say.
Lawyers and law professors alike say regardless of the parties’ positions on the deal, if the judge wants them to settle, they aren’t likely to play chicken with him in the end.
“You don’t want to put a multi-billion-dollar transaction at risk based on psychoanalysis [of the judge],” said Andrew Schwartzman, a lecturer at the Georgetown Law School. And despite the principles that Delrahim wants to promote, “It’s one thing for Makan to say I won’t settle cases with behavioral consent decree, it’s another if the judge says, ‘This will work. You are going to do it.’ "