{"id":11645,"date":"2017-12-02T14:30:54","date_gmt":"2017-12-02T19:30:54","guid":{"rendered":"http:\/\/sites.law.duq.edu\/juris\/?p=11645"},"modified":"2017-12-02T14:59:42","modified_gmt":"2017-12-02T19:59:42","slug":"justice-department-alleges-clayton-act-antitrust-violations-against-att-and-time-warner-merger","status":"publish","type":"post","link":"https:\/\/sites.law.duq.edu\/juris\/2017\/12\/02\/justice-department-alleges-clayton-act-antitrust-violations-against-att-and-time-warner-merger\/","title":{"rendered":"Justice Department Alleges Clayton Act Antitrust Violations Against AT&T and Time Warner Merger"},"content":{"rendered":"
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Photo Credit: Pixabay<\/figcaption><\/figure>\n

By Phil Raymond, Staff Writer<\/b><\/p>\n

On November 20, 2017, the United States Justice Department, led by the Department\u2019s antitrust division head Makan Delrahim, filed suit against media giants AT&T and Time Warner for a proposed merger worth nearly $85.4 billion. The Justice Department made its case in a 23-page complaint filed before the Federal District Court of the District of Columbia, arguing that the proposed vertical merger violates Section 7 of Clayton Antitrust Act of 1914.[1]<\/sup><\/a> While not a monumental move by the Justice Department\u2014it has sued to halt mergers of this magnitude before\u2014it sets the tone for the current administration\u2019s stance on antitrust litigation.<\/p>\n

The proposed merger is known as a \u201cvertical merger,\u201d which merges two companies that previously bought or sold from each other into one company, an example being a manufacturer merging with a distributor selling its products.[2]<\/sup><\/a> The opposite, known as a \u201chorizontal merger,\u201d involves merging two companies that occupy the same market; thus, the combined sales of both companies offer a greater share of the market.[3]<\/sup><\/a><\/p>\n

AT&T, owner of DirecTV, arguably the nation\u2019s largest distributor of subscription television, seeks to obtain Time Warner, the owner of top TV networks like CNN, TNT, TBS, and HBO.[4]<\/sup><\/a> The Justice Department alleges that the combined firm would likely \u201cuse its control of Time Warner\u2019s popular programming as a weapon to harm competition.\u201d[5]<\/sup><\/a> Such a tactic, the Justice Department contends, violates antitrust law, specifically Section 7 of the Clayton Act.[6]<\/sup><\/a><\/p>\n

For clarity, antitrust litigation focuses in part on the prevention of corporate monopolies, price-fixing, and corporate mergers likely to reduce competition in particular markets.[7]<\/sup><\/a> Antitrust litigation primarily is driven by three federal laws: the Sherman Antitrust Act of 1890; the Clayton Act; and the Federal Trade Commission Act of 1914.[8]<\/sup><\/a><\/p>\n

The Justice Department\u2019s suit focuses on Article 7 of the Clayton Act, which prohibits acquisitions between corporations that have the effect of substantially lessening competition, or that lead to creation of a monopoly.[9]<\/sup><\/a> Specifically, the Justice Department argues in its brief that the proposed merger would lessen competition in interstate trade and commerce in both \u201cAll Video Distribution\u201d and \u201cMultichannel Video Distribution\u201d markets throughout the country.[10]<\/sup><\/a><\/p>\n

The thrust of the Justice Department\u2019s argument premises that, should AT&T control Time Warner\u2019s highly popular networks like CNN and TBS, AT&T effectively could charge smaller cable network providers exorbitant prices to carry such programs. Thus, the Justice Department continues, should AT&T \u201cwalk away from the bargaining table,\u201d with cable providers, Time Warner\u2019s channels would go dark on that cable provider\u2019s network, and the cable provider\u2019s customers would cancel their subscriptions and walk away.[11]<\/sup><\/a><\/p>\n

While plausible, the Justice Department\u2019s argument may assume too much. A major issue with the Justice Department\u2019s stance is that it assumes a cable network\u2019s customers automatically would drop their subscriptions without Time Warner\u2019s channels. Furthermore, the Justice Department speculates that dissatisfied customers would even switch to DirecTV, owned by AT&T, rather than dropping cable altogether and instead opt for providers such as Netflix or Amazon Prime Video. However, if the Justice Department sustains its burden under the Clayton Act and prove that the merger would substantially lessen competition, the proposed merger may be blocked.<\/p>\n

To further complicate the matter, the Justice Department\u2019s position potentially was undermined by recent comments by President Donald J. Trump. On November 25, 2017, President Trump on Twitter lambasted CNN, owned by Time Warner, stating that CNN is \u201cfake news\u201d and represents America poorly.[12]<\/sup><\/a> In a colorful response, Norm Eisen, chief White House ethics lawyer under former President Barack Obama, urged that President Trump\u2019s tweet could be used against the Justice Department in its suit against AT&T and Time Warner.[13]<\/sup><\/a> Indeed, the comment could serve as a point of attack for AT&T that the Justice Department filed its lawsuit pursuant to President Trump\u2019s dislike of CNN, rather than a genuine antitrust concern.[14]<\/sup><\/a><\/p>\n

The result of this suit will be monumental, regardless of the outcome. Should AT&T and Time Warner prevail, we could see one of the largest, if not the largest, pay-TV distributors in existence. Should the Justice Department prevail, it signals a shift in the Justice Department\u2019s approach to vertical mergers because, historically, the Department has elected not to disturb these mergers, requiring instead that corporations promise not to engage in anti-competitive behavior.[15]<\/sup><\/a><\/p>\n

 <\/p>\n

 <\/p>\n

Sources<\/strong><\/p>\n

\n

[1]<\/a>\u00a0https:\/\/www.law.com\/nationallawjournal\/sites\/nationallawjournal\/2017\/11\/20\/read-the-complaint-united-states-v-att\/<\/p>\n

[2]<\/a>\u00a0 https:\/\/www.investopedia.com\/terms\/h\/horizontalmerger.asp<\/p>\n

[3]<\/a>\u00a0 Id<\/em>.<\/p>\n

[4]<\/a>\u00a0https:\/\/www.law.com\/nationallawjournal\/sites\/nationallawjournal\/2017\/11\/20\/read-the-complaint-united-states-v-att\/<\/p>\n

[5]<\/a>\u00a0 Id<\/em>.<\/p>\n

[6]<\/a>\u00a0 Id<\/em>. See<\/em> 15 U.S.C. \u00a7 18. Acquisition by one corporation of stock of another.<\/p>\n

[7]<\/a>\u00a0 https:\/\/www.investopedia.com\/terms\/a\/antitrust.asp<\/p>\n

[8]<\/a>\u00a0 Id<\/em>.<\/p>\n

[9]<\/a>\u00a0 15 U.S.C. \u00a7 18.<\/p>\n

[10]<\/a>\u00a0https:\/\/www.law.com\/nationallawjournal\/sites\/nationallawjournal\/2017\/11\/20\/read-the-complaint-united-states-v-att\/<\/p>\n

[11]<\/a>\u00a0 Id<\/em>.<\/p>\n

[12]<\/a>\u00a0 http:\/\/www.newsweek.com\/trumps-cnn-fake-news-attacks-could-come-back-haunt-him-obama-lawyer-says-722651<\/p>\n

[13]<\/a>\u00a0 Id<\/em>.<\/p>\n

[14]<\/a>\u00a0 Id<\/em>.<\/p>\n

[15]<\/a>\u00a0 https:\/\/www.bloomberg.com\/view\/articles\/2017-11-24\/justice-has-a-case-on-at-t-time-warner<\/p>\n","protected":false},"excerpt":{"rendered":"

By Phil Raymond, Staff Writer On November 20, 2017, the United States Justice Department, led by the Department\u2019s antitrust division head Makan Delrahim, filed suit against media giants AT&T and Time Warner for a proposed merger worth nearly $85.4 billion. The Justice Department made its case in a 23-page complaint [\u2026] <\/p>\n

<\/div>\n

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