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WASHINGTON � Right now, the eyes of the antitrust world are locked on Judge Emmet Sullivan. The D.C. federal judge is considering whether to approve settlements the Justice Department negotiated with some of the nation’s largest telephone companies, setting out the conditions of their mergers. Sullivan’s role in reviewing SBC Communications’ $16 billion acquisition of AT&T Corp. and Verizon Communications Inc.’s $8.4 billion purchase of MCI is being intensely scrutinized, not only because these are the two largest telephone mergers in U.S. history but also because they are likely to redefine the power courts have to challenge such deals. In 2004, Congress amended antitrust statutes in the wake of the tumult over an appeals court opinion that circumscribed the courts’ authority to review antitrust settlements. The effect of those amendments, which some claim bolster the power of a judge to toss out a settlement struck by the government, has been hotly debated. “We all understood what the law was before it was amended,” says Janet McDavid, a Hogan & Hartson partner who specializes in antitrust law. “We are all looking to see what the real effect of the amendments will be.” Moreover, lawyers and analysts question whether the proceedings could affect AT&T’s proposed $67 billion takeover of BellSouth. The companies intend to close that deal by the end of the year. That Sullivan has the antitrust bar in such suspense comes as something of a surprise. Many observers expected the judge to give the Justice Department’s approval of the mergers only a cursory review. Instead, Sullivan held a hearing earlier this month in which he suggested that he may go further. That had parties from all along the regulatory spectrum suddenly rushing to file motions with the court to have their voices heard before the judge renders a decision. AT A CROSSROADS Sullivan is expected to announce whether he intends to call for more witnesses or testimony at a status conference today. At an all-day hearing on July 12, Sullivan heard from lawyers from the merging companies and the Justice Department, who urged him to define his role narrowly, and from representatives of smaller, rival telephone companies, who argued that the judge should conduct a more far-reaching review. The Justice Department and lawyers for the merging companies argued that Sullivan could approve the proposed settlement agreements based on the record already before him. The agreements require the companies to divest themselves of fiber-optic connections in a few hundred buildings serving business customers. “The divestiture is extraordinarily narrow and limited,” says David Saylor, also a partner with Hogan & Hartson, who specializes in antitrust and communications law but is not representing any party in the current proceedings. “It’s kind of amazing. These are two of the biggest transactions that have come around in a long time.” Although the Bush administration has shown little interest in vigorous antitrust enforcement with respect to mergers, Sullivan’s actions could signal that future settlement agreements will face more judicial scrutiny. Even if Sullivan ends up approving the agreements, “he has already undermined the expectation that any old agreement will be approved,” a lawyer familiar with the case says. Those opposing the telecom deals are applauding Sullivan’s actions. “It’s the first time that the general public has gotten sunshine in what’s going on in telecom,” says Gary Reback, who represents the Alliance for Competition in Telecommunications, one of the groups representing smaller telephone companies challenging the deals. Reback, of counsel with Silicon Valley-based Carr & Ferrell, has extensive experience taking on the government in antitrust cases, having spearheaded the Justice Department’s antitrust actions against Microsoft in the 1990s. Allowing these mergers to go forward with only the remedies proposed in the settlement agreements amounts to “an abandonment of over 30 years of effort to foster competition in telecommunications services,” according to a motion filed by Comptel, an association of communications companies including Sprint Nextel, RCN Communications and IDT Corp. The motion notes that the mergers, to a large extent, reconstitute the Bell System the government broke up in the 1980s due to antitrust concerns. AUTHORITY ARGUMENTS Perhaps even more fundamental than Sullivan’s assessment of the specifics of the proposed settlement agreements is his consideration of the scope of the courts’ authority to review the agreements. Under a federal law known as the Tunney Act, a court can enter a proposed settlement agreement only if it finds the settlement is in the public interest. The act requires the Justice Department to publish proposed settlement agreements, accept comments on the proposal from the public, publish the comments, and submit a summary of the comments to the court, which then determines whether the remedy proposed is in the public interest. But Sullivan is grappling to figure out exactly what the public interest determination entails, as these cases are the first time a court is scrutinizing a major merger since Congress revised the Tunney Act in 2004. The law was originally passed in the Watergate era as a response to allegations that the Justice Department entered into settlement agreements permitting a merger in exchange for contributions to the Republican Party, says John Flynn, a professor at the University of Utah S.J. Quinney School of Law, who participated in the drafting of the Tunney Act while serving as counsel to the Senate Judiciary Committee’s Antitrust Subcommittee. The Justice Department contends that the amendments resulted in little substantive change to the act, but proponents of more far-reaching judicial review argue that Congress amended the act specifically to reassert the courts’ authority to review settlement agreements. The amendments came in response to D.C. Court of Appeals decisions in the 1990s involving Microsoft, decisions that weakened the act and led to largely perfunctory “rubber stamp” reviews. So perfunctory, in fact, that few parties even bothered to participate. The courts’ standard of review tended to be so deferential that it seemed like a waste of time to get involved, antitrust lawyers say. But after a comment from the judge at the July 12 hearing asking why more public interest groups hadn’t weighed in on the deals, both the American Antiturst Institute and the National Association of State Utility Consumer Advocates, which includes 44 consumer advocate offices in 41 states and the District of Columbia, rushed to ask the court for the opportunity to be heard. In its filing the AAI wrote that it had not commented on the transactions earlier because before the July 12 hearing it had been “justifiably skeptical that any meaningful judicial review of the public interest effects of the proposed final judgments would take place.” The AAI explained that it had deprioritized participating in the Tunney Act process based on its experience that the reviews “amounted to nothing more than a ‘rubber stamp’ for the government’s recommendations.” At today’s status conference, Sullivan may announce that he will hold additional hearings, ask for more material from the government and the parties, or call expert witnesses into the case. He has already asked the Federal Communications Commission for its full, unredacted findings on the transactions, although the parties disagree on the weight the court should give to the FCC’s opinions. Sullivan could also approve or reject the agreements, although lawyers familiar with the case say it’s unlikely that that decision will come this week. Moreover, even lawyers opposing the transactions say it’s doubtful that the companies would have to unwind the deals, which the Justice Department has allowed to close before the settlement agreements are approved by the court. FEET TO THE FIRE Sullivan is no novice at handling pressure-packed cases � he’s been a judge at almost every level during a more than 20-year career. He was appointed by President Reagan to the D.C. Superior Court in 1984, to the D.C. Court of Appeals in 1991 by President Bush, and to the U.S. District Court for the District of Columbia by President Clinton in 1994. And he doesn’t seem to be reluctant to stand up to the government when necessary. In 2003 he ruled that Vice President Dick Cheney should have to release documents related to his energy-policy task force, and last year he ordered the Justice Department to embark on a massive search for documents that related to the rerouting of rail cargo containing hazardous materials away from the District. Now the Justice Department is pushing him to adopt its view of Congress’s 2004 amendments. Lawyers for the department have argued that the 2004 amendments don’t materially affect the act’s standard for review and, in fact, were intended to codify the D.C. Circuit’s jurisprudence. But lawyers for the smaller telephone companies point to the legislative history of the 2004 amendments to bolster their claims that Congress intended to expressly overrule the D.C. Circuit’s rulings and reassert the courts’ ability to conduct Tunney Act reviews as “an independent, objective and active determination without deference to the DOJ.” Meanwhile, John Thorne, Verizon’s deputy general counsel, argued at the July 12 hearing that Congress had considered more far-reaching amendments but scaled them back and warned that interpreting the amendments too broadly could raise serious constitutional concerns. In support of his point, Thorne handed Sullivan a memo penned by Laurence Tribe and Kenneth Starr, a surprising bipartisan duo of constitutional experts, when the amendments were first being considered in 2003. The memo raised separation-of-powers concerns about any interpretation of the Tunney Act that would view the public interest test as a substantive inquiry rather than a procedural one. Alexia Garamfalvi is a reporter with Legal Times, a Recorder affiliate based in Washington, D.C.

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