The Justice Department will attempt to block a vertical merger for the first time in at least 40 years.
The DOJ filed a lawsuit Monday in the U.S. District Court for the District of Columbia against AT&T to block its merger with Time Warner, ending more than a year of review and weeks of speculation as to whether antitrust officials would step in. Media reports earlier this month suggested DOJ officials tried to negotiate with AT&T, and requested that AT&T sell either DirecTV or Turner Broadcasting, the portion of its business that owns CNN, in order for the merger to go through.
The complaint alleges AT&T would hinder its rivals by forcing them to pay more per year to distribute Time Warner content.
“This merger would greatly harm American consumers,” said Assistant Attorney General for Antitrust Makan Delrahim in a statement. “It would mean higher monthly television bills and fewer of the new, emerging innovative options that consumers are beginning to enjoy. AT&T/DirecTV’s combination with Time Warner is unlawful, and absent an adequate remedy that would fully prevent the harms this merger would cause, the only appropriate action for the Department of Justice is to seek an injunction from a federal judge blocking the entire transaction.”
In a statement, AT&T General Counsel David McAtee II said the lawsuit is a “radical and inexplicable departure from decades of antitrust precedent.”
“Vertical mergers like this one are routinely approved because they benefit consumers without removing any competitor from the market. We see no legitimate reason for our merger to be treated differently,” McAtee said.
AT&T is represented by O’Melveny & Myers’ Daniel Petrocelli. Petrocelli, a Los Angeles-based partner, has worked for President Donald Trump in prior cases, including his defense of a lawsuit over his Trump University seminars.
The DOJ has faced increasing criticism in the past few weeks about the requirement to sell CNN. Trump has, at rallies and on Twitter, frequently expressed his negative opinion of the network’s coverage. The New York Times reported in July that White House officials discussed using the merger as possible leverage in its disputes over coverage. Indeed, advocacy group Protect Democracy has already filed a FOIA lawsuit to obtain documents showing the White House improperly interfered with the Justice Department’s review.
Regulatory agencies across the country have already given approval to the deal, and the U.S. was the last holdout, until now. Vertical mergers are rarely challenged by the government as they involve two firms merging that do not directly compete, and proponents agree they create efficiencies.
Past vertical mergers, like that of Comcast and NBCUniversal in 2011, have resulted in consent decrees. In such agreements, companies agree to a set of conditions to ensure that competition is not harmed.
David Balto, a lawyer and former policy director at the Federal Trade Commission who represented several groups opposed to the Comcast/NBCUniversal deal, said the DOJ’s action Monday relied on antiquated law.
“DOJ’s action is a misguided effort to block a pro-competitive deal that poses no threat to consumers,” Balto said. “The case relies on antiquated antitrust law from a period of time (over 40 years ago) when we received television programming through rabbit ears. Like those rabbit ears the law DOJ relies on belongs in a museum, not in a court, and the case is likely to receive rabbit ears reception by a skeptical court.”
But Scott Wagner, a litigation partner at Bilzin Sumberg in Miami, said he understands why the DOJ would bring the lawsuit.
“The point I think that DOJ has is, it’s big,” Wagner said. “It’s such a big transaction. Really, what you’re doing is your combining lots of companies that do different things, and the question is, what is this bad anti-competitive effect that DOJ is going to argue is the result?”
Still, Wagner added that he doesn’t believe the DOJ will be successful in its case.