United States v. AT&T, Inc.
916 F.3d 1029
| D.C. Cir. | 2019Background
- In 2016 AT&T proposed to acquire Time Warner (including Turner Broadcasting); the DOJ sued under Section 7 of the Clayton Act to enjoin the vertical merger, alleging an "increased-leverage" theory that post-merger Turner could extract higher affiliate fees by credibly threatening long-term blackouts.
- Government’s evidence: economic theory (Nash bargaining), expert quantitative model by Prof. Carl Shapiro predicting higher fees passed to consumers, regulatory filings and internal statements suggesting vertical integration can raise prices.
- AT&T’s response: econometric/real-world evidence by Prof. Dennis Carlton showing prior vertical integrations (e.g., Comcast–NBCU) produced no statistically significant increase in content prices; critiques of Shapiro’s model inputs; testimony from industry negotiators denying increased leverage.
- Turner made post-filing, "irrevocable" offers of baseball‑style (no‑blackout) arbitration to ~1,000 distributors, which the district court treated as having real‑world effect and as undermining the government’s bargaining‑leverage predictions.
- The district court found the government failed to make a prima facie showing that the merger was likely to materially increase Turner’s bargaining leverage or produce higher consumer prices; DOJ appealed but the D.C. Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the district court misapplied Nash bargaining theory in rejecting government’s increased‑leverage claim | Nash bargaining predicts reduced blackout costs post‑merger => more leverage => higher affiliate fees | District court relied on real‑world evidence showing prior vertical mergers and negotiator testimony do not support the predicted leverage gain | Court: No clear error; district court properly applied theory to the factual record and reasonably credited real‑world evidence over speculative model outputs |
| Whether the court ignored corporate‑wide profit‑maximization (Copperweld principle) | A merged firm will maximize profits across divisions, so owner‑ship gives Turner incentive to use distribution to raise prices | AT&T: court accepted profit‑maximization generally and found real‑world evidence showed merged entity had no practical ability to raise rival fees despite unified incentives | Held: No reversible error; court acknowledged profit‑maximization but found record support for conclusion that merger would not enable profitable price‑raising conduct |
| Whether the district court used internally inconsistent reasoning in weighing industry testimony | DOJ: court improperly credited potentially self‑interested executives while discounting competitor testimony | AT&T: district court discounted competitor testimony as speculative and credited consistent, experience‑based executive testimony | Held: Not clearly erroneous; court rationally distinguished speculative competitor fears from corroborated industry experience |
| Whether the district court clearly erred in rejecting Shapiro’s quantitative model of consumer harm | Model predicts sizable net annual price increases to consumers based on bargaining effects | AT&T: model had unreliable inputs, ignored long‑term contracts and Turner’s arbitration offers; econometric evidence found no price effect in prior mergers | Held: No clear error; district court permissibly found model unreliable and insufficiently probative given its input problems and the arbitration offers/contractual constraints |
Key Cases Cited
- Brown Shoe Co. v. United States, 370 U.S. 294 (1962) (Section 7 focuses on probabilities of substantial lessening of competition)
- United States v. Baker Hughes, 908 F.2d 981 (D.C. Cir. 1990) (burden‑shifting framework for merger challenges)
- United States v. Anthem, 855 F.3d 345 (D.C. Cir. 2017) (application of Baker Hughes framework)
- Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100 (1969) (standard for clear‑error review of factual findings)
- FTC v. H.J. Heinz Co., 246 F.3d 708 (D.C. Cir. 2001) (standard on injunctive relief in merger cases)
- Cooper v. Harris, 137 S. Ct. 1455 (2017) (deference to permissible views of the evidence)
- Copperweld Corp. v. Independent Tube Co., 467 U.S. 752 (1984) (corporate‑wide profit‑maximization and single‑actor treatment)
- Ford Motor Co. v. United States, 405 U.S. 562 (1972) (Section 7 challenge may succeed without quantitative price evidence)
- United States v. Comcast, 808 F. Supp. 2d 145 (D.D.C. 2011) (prior vertical‑merger consent/remedies and arbitration context)