Court of Appeals’ Decision Upholding AT&T/Time Warner Merger Signals Hurdles in Vertical Merger Enforcement
Vertical mergers among high-tech companies likely became a bit easier today as the U.S. Court of Appeals for the D.C. Circuit rejected the U.S. Justice Department’s effort to overturn the district court ruling that gave a green light to AT&T’s acquisition of Time Warner.
As this blog noted, the imminent appellate decision was much anticipated for the signals it would give as to the direction of vertical merger enforcement. After several decades of never challenging a vertical merger in court, the Justice Department chose to challenge A&T’s $85.4 billion deal to acquire Time Warner.
In today’s decision, the Court of Appeals affirmed the district court’s order denying a permanent injunction of the merger.
On appeal, the government contended that the district court (1) misapplied economic principles, (2) used internally inconsistent logic when evaluating industry evidence, and (3) clearly erred in rejecting Professor Shapiro’s quantitative model. The appellate court held that these arguments largely turned on whether the district court’s factual findings were clearly erroneous.
Significantly, while the Court of Appeals expressed some concern about errors the district court may have made in evaluating the evidence, the appellate court found no clear error given the speculative nature of the expert testimony and the fast-evolving nature of the video industry, which complicates any analysis of likely competitive effects.
This decision will be of particular interest to other high-tech and telecom companies that may be contemplating vertical mergers of their own. To the extent such mergers are scrutinized by antitrust enforcers in the future, they are likely to be confronted with similar arguments about the speculative nature of any competitive analysis and the changing nature of the industry. To the extent the Justice Department’s challenge of the AT&T-Time Warner merger may have indicated a new-found interest in vertical merger enforcement, this case may well temper such interest.
The Justice Department now needs to decide whether to appeal to the Supreme Court. On a first reading, however, the appellate decision does not appear to depend on any disputed legal analysis that is likely to attract the interest of the Supreme Court. Given the fact-based nature of the appellate decision, it appears highly doubtful that the Justice Department would fare any better in the Supreme Court.