Appeals court rejects government bid to reverse AT&T/Time Warner deal

A federal appeals court has upheld AT&T’s acquisition of Time Warner, dealing a blow to Trump administration lawyers who had tried to stop the deal.

The Trump administration sued to stop the deal back in 2017, arguing that having AT&T as a corporate parent would give Time Warner too much leverage in negotiations with other cable and satellite network providers.

Media conglomerates like Time Warner engage in periodic negotiations with distributors like Comcast and AT&T. In these negotiations, each party threatens to end their relationship if they don’t get favorable financial terms. But each party also has an incentive not to take too hard a line because failing to reach an agreement could mean a content blackout that’s expensive for both sides.

Government lawyers argued that allowing AT&T to own Time Warner could upset the balance of the industry. That’s because in many cases Time Warner will be negotiating with a phone, cable or satellite company that is a competitor of AT&T. In the event of a blackout, some customers would switch from an AT&T competitor to AT&T (or to DirecTV, the satellite television provider owned by AT&T). That means that Time Warner could afford to take a harder line in negotiations, ultimately earning higher licensing fees that could get passed on to consumers.

Unsurprisingly, AT&T’s experts had a different point of view. They argued empirical data from previous mergers, including Comcast’s 2011 merger with NBC, showed that mergers had no measurable impact on the prices of television content.

The government faced an uphill battle here because appeals courts apply a deferential standard when they’re reviewing this kind of antitrust ruling. The DC Circuit said it would only overrule Judge Leon’s ruling if they found that Leon had made a “clear error.”

In its ruling, the DC Circuit held that the government had failed to make that case. “Evidence indicated that the industry has become dynamic in recent years with the emergence, for example, of Netflix and Hulu,” the DC Circuit held. “In this evidentiary context, the government’s objections that the district court misunderstood and misapplied economic principles and clearly erred in rejecting the quantitative model are unpersuasive.”

The Trump administration could appeal its defeat to the Supreme Court, but it has not indicated whether it will do so.