As it seeks to derail the already-closed $84 billion merger between AT&T and Time Warner, the US Department of Justice claimed Monday that the judge who approved it without restrictions did so without applying "fundamental principles of economics and common sense."
The U.S. Department of Justice brief, filed Monday with the US Court of Appeals for the District of Columbia Circuit, believes the judge made "two fundamental analytical errors: It discarded the economics of bargaining, and it failed to apply the foundational principle of corporate-wide profit maximization."
The DOJ brief comes to light almost two months after US District Court for DC Judge Richard Leon approved the AT&T-Time Warner combo, holding that the marriage would not yield higher prices and reduce competition in the pay-TV arena and that the government failed to prove that the deal would not be in the public interest. (See The US DOJ May Be Appealing the AT&T-Time Warner Merger Trial, AT&T Wins Big, Gets Bigger: Judge Approves AT&T-Time Warner Merger and AT&T Closes $84B Time Warner Takeover.)
Billing it as the first vertical merger case the US has needed to litigate in four decades, the DOJ argued in the brief that the outcome of the appeal "will shape the future of the media and telecommunications industries for years to come…"
The DOJ rekindled its position the merger will empower AT&T Inc. (NYSE: T) to use Time Warner's programming to raise the costs for pay-TV rivals -- and maximize profits -- while also helping AT&T protect its own video business.
More specifically, the DOJ held that a case was made with "reasonable probability" that the AT&T-Time Warner deal would boost Time Warner's bargaining position and substantially reduce competition, in violation of Section 7 of the Clayton Act, which governs M&A and joint ventures.
It added that the district court held otherwise "by erroneously ignoring fundamental principles of economics and common sense," and that those errors "distorted its view of the evidence…"
In response, AT&T, which had argued that it would not enjoy increased leverage given the hyper-competitive state of the US pay-TV industry, said that the judge's original decision poked sufficient holes in the government's case and should therefore stand.
"Appeals aren't 'do-overs,'" AT&T General Counsel David McAtee said in a statement provided to multiple media outlets. "After a long trial, Judge Leon weighed the evidence and rendered a comprehensive 172-page decision that systematically exposed each of the many holes in the Government's case. There is nothing in DOJ's brief today that should disturb that decision."
AT&T has until September 20 to file its response brief.
— Jeff Baumgartner, Senior Editor, Light Reading