United States v. AT&T/TWX Reply Brief of Appellate United States of America
October 11, 2018
The Department of Justice’s Antitrust Division filed its reply brief today in United States v. AT&T Inc. et al., in the D.C. Circuit Court of Appeals. Assistant Attorney General Makan Delrahim issued the following statement:
“AT&T’s brief, which is little more than a revisionist 58-page summary of the district court’s opinion, does not remedy the economic and logical errors in the decision. This isn’t surprising.” said Makan Delrahim, Assistant Attorney General for the Antitrust Division. “Ultimately, AT&T never resolves the district court’s erroneous rejection of the economics of bargaining and the principle of corporate-wide profit maximization, which are the basis of our appeal.”
KEY EXCERPTS FROM THE REPLY BRIEF OF THE UNITED STATES:
“AT&T rarely defends the court’s logic. Instead, it attempts to construct a new opinion.” [Reply at 1]
- “[A]bandoning any real defense of the district court’s pervasive error that the merger will not increase AT&T’s bargaining leverage at all, AT&T hangs its hat on a phrase in a footnote thirty pages into the court’s analysis. AT&T’s reading of the footnote, however, is inconsistent with the court’s principal finding.” [Reply at 1]
- “AT&T defends the court’s flawed rejection of Professor Shapiro’s [the government’s economic expert] testimony by attempting to elide that the court used the wrong number for consumer savings: AT&T simply swaps a different number into its brief without any explanation how the court could have reached it.” [Reply at 1]
“The Economics of Bargaining Applies to Pay-Television Negotiations and Predicts a Price Increase from this Merger.” [Reply at 4]
- “The principles of bargaining are accepted by economists and were previously adopted by AT&T and the FCC as fitting the pay television industry. The district court rejected the economics of bargaining here, but AT&T fails to address the court’s inconsistencies in doing so. It cannot explain how Time Warner had leverage from threatening blackouts before the merger, but could not have any credible ability to threaten blackouts after the merger.” [Reply at 2]
- “[T]here is no merit to AT&T’s hyperbolic contention that the economics of bargaining predicts that any vertical merger in the pay-television industry will result in higher programming prices. As the government showed, for a merger to lessen competition substantially in violation of Section 7, the programmer must have the type of content that can drive consumers who lose it to switch, and the distributor must earn a margin on subscribers gained from the switch. Most vertical mergers do not meet this standard. This one does.” [Reply at 12-13]
“AT&T Fails To Grapple With The District Court’s Erroneous Rejection Of Corporate-Wide Profit Maximization” [Reply at 13]
- “AT&T unsuccessfully attempts to justify the district court’s conclusion that Time Warner would not bargain with DirecTV’s interests in mind. That conclusion is contrary to Copperweld and the ‘aim’ of Section 7—‘to arrest apprehended consequences of intercorporate relationships before those relationships could work their evil.’ United States v. E.I. du Pont de Nemours & Co., 353 U.S. 586, 597 (1957).” [Reply at 13]
The District Court’s Ruling Contradicts AT&T’s and DirecTV’s Position Before the FCC:
- “AT&T erroneously contends that the government failed to establish that the economics of bargaining fits the pay-television industry, but there is no meaningful dispute that it does. Notably, AT&T’s and DirecTV’s own filings before the FCC confirm that fit. AT&T downplays its prior position, claiming with egregious understatement that those filings only generally ‘endorsed use of Nash bargaining to assess vertical mergers.’ The filings stand for much more: AT&T and DirecTV advocated for the use of the same economics of bargaining to assess the effect of vertical integration between a programmer and a distributor in this industry.” [Reply at 8-9]
“AT&T Cannot Justify the District Court’s Clearly Erroneous Dismissal of Professor Shapiro’s Quantification of Harm” [Reply at 16]
- “AT&T alternatively argues that purported flaws in Professor Shapiro’s quantification of harm provide another basis for this Court to affirm. As explained in the opening brief, however, the district court demanded a degree of certainty in excess of Section 7’s reasonable probability standard, and its finding of zero harm is unsupportable. AT&T fails to justify the court’s erroneous findings, making remand unavoidable.” [Reply at 2-3]
AT&T’s “Selective Prosecution” Defense Is Not an Issue on Appeal
- “AT&T laments that trial was limited to ‘the fundamental question of whether DOJ had met its burden to prove that the proposed combination violated Section 7 of the Clayton Act.’ That, of course, was the statutory question posed by the complaint. AT&T sought irrelevant and overly expansive discovery into alleged White House communications, beyond those with the Antitrust Division, but the district court correctly denied that request before trial, and AT&T sought no further review. The only issue on appeal is whether the court’s Clayton Act decision is erroneous, and the answer is yes.” [Reply at 3]
Attachment:
Proof Reply Brief of Appellant United States of America [REDACTED]