AT&T & Trump and More Questions

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Yesterday the CEO of AT&T came out in response to the just-announced DOJ lawsuit and said in CEO-speak that they are going to court and ready to use full discovery powers to determine whether President Trump’s animus toward CNN is what is driving this dispute. That makes me really wonder if the Trump White House knows what it’s getting into. Are they really ready for the exposure of discovery and do they realize it could and likely will go directly to the President.

But I wanted to flag a note from an anonymous TPM Reader, TPM Reader AN. He’s an antitrust lawyer. And while I think he agrees that the government’s argument in this case represents a dramatic reversal of recent decades of antitrust enforcement (especially for a GOP administration) he notes some technical factors that may put the government in a better position to win this case than people realize.

These have to do with the court’s general deference to the government, certain latest powers and arguments in the antitrust law and just how the suit is structured. Here’s TPM Reader AN. It’s a bit dense. But if you’re interested in this subject I recommend it to you.

I was reading your Tweets about the AT&T / TW merger and the DOJ’s decision to challenge. I’m an antitrust lawyer — I represent companies trying to get their deals through the DOJ and FTC all of the time. I just wanted to make some points.

While I do not believe that the deal should have been blocked, I think that there are a few important nuances that actually help the government here:

1. First, the DOJ and FTC have won 35 of their last 36 cases in court by my last count. That’s pretty darn good odds. Why does this happen? First, the courts are relatively deferential to agency action and give them the benefit of the doubt. Second, the law remains relatively favorable to the antitrust agencies — case law from the 1970s still controls today because the Supreme Court has not had an opportunity to change the landscape of merger review law since that time (the last Supreme Court case on merger review was in 1973).

2. Second, the case is not so crazy and the theory is grounded in some fact. The theory is that AT&T will do two things: (a) charge more for TW content to its rivals, and (b) not distribute rival content over its platform. If you believe that HBO, CNN and other networks are “must have” networks, then AT&T’s competitors might very well pay more for such content, rather than lose it. Also, if you believe that AT&T will want to protect TW content franchises, it may choose not to distribute rival content over the DirectTV/UVerse platform. These are pretty common theories in antitrust law. The question ultimately will be whether AT&T has the ability and incentive to do this, given its market position (with 45% of distribution and significant content). The DOJ will no doubt have a credible economic expert (in fact if rumors are true, they have one of the very best economists) who can convince a judge that this is possible.

3. The primary flaw with the DOJ’s case is not that the theory is weak or that the facts are non-existent, but rather the theory — these sorts of cases, which we call “vertical cases” happen all of the time. They often are done for very good reason and on balance are good (at least according to economists). They raise discreet issues that can be resolved with behavioral remedies. Here, the DOJ has put a stake in the ground and said no to all behavioral remedies. This is a massive change in policy for the DOJ, and I find it difficult to believe that the change is apolitical. It just seems unfathomable that in a Republican administration the default is to block a deal with some problems, but not insurmountable ones. It runs counter to decades of orthodoxy — vertical mergers are good for the economy because they eliminate double marginalization (i.e., when you own the input you no longer have to pay a third party to give it you). I can’t believe it is entirely coincidental that the policy changes for this deal, that the President has personally railed against. It seems much more likely that the policy changed quickly, in order to accommodate a challenge to this deal.

4. The other reason DOJ might win here is because the Courts almost always look at the deal as it was proposed and pass judgment on it as though no remedies have been proposed. So, the Judge will be looking at the merger itself with no conditions on it. Without conditions restricting AT&T’s conduct with regard to TW content distribution, it isn’t unreasonable to think that the Judge would have problems with the deal.

5. That said, I can’t imagine that the parties are going to find anything in discovery that supports this. I know that the administration is sloppy, but the head of the Antitrust Division is very careful and professional. He knew that if he challenged this deal, all communications with the WH would likely be produced. In bringing the suit, he must feel pretty confident that no such documents exist, and that the chance for embarrassment to the agency is low. He might lose in court, but I can’t imagine it is because of embarrassing correspondence with other members of the Executive Branch.

It is particularly this last point that has me perplexed. We don’t have to speculate about White House efforts to squeeze AT&T over purchasing CNN. There are numerous published accounts of White House officials discussing just that. And remember, for the first part of the year, the DOJ’s head of antitrust Makan Delrahim was Deputy White House Counsel and an assistant to the President. He was literally and figuratively in the White House – not at some hypothetical arms-length remove at the Justice Department.

Still, just because the folks in the White House talked a lot of trash doesn’t necessarily mean they changed the DOJ lawyers’ analysis of the case. But given everything we know, it is very hard to believe discovery in the lawsuit won’t dig up a lot of embarrassing information and possibly documents that would have a direct bearing on the outcome of the case. If that’s so, why would they be going down this path? Trump’s an idiot. But I’m told Delrahim is smart and politically savvy. If there’s bad stuff in the decision-making process, why would he do this? He’d likely lose the case and quite likely see his professional reputation diminished or even destroyed.

Perhaps Trump’s Razor is the best way to go and the stupidest answer is the right one. Then you add the corollary to Trump’s Razor: Everybody gets damaged by Trump. Maybe. But something still doesn’t fit on that front.

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Josh Marshall is editor and publisher of TalkingPointsMemo.com.
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