On June 12, 2018, the U.S. District Court for the District of Columbia denied an attempt by the U.S. Department of Justice (“DOJ”) to enjoin the merger of AT&T Inc. (“AT&T”) and Time Warner Inc. (“Time Warner”). This case is of particular significance as it represents the DOJ’s rare challenge to a “vertical” merger (a merger between non-competitors that are at different levels of the supply chain). The implications of the court’s decision could reach well beyond the telecommunications arena.
The DOJ had alleged that the transaction would lessen competition in violation of Section 7 of the Clayton Act (15 U.S.C. § 18). Much of the DOJ’s argument rested on the increased leverage that the merged company would have against rival competitors due to the value of Time Warner’s network. Thus, the DOJ alleged that the merged company would have the power to raise the prices that competing video distributors pay to it for the popular Time Warner network packages—cost increases that would be directly passed on to consumers.
The district court held that the DOJ failed to meet its burden to establish that the proposed merger would substantially lessen competition. In so holding, the court found that the DOJ’s “real-world evidence” and economic evidence fell short of demonstrating a likely harm to competition. Among the real-world evidence considered by the court was testimony from third-party competitor witnesses (much of which the court found speculative). Similarly, the court found that a review of prior vertical integrations failed to support a theory of increased leverage. Finally, the court found that the DOJ’s expert’s testimony was insufficient to support the theory of increased leverage.
Vertical mergers are difficult to challenge because they often create efficiencies that benefit consumers. This case demonstrates that real-world evidence that verifies the efficiencies and minimizes anticompetitive effects is key to a successful defense. This case further demonstrates that pure vertical mergers in the health care industry, appropriately defended with demonstrable evidence of efficiencies, are likely to get through a federal antitrust review.