This King & Spalding memo addresses the role that “self help” remedies played in the successful defense of the DOJ’s challenge to the AT&T/Time Warner merger. This excerpt provides an overview of the actions taken by the parties to the deal & the Court’s reaction to them:
Among the many issues raised by the litigation is the potential significance of company-initiated “remedies,” as opposed to government-mandated divestitures or behavioral commitments, in countering government merger challenges. One of the DOJ’s key allegations in the litigation was that the combined AT&T/Time Warner would be more likely to raise prices for Turner Broadcasting content to rival video distributors (such as Comcast or Dish) because in the event of a Turner Broadcasting blackout on rival platforms, some disgruntled customers would switch to AT&T’s DirecTV services.
A week after the DOJ filed its complaint to block the merger, Turner Broadcasting sent letters to 1,000 distributors pledging that it would offer arbitration in any renewal disputes and that distributors would have the right to continue to carrying Turner networks pending the outcome of the arbitration, meaning no blackouts during the arbitration process. This arbitration provision would be in place for seven years.
During the trial and the appeal, the merging parties repeatedly referenced the arbitration offer in response to the DOJ’s allegations of competitive harm from increased bargaining leverage, and both the trial court and D.C. Circuit emphasized the importance of the arbitration/no-blackout proposal in their decisions. Indeed, the D.C. Circuit said that the arbitration offer made the DOJ’s challenges to the district court’s treatment of the DOJ’s economic theories “largely irrelevant.”
While the DOJ has pushed back against self-help remedies & continues to prefer structural remedies (e.g., divestment) to conduct-based remedies, the memo says that appropriately tailored conduct commitments may be helpful in dealing with a merger enforcement action – particularly in the case of vertical mergers. That’s because, as the DOJ admitted in the AT&T/Time Warner case, vertical transactions “present greater theoretical and evidentiary hurdles for the government as compared to horizontal merger enforcement.”
– John Jenkins