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Speaker 1: Welcome to the Bloomberg Law Podcast. I'm June Grosso. Every

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Speaker 1: day we bring you insight and analysis into the most

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Speaker 1: important legal news of the day. You can find more

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Speaker 1: episodes of the Bloomberg Law Podcast on Apple podcast, SoundCloud

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Speaker 1: and on Bloomberg dot com slash podcasts. If you're keeping score,

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Speaker 1: it's a T N T two US Justice Department zero

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Speaker 1: A T and T has beaten back a second government

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Speaker 1: attempt to undo its purchase of Time Warner in the courts,

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Speaker 1: stealing the eight five billion dollar deal. Joining me from

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Speaker 1: our DC studios is Bloomberg Intelligence Senior litigation analyst Jennifer Ree.

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Speaker 1: Jen you predicted this? What did the DC courts say?

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Speaker 1: You know, the DC courts said, I think exactly as

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Speaker 1: I thought, and as a lot of other people thought

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Speaker 1: as well, that you know, they needed to show that

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Speaker 1: there was clear error in the reasoning of Judge Richard

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Speaker 1: Leon at the district court level in order to overturn

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Speaker 1: his decision, and that you know, while they may have

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Speaker 1: taken issue with a few of the things, he said

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Speaker 1: that in general he just didn't rise to that high standard,

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Speaker 1: that that the outcome that he concluded was feasible given

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Speaker 1: the evidence that he entertained. I've talked to antitrust experts

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Speaker 1: who felt that the district judge Leon didn't understand the

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Speaker 1: economics of the government's case. Did the appeals court address that,

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Speaker 1: you know, that is also what the Department of Justice

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Speaker 1: argued in their appeal, that he misapplied or misunderstood the economics,

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Speaker 1: and the appellate court did address that. They said that

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Speaker 1: that was that was wrong, that he looked at the economics,

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Speaker 1: and that he just simply decided that the model that

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Speaker 1: was used, while it was fine to use the model

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Speaker 1: in this case, didn't work because it just simply wasn't

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Speaker 1: based on real world data, and that if you looked

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Speaker 1: at the real world data from prior examples of vertical

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Speaker 1: integration in this industry that A. T and T had

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Speaker 1: put into evidence, you would see that there hadn't been

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Speaker 1: an effect on prices. So, in other words, it was

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Speaker 1: just a theoretical model that was based on inputs that

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Speaker 1: the judges found were just faulty inputs and it work

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Speaker 1: in this instance. How much of a loss is this

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Speaker 1: for making del Raheem the head of the Justice Department's

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Speaker 1: Antitrust division and for the Justice Department you know, I

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Speaker 1: think it's a big loss. It could have been a

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Speaker 1: bigger loss had it, let's say, put in bad precedent

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Speaker 1: on vertical integration and how to judge vertical deals. It

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Speaker 1: didn't do that because this was a decision based on

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Speaker 1: facts and not necessarily based on how the law should

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Speaker 1: be applied when evaluating vertical deals. So in one way,

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Speaker 1: it was a big loss because they took a risk

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Speaker 1: and I think they were hoping for a big win.

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Speaker 1: And as you said, it's two to zero. But it

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Speaker 1: doesn't really hamper their ability in the future to try

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Speaker 1: to challenge another vertical deal, even using the same bargaining model,

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Speaker 1: the same economic analysis that they used here, because this

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Speaker 1: was so fact based and so dependent on this particular

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Speaker 1: deal in this industry. This was the first time in

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Speaker 1: about forty years that the Justice Department decided to challenge

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Speaker 1: a vertical merger in court. And even if there's no precedent,

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Speaker 1: might they be a little gun shy? They very well, maybe,

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Speaker 1: because it was a resounding loss in terms of the

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Speaker 1: first opinion, the district court opinion, and now this opinion,

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Speaker 1: they may be gun shy. I think that the Department

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Speaker 1: of Justice has have sort of painted themselves into a

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Speaker 1: corner in some respects because one of the issues with

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Speaker 1: these vertical deals is that they often have pro competitive

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Speaker 1: aspects that horizontal deals don't have. And when they have

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Speaker 1: some potential for harm, that harm can be fixed or

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Speaker 1: remedied with behavioral conditions, and that's generally how it's been

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Speaker 1: done in the past. But this Department of Justice said

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Speaker 1: it doesn't like behavioral conditions and it won't use them.

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Speaker 1: So what it's done, it's putting itself in a position

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Speaker 1: where if it has another vertical deal, you know, it's

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Speaker 1: not going to use behavioral conditions, and so it either

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Speaker 1: has the choice of challenging it or allowing it to

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Speaker 1: go through. Now, the government can ask the Bold d

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Speaker 1: C Circuit to hear the case on bank, or can

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Speaker 1: ask the Supreme Court to review the case. How likely

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Speaker 1: is it that they'll take either of those options. Well,

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Speaker 1: the first option, the un bank review, you know, it

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Speaker 1: was rarely ever granted, so it's unlikely that it will

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Speaker 1: be on the second one. I actually think that if

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Speaker 1: they did go to the Supreme Court, they might get

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Speaker 1: review because it is an issue. We haven't had a

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Speaker 1: vertical merger in front of the Supreme Court in a

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Speaker 1: long time, and we have very very little precedent even

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Speaker 1: in lower courts and district courts and appellate courts on

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Speaker 1: how to look at and view a vertical merger. So

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Speaker 1: it might be an interesting case for the court to take.

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Speaker 1: They may be willing to take it. What happens in

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Speaker 1: the meantime, because a T and T time Warner had

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Speaker 1: some things on hold pending the end of the month.

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Speaker 1: What happens, that's right, So they're keeping the Turner assets

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Speaker 1: separate to allow the d o J if they want

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Speaker 1: to try to ask for the divestiture of those assets,

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Speaker 1: and so they were keeping the eggs unscrambled. Now at

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Speaker 1: this point on February, they can go ahead and do

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Speaker 1: that even if the Department of Justice seeks further appellate review.

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Speaker 1: So the Department of Justice either can stop at this

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Speaker 1: point and not appeal it and the whole thing will

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Speaker 1: be over, or they can go an appeal. And if

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Speaker 1: they want to try to keep the Turner assets continue

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Speaker 1: to keep them separate, they'll have to seek an emergency

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Speaker 1: order in court to keep the parties from doing that,

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Speaker 1: and they might not be able to get that, in

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Speaker 1: which case A T and T will go ahead and

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Speaker 1: integrate those assets, and it will be much harder for

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Speaker 1: the d o J going forward if they want an appeal.

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Speaker 1: Do you have any inkling as to whether making Delrahem

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Speaker 1: may feel so burned by this that he'll just go

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Speaker 1: forward and try to take the next step with the

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Speaker 1: Supreme Court. You know, I actually have the feeling that

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Speaker 1: they won't appeal this. It's hard to say because this

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Speaker 1: particular Department of Justice has been unpredictable and done things

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Speaker 1: differently than Department of Justice has in the past. But

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Speaker 1: this was a pretty solid decision against them with a

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Speaker 1: panel that really theoretically should have been leaning toward the

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Speaker 1: d o J because you had an Obama appointee in

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Speaker 1: a Clinton appointing and a Reagan appointee. And I think

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Speaker 1: that they're likely to lose if they go to the

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Speaker 1: Supreme Court, which is now more business friendly with the

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Speaker 1: two new appointees from President Trump, and I think they

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Speaker 1: know that, So it seems to me they won't appeal

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Speaker 1: this decision. Although President Trump said time and time again

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Speaker 1: that he didn't want this to go through, there was

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Speaker 1: that political aspect to this. That's right, he did. But

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Speaker 1: you know, the question is was that based on antitrust

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Speaker 1: principles or was it based on dislike for CNN and

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Speaker 1: the kind of content that Time Warner produces. You know,

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Speaker 1: if it's based on the content, you know, you need

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Speaker 1: an antitrust reason and within the law for this murger

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Speaker 1: to be blocked for the courts to rule that way. Also,

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Speaker 1: in this case, the circuit court considers what the judge

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Speaker 1: had before him, so they're not considering what happened since

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Speaker 1: the merger. But has anything happened in the market, And

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Speaker 1: I'm thinking about the Dish network dispute that led to

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Speaker 1: HBO going dark for the first time on a paid

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Speaker 1: TV provider. Did that show an anti competitive effect of

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Speaker 1: this merger? Well? No, I think it's two different situations

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Speaker 1: in different facts. Um, you ask a T and T

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Speaker 1: they'll tell you that even that the small amount of

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Speaker 1: Time Warner that they've been able to integrate, they've all

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Speaker 1: ay shown pro competitive effects here and benefits to consumers.

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Speaker 1: I think it's just two very different situations. And not

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Speaker 1: to mention the fact that you know, you put your

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Speaker 1: finger on it when you said that the appellate court

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Speaker 1: really could only consider what was presented to the district

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Speaker 1: Court in evidence prior and that was all they could consider,

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Speaker 1: so they can't think about what A T and He

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Speaker 1: is doing now or even what's going on with Dish.

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Speaker 1: All right, thanks so much. And I'm still waiting for

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Speaker 1: HBO to be cheaper, but I don't know and that

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Speaker 1: will happen. That's Bloomberg in Chelligence, Senior litigation analyst, Jennifer Rei.

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Speaker 1: Thanks for listening to the Bloomberg Law Podcast. You can

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Speaker 1: subscribe and listen to the show on Apple Podcasts, SoundCloud,

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Speaker 1: and on Bloomberg dot com slash podcast. I'm June Brosso.

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Speaker 1: This is Bloomberg