Politics Unlikely to Play a Role in Defense of Time Warner Deal

On February 14, 2018, it was reported that AT&T Inc. (“AT&T”) identified as a potential witness for trial, Makan Delrahim, the head of the U.S. Department of Justice’s (“DOJ”) Antitrust Division. AT&T’s request for the antitrust chief to testify is highly unusual, but would appear necessary given that AT&T is claiming as a defense that the DOJ’s action to block the deal is an “improper selective enforcement of the antitrust laws.”

It is common practice in the early stages of litigation to be overly inclusive when identifying witnesses for trial, and just because Delrahim is named does not necessarily mean that he will testify. However, when alleging selective enforcement as a defense, AT&T will necessarily need to put on proof of the improper discrimination behind the DOJ’s decision to block its deal with Time Warner, and presumably no one would be in a better position to testify as to the DOJ’s decision than the actual decision maker: Delrahim.

In addition to its witness list, AT&T has also requested internal communications between Delrahim’s office and Attorney General Jeff Sessions, including emails, phone calls and other communications between the White House and officials at the DOJ.

The DOJ can certainly object to providing this information, and will likely do so. Putting an attorney on the stand is fraught with potential privilege and attorney work-product issues.   More importantly, the DOJ likely will move to strike AT&T selective enforcement defense, which should render Delrahim’s testimony and communications irrelevant.

Selective enforcement is notoriously difficult to prove, or even allege. The DOJ has extremely broad “prosecutorial discretion” in deciding to challenge a deal. If the DOJ challenges AT&T’s selective enforcement defense, AT&T will need to offer some form of proof that the DOJ based its decision to challenge this deal on some improper, discriminatory motive. AT&T is relying on President Trump’s opinionated tweets and public statements and arguably, the tweets here could support an argument that the DOJ is retaliating against CNN for exercising First Amendment rights.  Indeed, AT&T’s selective enforcement defense asserts that Delrahim, for political purposes, singled out its deal, in contrast to the DOJ’s 2001 decision to approve Comcast’s deal with NBCU, which raised similar vertical concerns. However, Judge Leon could just as easily rule that the President’s mere tweets, without more, is not enough to support a claim for selective enforcement because the DOJ has broad prosecutor discretion and has legitimate competition concerns about AT&T’s acquisition of Time Warner.  In that scenario, Judge Leon would block Delrahim from being called to testify, and further block production of his office’s communications with the White House.

However, this is not to say that AT&T strategy is not sound. Even if its defense of selective enforcement is stricken, it adds yet another ground for potential appeal. Furthermore, it undoubtedly puts unwanted pressure and publicity on the DOJ and the White House questioning the motives in challenging the deal. No one at the DOJ wants even the merest chance of a Court digging through its communications and second guessing its decisions in deciding which deals to challenge.   And in the current political climate, insinuations questioning the DOJ’s objectivity and bias could have a lasting negative impact on the DOJ, even if only in the court of public opinion.

A new Administration is entitled to change its merger enforcement priorities and how it remedies problematic mergers. The DOJ’s decision to sue-to-block rather than adopt conduct remedies is a matter of its own discretion, and does not constitute “selective enforcement” even where it may have the appearance of being ideologically or politically motivated. The federal courts have made clear that it is permissible for the executive branch to change enforcement views and priorities to reflect the changing politics of different presidential administrations.

The Antitrust Division is not the only part of the DOJ that has been making changes in its enforcement of the laws. Other parts of the DOJ have been aggressively enforcing the immigration and drug laws that were going unenforced. Even the Federal Trade Commission is making changes to how it resolves anticompetitive pharmaceutical mergers. For example, Bruce Hoffman, acting director of the Bureau of Competition at the Federal Trade Commission (FTC), recently announced that the FTC will no longer accept divestitures of inhalant and injectable pipeline drugs in pharmaceutical mergers. Going forward, to resolve competitive concerns raised by actual drugs potentially competing with pipeline drugs, the FTC will require the merging parties to divest the actual inhalant and injectable drugs that are currently being marketed. Historically, the FTC had accepted divestiture of pipeline assets to remedy potential competition concerns.

The selective enforcement defense is a distraction to the DOJ and to AT&T.  AT&T needs to keep its defense focused on the substantive antitrust issues where it is on solid ground. Consumers are increasingly willing to cut the cord entirely as they look to virtual MVPDs like Sling TV, Youtube Live, and PlayStation Vue as well as subscription video on demand services (“SVODs”) such as Amazon Prime (80 million U.S. subscribers) and Netflix (109 million subscribers worldwide), demonstrating that the video distribution and content markets have become ever more dynamic – and competitive. And the lines between MVPDs, virtual MVPDs and SVODs are blurring. AT&T should stay focused on the dynamic market that currently exists and is continuing to evolve.  For example, Youtube Live has now signed an agreement with Time Warner for content.

Judge Leon will make the ultimate decision on whether the deal is anticompetitive.  Judge Leon is unlikely to rule in favor of A&T with regards to the selective enforcement defense, unlikely to have Delrahim testify and unlikely to force the DOJ to provide AT&T with discovery relating to the defense.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com