Trial lawyer Dusty Hecker, partner and co-chair of the litigation department at Posternak, Blankstein & Lund, in Boston, predicted before oral argument in the government’s legal challenge to the AT&T-Time Warner merger that the companies would win.
Hecker has handled antitrust cases and represented NRTC
in a contract dispute with DirecTV, so he is versed in both programming and competition issues, as well as arbitration, another key issue in the trial.
With oral argument receding in the rearview mirror and the D.C. Circuit Court judge presiding over the case announcing his decision Tuesday afternoon (June 12), Hecker spoke with B&C about the case and what the implications of the decision could be. An edited transcript follows.
B&C: You predicted before oral argument that you thought AT&T-Time Warner would win. Now that the a decision is imminent, do you stick with that?
Dusty Hecker: Yes. I did not sit in on the trial, and making a prediction about what one individual human being will do is not a science, but I have been though the briefs and I have to say I think AT&T-Time Warner will win.
DH: Their briefs spent a lot more time going over evidence, while the government’s briefs spent a lot more time going over possible anticompetitive effects not tied as much to the evidence that went into trial.
If the judge sees the burdens in this case more through the eyes of what Time Warner says, he has to find that the evidence supports a substantial probability of substantial anti-competitive effects, and I think Time Warner and AT&T win.
If the good judge views it more through the lens of the government’s idea of the burden, which is that that he needs only to find a reasonable probability of anticompetitive effects at some point in the future, the government has a better chance.
B&C: So, this is a binary decision. Either no, the deal can’t go through, or yes, it is fine as is. Or could he come up with his own conditions that would make the deal acceptable?
In theory, the judge could do what you suggest as an equitable remedy, since it is not a jury case. That is why the parties address, each in different ways, the arbitrations that AT&T and Time Warner have offered to distributors.
They call it a commitment, while the government calls it a promise that they could unwind any time.
A judge could enter an order which would require something like that arbitration forever or some defined amount of time rather than leave it as it is now, a commitment they have made that they could, in theory, pull back anytime they want.
B&C: The government has proposed that the judge simply block the merger.
DH: Yes, but they also said that if that is a step too far for the court, the judge could order DirecTV to be divested, either to some other party or spin it off as a stand-alone entity. Or, that you could acquire HBO but not the rest of the Turner networks, particularly sports.
The judge would, if the evidence supported it, be able to order that.
B&C: What do you make of antitrust chief Makam Delrahim’s argument that structural conditions are preferable because behavioral conditions are just like gerrymandering an illegal deal and having to enforce that on an ongoing basis?
DH: That is certainly one thing the judge could be concerned about. So-called structural relief—ordering a DirecTV divestiture—is a messy transaction in some sense to take care of in order to implement, but it is a fairly clean process from the court’s perspective. It happens, and they don’t have to do anything else.
A behavioral remedy, with the parties having to something on an ongoing basis, at least in concept requires the court to monitor that and means periodically someone could complain that the combined entity is not doing what they promised to do from a business operations perspective and say: “You, court, do something for us.”
Judges typically don’t like to be involved in monitoring anything on an ongoing basis, and certainly not in a very big, very complicated business, like this combined business would be.
B&C: Why do you think the judge didn’t allow the First Amendment argument to be introduced that the President vowed his DOJ would block the deal, or the fact he hates CNN?
DH: I think it is because the judge was willing to assume that while the professional prosecutors at the Department of Justice do, of course, report to some degree to political masters and they are subject to political control, they would have made the decision to bring the case because they believed there was a good faith basis under established case law that the merger would violate Sec. 7 of the Clayton Act, and the idea that it might have been influenced by political considerations or the President’s tweets just wasn’t realistic enough on a pure economic case to go down that road.
It could also have introduced an incredibly complicated element that might have delayed resolution of the case. At the end of the day, they do need to get the case resolved pretty quickly [it has a June 21 breakup date].
B&C: Why is this case being billed as such an important one for antitrust?
DH: It is a vertical merger and it is relatively rare to see one of these challenged because, as AT&T-Time Warner note, by and large the assumption is that there are some efficiencies and synergies in a vertical merger that actually enhance competition.
So, if the court were to just accept the government’s theory of this, it would be pretty important. You have the basic idea that you have this one piece of content, HBO or sports programming, which once you have locked it up contractually, it becomes such a powerful competitive weapon that it has to stand by itself and can’t be purchased by anyone. That would be relatively big.
B&C: What are the consequences if AT&T-TW win?
DH: There aren’t many traditional cable operators left and when they start becoming deeply vertically integrated like this, maybe that will be a more important issue for the industry going forward .
B&C: How precedential is a case like this? It is not an appeals court, so it is a single fact-specific decision based on these two companies.
DH: The impact of this from a legal perspective would really depend on whether it was appealed. A decision by a trial-level court has some precedential value and impact. You have a lot of facts and, presumably a lengthy detailed opinion by a judge and his view of the standard that applies in these cases and whether the pro-competitive effects are really an affirmative defense that the merged entities need to prove.
There will be a lot of subsidiary issues which you think would have already been resolved by the courts, but which this judge was asked to decide and would be deciding. But he is still one district judge from one circuit out of 13 in the country.
If he decides it, the merger goes ahead and the government doesn’t appeal it, or he grants the government’s case, the merger doesn’t go ahead and the defendants decide not to appeal it, then it is just one district judge’s opinion and no appeals court will not have weighed in on a lot of the interesting legal issues.
B&C: What are the odds that either side challenges it?
DH: If AT&T-Time Warner lose, given the drop-dead date, they would have to either amend their deal to extend that drop-dead date, though since it has already been approved by the stockholders you might have to go back to them. They cannot possibly get an appeals court’s attention to this on a substantive basis between when the judge is going to issue his decision and that drop-dead date.
Could they on an expedited basis get the D.C. Circuit or the judge issue an order staying the effectiveness of the decision opposing the merger, yes, they could. The judge could in his order say: “I grant the government’s case, but I recognize the time frame. I’m going to stay the effectiveness of my order pending a decision by the D.C. circuit. That can happen, but it is a lot of stuff that has to happen very quickly.
B&C: Do you think Justice will appeal if it goes against them?
DH: Yes. If the defendants win and the government appeals, the defendants would have to consider that happens if they go ahead with the merger and the government wins its appeal. But I would think if they win they would go ahead and complete the merger assuming either the government is going to drop the appeal or won’t win the appeal.
B&C: Is there anything to suggest the government would not win on appeal?
DH: If the trial court makes its decision principally based on the credibility of the defendants expert witnesses being stronger than that of the government’s expert witnesses, those are much tougher to appeal from successfully.
B&C: Can the First Amendment issues be raised on appeal if Justice wins if they were not allowed at trial?
DH: They could argue that the judge erred by not allowing that issue into the case. I think they would almost certainly lose that issue. I would be really shocked if an appeals court thought a complicated sec. 7 case like this should be resolved based on whether President Trump was anti-one party or the other [party begin legal in this instance, not political].