An appeals court has rejected the Justice Department’s bid to overturn a ruling that cleared the way for AT&T’s acquisition of Time Warner.
The decision, by a three-judge panel from the US Court of Appeals for the DC Circuit, caps off the protracted legal battle between AT&T and the Justice Department, which said on Tuesday that it does not plan to appeal the ruling.
Jeremy Edwards, a department spokesperson said, “We are grateful that the Court of Appeals considered our objections to the District Court opinion. The Department has no plans to seek further review.”
Time Warner has since been renamed WarnerMedia. CNN is part of WarnerMedia.
AT&T (T) first announced its intention to purchase Time Warner, which included HBO, Warner Bros. and the Turner cable networks, in October of 2016. Just over a year later, the Justice Department sued to stop the deal on antitrust grounds, claiming that by owning Time Warner, AT&T (T) would have “both the incentive and the ability to raise its rivals’ costs and stifle growth of innovative, next-generation entrants.”
AT&T, the Justice Department claimed, would have greater bargaining leverage over rival TV distributors because the company would have valuable live content from Turner’s networks, like the sports that TNT carries and CNN’s news coverage. The Justice Department contended that AT&T could during negotiations threaten to “black out” Turner’s channels — that is, pull them from the rivals’ lineups — tempting customers to drop their current providers and switch to AT&T services like DirecTV. The Justice Department alleged that AT&T would also have the power to raise the prices its competitors pay for their content.
The companies argued during the trial that they have no incentive to trigger a blackout because they rely on subscriber fees and advertisements to make money, and dropping a distributor would cause their networks too much financial harm. They also claimed that they need the merger to compete with the likes of Netflix (NFLX), Google (GOOGL) and Facebook (FB), and to bring cost savings and new innovations to their customers.
The AT&T acquisition of Time Warner is considered a “vertical merger” because it’s a content distributor, AT&T, buying a content producer, Time Warner. Typically vertical mergers are not given as close scrutiny on antitrust grounds, because unlike a “horizontal merger” in which two competitors are combined, a competitor isn’t being taken out of the market. Time Warner’s business units, like HBO and Warner Bros,. all remain in operation.
After a six-week trial, US District Court Judge Richard Leon ruled that the merger could proceed with no conditions, and in a 172-page opinion he ripped apart the government’s case.
Shortly after the decision, AT&T closed the deal and changed Time Warner’s name to WarnerMedia. But AT&T told the Justice Department it would maintain Turner and AT&T as separate business units and would place a firewall between the two until February 28, or the conclusion of any appeal.
The Justice Department then appealed Leon’s decision, arguing in front of the three-judge panel in December that Leon erred in his decision because he committed “fundamental errors of economic logic and reasoning” in his decision and “discarded the economics of bargaining.”