## Facts

- AT&T (through DirecTV) agreed to acquire Time Warner, a major video programmer (including Turner networks and HBO), creating a vertical combination of distribution and content.
- The United States sought to enjoin the merger under Clayton Act § 7, alleging the deal would raise rivals’ programming costs and ultimately consumer prices.
- The government’s main theory was that post-merger Turner would gain bargaining leverage over rival distributors because the merged firm would be less harmed by Turner blackouts, enabling Turner to obtain higher affiliate fees.
- The government relied heavily on an economist’s bargaining model predicting higher programming prices from increased blackout leverage.
- During the litigation, Turner made “irrevocable” offers to distributors to use binding arbitration and to refrain from blackouts during disputes (“no-blackout arbitration” agreements).
- Defendants offered empirical evidence from prior vertical integrations in the industry, asserting no statistically significant increases in programming prices, and argued the transaction would yield efficiencies.
- After a bench trial, the district court denied a permanent injunction, finding the government did not prove the merger was likely to substantially lessen competition.
- The government appealed, challenging the district court’s evaluation of the increased-leverage theory and related economic evidence.

## Issues

1. Whether the district court clearly erred in finding the government failed to prove the merger was likely to substantially lessen competition by increasing Turner’s bargaining leverage and raising programming and consumer prices.
2. Whether the district court clearly erred in discounting the government’s quantitative model in light of the no-blackout arbitration commitments and other record evidence.
3. Whether the district court misunderstood or misapplied relevant economic principles in assessing expert testimony and predictive modeling in a vertical merger case.

## Decision

- The D.C. Circuit affirmed the judgment denying a permanent injunction.
- The court held the government did not meet its burden to show the merger was likely to increase Turner’s bargaining leverage in a way that would substantially lessen competition.
- The court rejected claims that the district court applied an incorrect legal standard or committed clear error in weighing expert testimony and other evidence.
- The court agreed it was reasonable to discount the government’s model because it did not account for Turner’s no-blackout arbitration offers, which addressed the alleged blackout-based mechanism of harm.
- The court upheld the district court’s reliance on defendants’ empirical evidence from prior vertical mergers and market evidence indicating meaningful competitive constraints.

## Legal Principles

- In a Clayton Act § 7 challenge after a full trial, appellate review of the district court’s factual findings is for clear error.
- The government bears the burden to prove a merger’s effect “may be substantially to lessen competition” using evidence showing a probable anticompetitive effect, not mere theoretical possibility.
- A vertical-merger theory of harm must be supported by credible record evidence linking the proposed mechanism (e.g., blackout leverage) to likely price or output effects.
- Courts may discount predictive economic models when key real-world constraints and commitments central to the alleged harm mechanism are not incorporated.
- Empirical evidence from comparable industry transactions and current market conditions may be credited in assessing likely competitive effects.

## Conclusion

The D.C. Circuit left the merger in place, concluding that the government’s increased-leverage theory and supporting model did not persuasively show that the vertical transaction was likely to substantially lessen competition under Clayton Act § 7.


United States v. AT&T Inc., 916 F.3d 1029 (D.C. Cir. 2019)