On March 13, 2018, Judge Leon denied the DOJ’s motion to limit the defendants from presenting evidence regarding Time Warner’s irrevocable offer to distributors that it would go into “baseball-style” arbitration in any carriage disputes over Turner networks and promise not to engage in any blackout of channels during arbitration for a period of 7 years.  AT&T simply had the better of the arguments with respect to the commitment.  Of course it is relevant and the DOJ had sufficient notice – it was in the Answer – and has had the opportunity to conduct discovery related to the commitment.  The time for the DOJ to make this argument was early on before discovery started.

AT&T made a good case that Professor Shapiro’s failure to account for this commitment in his models may have been tied with the DOJ’s motion to have the Arbitration Offer removed from consideration.  Apparently, Shapiro acknowledged that the commitment would benefit distributors in negotiations and that his bargaining model does not account for this market reality in deposition testimony.  A major limitation of the DOJ’s otherwise very good pre-trial brief is that its arguments are theoretical and not based on the facts.  It is somewhat difficult to get a handle on the strength of the DOJ’s arguments in its pre-trial briefs because many passages and key quotations are redacted.  On the whole, AT&T’s pre-trial brief is stronger.  It certainly appears that AT&T is poised to punch holes in the DOJ’s experts’ theories and bargaining model.

It appears that the DOJ will attempt to make the case that the merger will drive up prices for distributors, costs that will ultimately be passed on to consumers and to make out a coordinated effects case suggesting that the vertically integrated AT&T/Time Warner would coordinate with Comcast/NBCU to harm virtual MVPDs.  These theories make sense.  But, a lot depends on the strength of the redacted information and AT&T documents in DOJ’s Pre-trial brief, third party witness testimony, and DOJ’s experts. It remains unclear what the redacted information may say, when the cited comments were made, and in what context.  The DOJ appears to have documents related to what AT&T’s plans are to fend off virtual MVPDs to protect its MVPD business.  If so that could be damaging to AT&T’s defense.  The DOJ will put on witnesses that will say that they pay a premium for Time Warner content and how the content is “must have”.  On the other hand, AT&T has come out swinging with suggestions that it has already punched holes into the DOJ’s experts and theories (bargaining model, price increase estimates, and the inputs to the bargaining model related to subscriber loss rates, gross margin data, and diversion of customers).

This should be a fun one.  As Judge Leon says, the trial starts on March 19^th.

On November 2, 2016, the DOJ’s Antitrust Division filed suit alleging that DirecTV was the ringleader of a series of unlawful information exchanges between DirecTV and three of its competitors – namely, Cox Communications Inc. (“Cox”), Charter Communications Inc. (“Charter”) and AT&T (before it acquired DirecTV) – during the companies’ negotiations to carry the SportsNet LA “Dodgers Channel.”

SportsNet LA holds the exclusive rights to telecast almost all live Dodgers games in the Los Angeles area.  According to the complaint, DirecTV’s Chief Content Officer, Daniel York, unlawfully exchanged competitively-sensitive information with his counter-parts at Cox, Charter and AT&T while they were each negotiating with SportsNet LA for the right to telecast the Dodgers Channel.  Specifically, the complaint alleges that DirecTV and each of these competitors agreed to and exchanged non-public information about their companies’ ongoing negotiations to telecast the Dodgers Channel, as well as their companies’ future plans to carry – or not carry – the channel. The complaint also alleges that the companies engaged in this conduct in order to unlawfully obtain bargaining leverage and to reduce the risk that they would lose subscribers if they decided not to carry the channel but a competitor chose to do so. The complaint further alleges that the information learned through these unlawful agreements was a material factor in the companies’ decisions not to carry the Dodgers Channel. The Dodgers Channel is still not carried by DirecTV, Cox or AT&T. The DOJ allegations make out a buyer conspiracy case that violate Section 1 of the Sherman Act.  The DOJ further claims that the illegal information sharing corrupted the competitive bargaining process and likely contributed to the lengthy blackout.

The settlement is designed to ensure that when DirecTV and AT&T negotiate with providers of video programming, including negotiations to telecast the Dodgers Channel, they will not illegally share competitively-sensitive information with their rivals. The settlement also requires the companies to monitor certain communications their programming executives have with their rivals, and to implement antitrust training and compliance programs.

Lesson Learned:

The DOJ’s settlement demonstrates its resolve to prevent pay-television providers and specifically AT&T and DirecTV from engaging in illegal conduct that thwarts the competitive process. Moreover, the enforcement action indicates that the DOJ will take information that it learns regarding illegal activity through its antitrust review of a merger and pursue it.  So, the lesson is that the DOJ will bring civil and/or criminal actions against illegal conduct discovered during merger reviews.  Executives should understand that texting and emailing competitors to share competitively and strategically sensitive information to avoid competing is illegal.  While most of us would agree that the Dodgers may be holding out for too much money, the pay tv providers cannot engage in illegal conduct that thwarts the competitive process.  Fortunately, for DirecTV, the DOJ did not bring a criminal case rather it treated the conduct as a civil matter.  But, executives should be mindful that this type of conduct could potentially result in criminal as well as civil penalties.

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