business

AT&T Merger Trial Opens With Fight Over Internal Documents

Updated on
  • U.S. says company records contain ‘startling’ admissions
  • Judge weighs arguments about standards for using information

AT&T and Time Warner Battle the DOJ

The U.S. antitrust trial against AT&T Inc.’s proposed takeover of Time Warner Inc. opened with clashes over whether the Justice Department should be allowed to introduce internal company documents that it claims contain “startling” admissions.

U.S. District Judge Richard Leon is weighing arguments from the department’s antitrust division and AT&T about the standards for allowing the documents as evidence in the trial, which began Monday in federal court in Washington.

The dispute could be key to the government’s argument that the Time Warner takeover should be blocked on antitrust grounds. In merger lawsuits, antitrust officials often rely on emails and internal memos, known as “hot docs,” in which employees make damaging statements that support the government’s case that a deal is a threat to competition.

Justice Department attorney Eric Welsh told the judge on Monday that the emails in question contain “startling” admissions by employees and that it was up to the companies to “explain away” what is said in them.

Opening Arguments

The conflict over the exhibits is occurring before opening arguments that are scheduled for Wednesday. At the trial, expected to last up to eight weeks, the Justice Department will try to make its case that AT&T’s $85 billion takeover of Time Warner should be blocked because it will lead to higher prices for consumers. It is the first major antitrust case brought under President Donald Trump and its outcome could influence how the U.S. reviews mergers of any two companies in similar industries.

A government loss could open the floodgates to a wave of such tie-ups, known as vertical mergers. It will also mean a thumbs up or down for AT&T’s answer to the mounting threat the pay-TV industry confronts in online video giants such as Netflix Inc. and Amazon.com Inc.

If the grand design of AT&T’s Chief Executive Officer Randall Stephenson prevails, the telecom company will emerge as an entertainment giant, with movies, TV and news to feed its 119 million mobile, internet and video customers. Stephenson and Time Warner CEO Jeff Bewkes are expected to testify.

Read more: Why More Than Just AT&T-Time Warner Deal Is on Trial: QuickTake

AT&T attorney Daniel Petrocelli pushed back against the department’s move to introduce the company documents, saying the government needs to meet the standards for introducing them at trial. Many are from low-level employees with little authority, he said, citing 18 government-offered records that he said were generated by a recent business school graduate with no say over the deal.

Welsh and Petrocelli also clashed over whether the court should consider documents detailing DirecTV’s opposition to Comcast Corp.’s acquisition of NBCUniversal, also a tie-up between a content company and a distributor. Comcast acquired NBCUniversal under a settlement agreement with the Justice Department years before DirecTV was sold to AT&T.

Petrocelli told Leon that AT&T can’t be held accountable for statements made by DirecTV before it was acquired. He said the Justice Department only named DirecTV as a defendant in the Time Warner case for the purpose of introducing the contested documents.

“DirecTV has no business being a defendant in this case,” Petrocelli said. “They’re not acquiring anything. They’re not selling anything.”

Harmful Effects

Welsh said statements made by DirecTV about the harmful effects of the Comcast deal undercut AT&T’s position that the Time Warner deal should be approved.

While Leon didn’t rule on the issue, he told the government’s lawyer, “You must distinguish between what you want and what you need,” adding, “Do you need this? Because it may be more trouble than it’s worth.”

The trial will feature testimony from AT&T competitors who will discuss negotiations with Time Warner for programming, the importance of content from the company’s Turner Broadcasting division, which includes CNN, and their concerns that AT&T’s takeover will raise costs, Welsh said.

Petrocelli dismissed those views as prognostication. “It’s all speculation about what could happen,” he told Leon.

The case is U.S. v. AT&T Inc., 17-cv-2511, U.S. District Court, District of
Columbia (Washington).

(Updates with hearing comments starting in ninth paragraph.)
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