Judges grill DOJ over challenge to AT&T-Time Warner merger

Judges on a federal appeals court on Thursday grilled the Department of Justice (DOJ) over its challenge to a lower court decision blessing the AT&T-Time Warner merger.

The government is seeking to block the $85 billion dollar deal but faces a high burden in the appeals process and took tough questions from the judicial panel.

“This is a merger that will shape the industry for decades to come,” Michael Murray, the DOJ’s lawyer, said during his oral argument before the D.C. Circuit Court of Appeals.

It was unclear from the tough questioning where the judges will land in their consideration of the appeal. The questioning centered on the economic model that the government relied on in court earlier this year and the trial judge’s interpretation of it in his decision to approve the merger unconditionally.

In a brief filed to the appeals court in August, the DOJ argued that D.C. District Judge Richard Leon ignored “fundamental principles of economics and common sense” in blessing the deal.

The landmark case marks the first time that an administration has gone to court to block a vertical merger since the Nixon era. The DOJ and other critics say that the deal would give AT&T and its television-provider subsidiaries unfair leverage over competitors negotiating to distribute Time Warner content.

Murray argued that the mere threat Time Warner could black out its programming for a provider will allow it to charge more for its content, even if the likelihood of such a blackout is slim. He said that Leon was wrong to focus on the odds of that occurring.

AT&T lawyer Peter Keisler countered that the government has failed to meet its burden to prove that the merger poses harm to competition. Keisler argued that AT&T’s promise of an arbitration process in negotiations with other providers erases the threat of a blackout.

"The Department of Justice appreciates the court's careful consideration of this important case and we'll await a decision," department spokesman Jeremy Edwards said after the hearing.

AT&T completed its acquisition of Time Warner in July, just days after Leon ruled in their favor.

The hearing comes as one of Time Warner’s most valuable properties, HBO, is locked in a contract battle with Dish Network, which resulted in HBO’s first-ever blackout. The battle was not mentioned during Thursday’s oral arguments.

An AT&T spokesperson said in a statement, “We appreciate the Court’s attention to the arguments of counsel and look forward to receiving its decision.”

The three-judge panel is expected to rule on the appeal early next year.

Updated at 1:53 p.m.