AAI Issues Statement on D.C. Circuit’s Rejection of AT&T/Time Warner Appeal, Says Time is Ripe for Vertical Merger Guidelines and a Vertical “Presumption”

Today, the D.C. Circuit Court of Appeals issued its decision to allow AT&T’s acquisition of Time Warner to proceed. AAI applauds the government’s efforts to stop an anticompetitive merger and not to accept a weak behavioral remedy. But the appellate court rejected the government’s appeal because it could not meet the high standard of establishing that the district court’s factual findings were clearly erroneous.

This disappointing outcome highlights a number of legal, economic, and policy issues for vertical merger enforcement moving forward. The decision comes at a time when vertical integration is transforming a number of key markets in telecommunications, healthcare, and other critical sectors, raising significant competitive concerns that have serious implications for consumers, workers, and innovation.

AAI is encouraged that the court opened the door to challenges that are not based strictly on using econometric models to predict price increases. Importantly, the Court stated “it does not hold that quantitative evidence of price increase is required in order to prevail on a Section 7 challenge. Vertical mergers can create harms beyond higher prices for consumers, including decreased product quality and reduced innovation. Indeed, the Supreme Court upheld the Federal Trade Commission’s Section 7 challenge to Ford Motor Company’s proposed vertical merger with a major spark plug manufacturer without quantitative evidence about price increases.”

Even in light of this finding, AAI believes the outcome in AT&T-Time Warner demonstrates how quantitative, conflated, and complex vertical analysis has become. The district court’s handling of quantitative evidence and analysis significantly muddied the waters on the appropriate parsing of competitive effects, efficiencies, and remedies. AAI has also noted the need for a vertical “presumption” that high market concentration in the upstream or downstream markets affected by a vertical merger can strongly enhance incentives for the merged company to foreclose rivals. Among other basic legal-economic tenets, this analysis did not materially enter into the analysis of ATT-Time Warner.

Finally, the outcome in AT&T-Time Warner demonstrates how badly vertical merger guidelines are needed in order to provide transparency and predictability so that enforcers and courts can reasonably adjudicate vertical mergers. We urge the Antitrust Division and the Federal Trade Commission to develop vertical merger guidelines that will set vertical merger enforcement on a stronger footing going forward.