Implications of DOJ’s Potential Challenge of the AT&T Time Warner Merger
Transactions should be legally treated similarly according to legal precedent – basic fairness.
While I agree with the economic liberty, principled approach of limited government and a reduction in regulation that DOJ Assistant Attorney General Makan Delrahim, explained in his remarks before the ABA’s Antitrust forum today, I also believe in the equally important economic liberty principles of equal protection under the law and due process. Both are important to fair and equal antitrust administration of Justice in a free market.
Since the DOJ apparently is telegraphing its intention to file suit to block the AT&T-Time-Warner merger, because it reportedly prefers structural remedies over behavioral remedies, I appreciate that for the DOJ to prevail in court, it must operate a fair merger review process, and prove its case on the merits in a court of law.
In the specific case of the AT&T-Time-Warner merger, which was considered in 2016 and announced October 22, 2016, the companies evaluated the merger based on the known, long-standing, consistent, vertical-integration, legal precedents at that time and that today remain the operative legal antitrust precedents in court.
For those, like AT&T and Time Warner, that by no fault of their own, staked their business future on the legitimate economic liberty assumption of non-discriminatory application of antitrust rule of law, they now a year into a DOJ review process, find that economic liberty assumption apparently supplanted with a late-game change -- to rule of antitrust enforcement policy preference.
I am not saying that a new Administration, or a new DOJ Antitrust Chief cannot put their mark on antitrust enforcement.
I am saying that prosecutors must be especially mindful and respectful of the economic liberty and due process of companies that are in the middle of a process of a major change in prosecutorial discretion, that was unknowable when they staked their business futures on non-discriminatory antitrust law enforcement.
I trust the courts will give more weight to due process than the DOJ apparently may do in this case.
In a nutshell, it’s not fair for a referee to change the rules of the game, in the fourth quarter.
In its antitrust review of the AT&T-Time Warner merger, it appears the DOJ may be unfairly changing its antitrust enforcement rules of the game, mid-game, to try and block the merger without the required reasonable DOJ procedural fairness.
To promote fair and equal antitrust administration in the U.S. and around the globe, only Congress or the Courts, not DOJ antitrust prosecutors, can legitimately change the core parameters of antitrust enforcement policy towards a merger – mid-transaction review.
There are many time-tested, good government reasons for procedurally constraining prosecutorial discretion to established court precedent: constitutional separation of powers, non-discriminatory and equal application of antitrust law, due process, reasonableness, transparency, and procedural fairness.
A New York Times interview with the DOJ’s Antitrust Chief, Makan Delrahim, spotlighted the apparent mid-game change in the longstanding contours of merger antitrust enforcement policy:
“Mr. Delrahim is skeptical of such consent decrees, especially demands for “behavioral remedies.” … “We have major parts of our industry that are regulated by consent decrees with the Justice Department,” he said, referring to settlements with behavioral remedies. … Instead, Mr. Delrahim said, he prefers so-called structural remedies, like forcing a company to sell assets before approving a merger.”
If this is new de facto DOJ merger conditions policy, it is a substantial change for the marketplace and for companies considering major mergers or acquisitions, and also an unfair process whipsaw for AT&T-Time Warner that reasonably assumed DOJ would respect longstanding legal precedent, that behavioral remedies are an acceptable and reasonable remedy for mergers and acquisitions, especially when the antitrust concerns apparently are narrow to certain potential anti-competitive issues, and not logically equally problematic throughout an entire part of a structure.
At least the last three Administration’s, Clinton, W. Bush, and Obama, all had a well-known antitrust enforcement policy that did not exclude behavioral remedies as one of the DOJ solutions to cure or mitigate DOJ or FTC concerns about part, but not all, of a proposed transaction.
For example, the Clinton FTC required behavioral remedies in a court-approved consent decree to approve AOL’s acquisition of Time Warner, among others. The W. Bush Administration DOJ did the same to approve the SBC-AT&T merger and the Verizon-MCI merger, among others. The Obama Administration also did the same to approve Comcast-NBC-Universal and Google ITA, among others.
So why would it be unfair in the case of a pending merger that was reportedly in the process of discussing potential behavioral remedies?
While not intentional, its de facto result would be a policy bait and switch for any transaction contractually committed to merge, and in the middle of the actual merger review process.
A reviewing court could reasonably believe that a company reasonably seeking to merge could reasonably believe, that partial anti-competitive problems could be cured with proportionate partial behavioral solutions and not just the largest divestiture structural solutions possible. Think of the proportionality of scalpel vs. a meat cleaver.
A reviewing court could reasonably view such a mid-game rule change as subjective and arbitrary, violating normal due process fairness.
Importantly, DOJ Assistant Attorney General Makan Delrahim, in remarks at the New York University School of Law, on October 27th 2017, said this about the importance of respecting due process in U.S. antitrust enforcement.
“… antitrust enforcement is fundamentally about promoting the rule of law. At its core, antitrust law has an inherent equilibrium—wary of infringing on economic liberty, but willing to intervene to correct market failures. Sensitive to the imposition on liberty inherent in government intervention, we apply a law enforcement framework to competition policy. That approach carries with it all the benefits and constraints of the rule of law: we publicly promulgate laws, apply them equally to all, and pursue impartial adjudication from independent courts. Market participants know what to expect, and organize their behavior in accordance with the law.” [Bold added for emphasis.]
In his October interview with the New York Times on the subject of antitrust enforcement policy, The New York Times reported: [Assistant Attorney General Delrahim] “also said the government should not startle business markets with an abrupt change in its approach to antitrust legal theory.” [Bold added for emphasis.]
Implementing a de facto new antitrust legal theory that behavioral remedies are not acceptable antitrust remedies to cure some types of potential, narrow, anti-competitive merger effects, apparently without notice, mid-game, could “startle business markets” in ways that are both apparent and non-transparent.
Effect on Business Markets
How could this antitrust enforcement policy change affect business markets?
Mergers and acquisitions are a normal and effective option and tool to enable large companies to grow and adapt to the rapidly-changing marketplace, especially as it relates to addressing the obvious and overriding business challenge of competing with the marketplace’s well-known, winner-take-all monopoly distribution networks: Google, Amazon and Facebook, that antitrust enforcers have ignored for five years.
Public data shows that the percent of total revenue in the online economy taken by its three largest companies — Amazon, Google, and Facebook — is eight times higher than the percent of offline economy revenues taken by its three largest companies — Walmart, Berkshire Hathaway, and Apple.
From 2012 to 2016, US GDP grew 25 times faster than Fortune 500 companies’ revenues: 9% versus 0.3%, according to the U.S. Bureau of Economic Analysis and Fortune 500 figures.
Tellingly, during that same period, Amazon, Google, and Facebook grew revenues over 300 times faster than Fortune 500 companies in total: 118% versus 0.3%.
If one takes Amazon, Google, and Facebook revenues out of the Fortune 500 total, the remaining 497 companies’ revenues actually declined by 0.81% over the last four years.
In sum, if apparent new DOJ antitrust enforcement policy de facto unfairly denies offline companies the freedom to compete with the Internet winner-take-all networks, Google, Amazon, and Facebook, via one of the only tools available to do that, mergers and acquisitions, when Google, Amazon and Facebook face no such practical restrictions, this apparent abrupt new antitrust merger condition policy could have the unintended consequence of being anticompetitive overall in practice long-term by heavily favoring dominant online platforms over competitive offline companies.
In a nutshell, if companies cannot merge or acquire as they have in the past with the choice/option to be subject to behavioral remedies to cure narrow unexpected potential anticompetitive harms, to gain major pro-competitive and pro-consumer-welfare benefits, antitrust enforcement policy would perversely prevent companies in the 94% of the economy that originated offline the opportunity to compete on a level playing field with the online companies in 6% of the economy that is online-based.
There also can’t be a fair and level playing field if new DOJ antitrust enforcement policy, pre-supposes, and effectively arbitrarily excludes behavioral remedies from the calculus of what potential mergers and acquisitions could or could not be pro-competitive.
Anybody that studies large companies knows they are seldom perfectly structurally distinct, especially when information technology and the Internet integrate so many aspects of different businesses in different ways. Imposing a hard rule that behavioral remedies should be off the table, can actually reduce economic liberty and a free market by over-emphasizing the convenience of DOJ administration at the expense of net consumer welfare in the free market.
In sum, I respect and support Assistant Attorney General Delrahim’s “economic liberty” approach to antitrust merger review, with the qualification that true economic liberty must include full respect for due process and the rule of law/precedent.
Simply, that means similar transactions should be legally treated similarly according to legal precedent – basic fairness.
Refereeing fairly in part is not changing the de facto rules of the game – mid-game for transactions already in process, because it can unfairly undermine the economic liberty of the companies in the process, and unfairly pick winners and losers.
I trust the eventual court to fairly resolve the outcome of this merger based on longstanding legal precedent.
[Originally Published at Precursor]