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 or 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 Leon 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.
AT&T attorney Daniel Petrocelli pushed back, saying the government needs to meet the standards for introducing the documents at trial. Many are from low-level employees with little authority, he said. He cited 18 government-offered records that he said were generated by a recent business school graduate with no say over the deal.
Petrocelli told the judge the contested email messages should only be accepted as evidence if accompanied by the testimony of a witness who can explain what was being said and in what context. The records also need to be relevant to what's at issue before the court.
The Justice Department argues 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.
Time Warner is one of the world's largest media companies and controls well-known brands such as HBO, CNN, TNT and TBS.
Time Warner also owns everything under the Warner Bros. umbrella, including DC Comics, the rights to the Harry Potter films, and New Line Cinema, the company that created the Lord of the Rings movie franchise. From Full Frontal with Samantha Bee to the hit video game The Witcher 3: Wild Hunt, Time Warner produces an array of content that AT&T hopes to market to rival cable companies and consumers.
AT&T also wants to collect usage data about its viewers so that it can build a digital advertising empire to rival tech titans such as Google and Facebook, which dominate the online ad industry.
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.
If the government wins, it will be the second time in seven years that the U.S. has derailed a major deal by Stephenson and will leave the largest U.S. pay-TV provider and phone company with fewer options for growth.
Business and policy analysts say this case will be something of a bellwether at a time when mergers and acquisitions are rapidly on the rise. A win for the Justice Department could deter future deals and undo decades of generally permissive policy.
But if AT&T wins, analysts say, it would be a setback for regulators and their ability to block vertical mergers they view as anti-competitive.
That would have practical ramifications. Already, more than $409 billion worth of deals have been announced in 2018, a 67 percent jump from the same time last year and the fastest start ever for mergers and acquisitions in a single year, according to Dealogic, a financial advisory firm.
Between 2010 and 2016, the number of mergers for which companies sought federal approval leaped by 58 percent, according to a study of regulatory filings by Michael Kades of the Washington Center for Equitable Growth, a think tank.
The Justice Department's decision in November to file a lawsuit seeking to block the deal stunned investors who figured the government would follow past practice and approve it, just as it allowed a similar tie-up between Comcast Corp. and NBCUniversal.
Makan Delrahim, the antitrust division chief who brought the case, broke with tradition when he demanded asset sales from AT&T to resolve the government's concerns that a deal would harm competition.
For years vertical deals had been approved with conditions imposed on companies to keep markets competitive. In Delrahim's view, that turns antitrust enforcers into regulators who need to monitor an industry.
Assets sales are preferable because they don't require monitoring and let market forces do their job, he says.
"We have gone through a period, I think mistaken, in which we've substituted ongoing regulation of merged firms for structural relief, and I think it's time that comes to an end," said Herbert Hovenkamp, an antitrust scholar at the University of Pennsylvania Law School. "It's not the job of the antitrust laws to regulate conduct but to condemn anticompetitive conduct."
Information for this article was contributed by Scott Moritz and David McLaughlin of Bloomberg News and by Brian Fung and Tony Romm of The Washington Post.
A Section on 03/20/2018
Print Headline: Fight over emails, memos opens AT&T; antitrust trial