AT&T Targets DOJ Antitrust Chief in Time Warner Fight -- Update

By Brent Kendall and Drew FitzGerald 

WASHINGTON -- AT&T Inc. is considering an unusual bid to seek testimony from the Justice Department's antitrust chief in the coming trial over its $85 billion purchase of Time Warner Inc., part of the companies' effort to challenge the legitimacy of the government's lawsuit.

In the months since the Justice Department sued to block the deal last November, AT&T has publicly questioned the department's motives in light of President Donald Trump's campaign pledge to disallow the deal and his repeated disparagement of CNN, a unit of Time Warner.

AT&T and Time Warner have drafted a list of people they may put on the witness stand at trial, and, according to people familiar with the matter, the roster includes Justice Department antitrust chief Makan Delrahim, a Trump nominee who made the decision to challenge the deal in court.

AT&T could choose not to call Mr. Delrahim at trial. But if he is called, it could escalate tensions in a dispute that already has seen its share of tense moments and is shaping up as a pitched legal battle between a corporate giant and an unorthodox administration whose president is given to off-the-cuff comments.

The trial is scheduled to begin March 19, representing one of the biggest antitrust cases in a generation.

Legal observers said they couldn't recall a situation in which merging companies sought court testimony from the government official who made the decision to sue them. "It's quite remarkable that they listed him," said Wayne State University law professor Stephen Calkins.

Legal impediments could arise to obtaining testimony from Mr. Delrahim especially on internal government deliberations that led to the lawsuit.

In their initial answer to the lawsuit, AT&T and Time Warner listed six defenses to the government's claims, including touting cost savings and benefits for consumers. Another of the defenses argued the case reflected "improper selective enforcement of the antitrust laws." AT&T has been combative in public, saying the lawsuit defies logic.

Time Warner has kept a lower profile, but in a meeting between top company officials and the Justice Department before the lawsuit was announced, its general counsel Paul Cappuccio told Mr. Delrahim and his colleagues to be ready for a "shit show" if they challenged the deal, people familiar with the matter said.

Mr. Delrahim, for his part, has offered veiled criticisms of AT&T's claim that it needs the deal to compete effectively.

Daniel Petrocelli, lead trial counsel for AT&T and Time Warner, said "this is a matter to be discussed in court, not the press."

The case isn't a typical antitrust dispute. Mr. Trump has been a relentless critic of CNN and referenced the news network when he vowed as a candidate to block the deal, saying, "AT&T is buying Time Warner, and thus CNN, a deal we will not approve in my administration because it's too much concentration of power in the hands of too few."

Mr. Delrahim was a private practice lawyer in October 2016 when the deal was announced and Mr. Trump made his remarks. He appeared on Canadian television at the time and said the deal didn't seem to be "a major antitrust problem," though he did say it could raise some concerns.

AT&T has sought to make use of Mr. Delrahim's 2016 television interview. The company played the clip during a press conference last November. Nothing would appear to prevent the companies from playing the video in court unless U.S. District Judge Richard Leon disallows it.

In a CNBC interview Friday, AT&T Chief Executive Randall Stephenson cited Mr. Delrahim's previous remarks on the deal as well as Mr. Trump's opposition, saying, "Those are all the kinds of things that everybody looks at and says, 'What's going on?' "

Last July, Mr. Trump tweeted a video of himself punching a figure with the CNN logo. In December, after the network issued a correction on a story, the president tweeted that "Fake News CNN made a vicious and purposeful mistake." In January, Mr. Trump included CNN and other news organizations as recipients of his "Fake News Awards."

Mr. Delrahim has pledged to keep politics out of enforcement decisions and has said he didn't talk to the White House about the deal. Roughly 30 career staffers at the Justice Department signed the lawsuit.

The Justice Department's review of the AT&T-Time Warner transaction had been under way for about a year when Mr. Delrahim took the helm as the department's antitrust chief. He had previously served as a deputy White House counsel.

The Justice Department is alleging the AT&T-Time Warner deal would create a giant firm that could hobble rivals, force higher prices for video programming and slow innovation in the age of cord-cutting.

Advocates for strong antitrust enforcement have argued the government's concerns are legitimate, though some also say Mr. Trump's comments were ill-advised. "No good can come of it, and you just give the defendants something to talk about," said Cleveland State University law professor Chris Sagers.

Mr. Sagers, who supports the lawsuit, said a content creator like Time Warner "will feel more free to raise its prices once it's integrated into a big distribution network. Likewise, AT&T seems very likely to intend to use control of Time Warner content to stall the threat posed to its most profitable video business -- subscription cable -- by the new streaming-video firms."

Mr. Sagers said Mr. Trump's criticisms and Mr. Delrahim's comments before he joined the Justice Department aren't necessarily relevant in the case, absent some hard evidence that the administration targeted the deal because the president doesn't like CNN.

AT&T and Time Warner's main defense will likely focus on what they see as the deal's potential benefits to media consumers and advertisers. They say integrating AT&T's video and wireless distribution with Time Warner's movie and television content will allow the newly-combined company to compete with disruptive firms like Netflix, Google and Amazon that are offering video content in nontraditional ways.

AT&T also emphasizes that its deal is a "vertical" merger of complementary companies, rather than one that eliminates a direct competitor. The Justice Department hasn't litigated a challenge to a vertical merger in decades, though it came close to doing so during the Obama administration and has imposed conditions on some vertical deals, including Comcast Corp.'s takeover of NBCUniversal.

AT&T is deploying a rarely used legal defense with its claim that the Justice Department is improperly enforcing the antitrust laws against the deal. One of the few instances experts could cite dates to the 1970s. That involved a Nixon-era lawsuit alleging that the then-Big Three television networks were monopolizing prime-time entertainment programming. The networks claimed improper motives by the administration and sought documents related to Richard Nixon's communications on the matter.

A California judge dismissed the case after Mr. Nixon left office and the government said it was unable to turn over some of the former president's materials. But the judge allowed the Justice Department to refile the case under new leadership, which it did. The case ultimately settled.

Write to Brent Kendall at [e-mail] and Drew FitzGerald at [e-mail]

(END) Dow Jones Newswires

February 14, 2018 16:35 ET (21:35 GMT)

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