AT&T Trial Counsel Petrocelli Is No Antitrust Expert—But That May Be a Plus
As O'Melveny & Myers partner Daniel Petrocelli faces one of the biggest trials of his life—fending off the Justice Department's challenge to AT&T's $85 billion merger with Time Warner— there's a niggling question: What does the renowned Los Angeles litigator really know about antitrust law?
March 18, 2018 at 07:00 PM
6 minute read
O'Melveny & Myers partner Daniel Petrocelli is used to litigating in the limelight, from suing O.J. Simpson to defending Jeffrey Skilling.
But as one of the biggest trials of his life—fending off the Justice Department's challenge to AT&T's $85 billion merger with Time Warner— kicks off Monday, there's a niggling question: What does the Los Angeles-based lawyer really know about antitrust law?
On the government's side, there's a deep bench of lawyers who've spent their careers becoming fluent in the finer points of the Herfindahl-Hirschman index and SSNIP (Small Significant Non-transitory Increase in Price), and other antitrust intricacies. Lead counsel Craig Conrath joined the antitrust division in 1975, straight out of law school.
But the AT&T/ Time Warner trial is likely to come down to something more basic: Who can tell the more persuasive tale of the future of the entertainment industry? Who can convince U.S. District Senior Judge Richard Leon of the District of Columbia what's in the best interest of consumers?
See, this is not your standard horizontal union of competitors. It's a vertical combination, and the DOJ's decision to oppose it marks a new and unexpected departure from antitrust norms.
That's where AT&T's decision to go outside the usual confines of the antitrust bar for lead counsel makes perfect sense. It harkens back to the Justice Department's decision to hire legendary litigator David Boies in 1998 to try its case against Microsoft.
Boies delivered. Now, the pressure is on for Petrocelli to do so as well.
To be clear: He is not in this alone. O'Melveny has a top-ranked antitrust department, and Petrocelli's team includes antitrust partner Katrina M. Robson along with litigation department chair M. Randall Oppenheimer.
Litigators Robert Walters and Michael Raiff of Gibson, Dunn & Crutcher represent AT&T and subsidiary DirecTV as well.
Time Warner has tapped Cravath, Swaine & Moore, including partner Christine Varney, who headed the Antitrust Division from 2009 to 2011, plus partners Peter T. Barbur, Kevin J. Orsini and Margaret Segall D'Amico.
But expect Petrocelli as lead counsel for the acquiring party to do the heavy lifting at trial, which the judge estimated could last up to eight weeks.
In their pre-trial brief, AT&T and Time Warner preview their argument that the merged company will have no incentive to withhold Time Warner-owned networks such as HBO, TNT or CNN from rivals, because doing so would mean huge losses in licensing and advertising revenue. And if disputes do arise, the merged company has promised to engage in “baseball-style” arbitration to license Time Warner content for the next seven years.
“This merger has never been about making Time Warner programs less accessible or more expensive. Just the opposite: it is about making Time Warner and AT&T more competitive during a revolutionary transformation that is occurring in the video programming marketplace,” Petrocelli wrote, pointing to the rise of Netflix, Amazon, Google and other direct-to-consumer companies that provide video programming and distribution.
He derided the government's economic expert, Professor Carl Shapiro from the University of California at Berkeley, whom Petrocelli said initially claimed, “with startling and implausible precision” that the merger would cause consumer pay-TV prices to rise by a monthly total of 27 cents per subscriber.
The expert raised the number to 45 cents “after fiddling with some input dials,” Petrocelli wrote. Even if the 45 cent upcharge is accurate—and AT&T and Time Warner dispute that it is—the increase is “so negligible that, given the inherent uncertainty in the model's predictive inputs, the claimed increase is statistically indistinguishable from zero.”
In fact, he argues, if you correct the expert's errors, “the government's own model projects an industry-wide consumer price reduction, confirming that this vertical combination, like so many before it, benefits consumers.”
Not so fast.
In its pre-trial brief, the government uses the parties' own words against them. Back when Comcast and NBCU wanted to merge, DirecTV argued to the Federal Communications Commission that the combined company would “demand higher prices and more favorable terms—and withhold programming” from any video distributor that didn't fall in line.
That's exactly what the government says will happen if AT&T and Time Warner unite.
“Here, the critical question is this: Would consumers quit subscribing to AT&T's competitors and switch to AT&T if they did not carry Time Warner content, thus allowing AT&T to increase the price of that content?” wrote Conrath in a brief that also lists the names of 38 other DOJ lawyers.
“If so, the merger will allow AT&T to increase its rivals' costs—and those higher costs will, in turn, be passed on to consumers. At trial, the United States will prove that the answer to this critical question is yes: Time Warner's content is competitively significant—in fact, in defendants' own words it is more than significant, Time Warner content is 'must have.'”
One wild card is whether AT&T and Time Warner will find an opening to argue that the White House improperly influenced the antitrust division's decision to oppose the deal, given President Trump's oft-expressed unhappiness with “fake news” CNN.
In late February, Leon denied AT&T Inc.'s request for U.S. Department of Justice communications with the Trump White House over the company's proposed acquisition of Time Warner. And on March 13, he denied an amicus brief by former DOJ lawyers who wrote that they are “concerned that the president and the White House may have interfered in this matter” and requesting “that the court ensure that the parties are able to examine this issue.”
It's notable that Petrocelli is not an anti-Trump zealot. The opposite—he represented the president in the Trump University suit (for which he was awarded Litigator of the Week.)
Still, it doesn't mean this line of defense is fully foreclosed.
Shortly before his appointment, antitrust chief Makan Delrahim said on Canadian television that he did not see a problem with the deal. And in February, The New York Times reported AT&T listed Delrahim as a potential witness.
Whether that will actually happen is unclear—the trial may already have enough drama as-is.
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