A Washington federal appeals court on Tuesday upheld AT&T's planned takeover of Time Warner, another setback for U.S. Justice Department antitrust enforcers who lost their bid to block the multibillion-dollar deal after claiming it would give the newly combined company almost unbridled bargaining power.

The ruling from the U.S. Court of Appeals for the D.C. Circuit came in what observers considered one of the most consequential merger cases in Washington in decades. Indeed, the Justice Department's push to block AT&T's proposed acquisition of Time Warner was closely watched because it involved a rare challenge to a so-called vertical merger, a deal involving companies that are not direct competitors.

Writing for a unanimous three-judge panel, Judge Judith Rogers noted just how “dynamic” the entertainment industry has become amid the emergence of new video-streaming services such as Netflix and Hulu.

The Justice Department argued that the deal would give the enlarged AT&T leverage to withhold content and poach customers in the event of fee disputes with rival distributors. AT&T has said fee disputes with networks will be resolved through arbitration for at least the next seven years.

AT&T, represented in the D.C. Circuit by Sidley Austin appellate veteran Peter Keisler, said the arbitration process should head off any concerns about so-called content blackouts.

Keisler argued against Michael Murray, a top lawyer in the front office of DOJ's antitrust division, led by Makan Delrahim, formerly a Brownstein Hyatt Farber Schreck partner. At the time of the December argument, Murray had been a part of the antitrust division for only a few months. The former Jones Day associate made his D.C. Circuit argument debut in September.

AT&T's arbitration commitment appeared to carry some weight with the D.C. Circuit. “Not to be overlooked, the district court also credited the efficacy of Turner Broadcasting's 'irrevocable' offer of arbitration agreements with a no-blackout guarantee. It characterized the no-blackout agreements as 'extra icing on a cake already frosted,'” Rogers wrote, quoting from U.S. District Judge Richard Leon's decision upholding the AT&T-Time Warner deal in May 2018.

D.C. Circuit Judge Judith Rogers. Credit: Diego M. Radzinschi / NLJ

When the Justice Department challenged the deal in November 2017, the case immediately drew close attention—for reasons both legal and political.

Antitrust lawyers saw the case as upending the decadeslong understanding of the government's approach to vertical mergers. Meanwhile, because the deal involved the provider of CNN, questions emerged about whether the Justice Department's challenge was driven by President Donald Trump's criticism of the network's coverage of his campaign and administration.

In their push for communications between the White House and Justice Department, the two companies enlisted William Barr, then a Time Warner board member, who questioned in an affidavit whether Justice Department officials had “political or other motivation.”

Barr has since been confirmed as U.S. attorney general, reprising a role he previously held in the George H.W. Bush administration. In the confirmation process, Barr said he'd recuse himself from matters related to the merger.

At the trial court stage, AT&T turned to O'Melveny & Myers partner Daniel Petrocelli, a veteran trial lawyer who prevailed in Leon's court despite not being an antitrust expert. Petrocelli's team included antitrust partner Katrina Robson and M. Randall Oppenheimer, chairman of the firm's litigation department. Christine Varney, an Obama-era head of DOJ's antitrust division and now partner at Cravath, Swaine & Moore, was counsel for Time Warner.

Read the D.C. Circuit's decision below: