Compass Lexecon Clients AT&T and Time Warner Prevail in Historic Merger Case

Compass Lexecon was retained by AT&T and Time Warner to provide economic analysis and expert testimony concerning the merger of the two companies, and to assist with the litigation brought by the U.S. Department of Justice to block the deal — United States of America v. AT&T Inc., DirecTV Group Holdings, LLC, and Time Warner Inc., 1:17-cv-02511-RJL. This litigation was the first challenge of a vertical merger brought by the Department of Justice in decades and has been closely followed by practitioners and the press as a critical precedent-setting case. Following almost two years of regulatory proceedings and a six week trial, on June 12, 2018, Judge Richard J. Leon ruled in favor of AT&T and Time Warner, permitting the merger to proceed without imposing conditions. As the Judge states in his decision, “The parties have waged an epic battle, under extremely restricted deadlines, to litigate and try this historic vertical merger case. Each side’s evidence and theories have been subjected to cross-examination and the rigors of the Rules of Evidence and Civil Procedure. It has been a herculean task for all the parties and the Court. Each side has had its proverbial day in Court. The Court has now spoken and the defendants have won.”

Compass Lexecon experts Dennis Carlton, Michael Katz, Daniel Fischel and Rajiv Gokhale all filed reports in the litigation, and Professors Carlton and Katz were both called to testify. Compass Lexecon also provided support for Professor Peter Rossi. Professor Dennis Carlton was the primary economic witness for AT&T and Time Warner and spent a full day on the stand responding to the Government’s economics expert. Professor Michael Katz provided further economic testimony on the role of program access rules and arbitration commitments that the companies had made in addressing any potential theories of harm. Professor Peter Rossi testified as to problems with survey instruments and data relied upon by Government witnesses. Judge Leon’s Opinion cites all three testifying experts extensively, with Professor Carlton’s testimony being cited more than 50 times. Judge Leon cites in particular to Professor Carlton’s conclusion that “There’s absolutely no statistical basis to support the Government’s claim that vertical integration in this industry leads to higher content prices,” and Judge Leon finds that the Government did not provide “an adequate basis to decline to credit Professor Carlton’s econometric analysis. And that analysis, according to Professor Carlton, definitively shows that prior instances of vertical integration in the video programming and distribution industry have had no statistically significant effect on content prices.” Judge Leon also found that the Government’s model was “not sufficiently grounded in the evidence,” and cites the economic testimony of Professors Carlton, Katz and Rossi which exposed problems that are “fatal to the model’s probative value in predicting the asserted harm associated with the Government’s increased-leverage theory.”

Although not called to testify at trial, Compass Lexecon President Daniel Fischel’s expert report covered corporate governance issues, and Rajiv Gokhale’s expert report covered efficiencies and consumer benefits that will result from the merger. Compass Lexecon’s Mark Israel was the primary economic expert dealing with the Department of Justice during the almost two year interaction with the government leading up to the trial. Compass Lexecon also provided assistance with discovery during the regulatory process and litigation.

These experts were supported by a team of over one hundred people at Compass Lexecon. The overall chief of staff was Executive Vice President Allan Shampine. Other Executive Vice Presidents and Compass Lexecon economic experts involved included Steven Berry, Mary Coleman, Philip Haile, Todd Kendall, Jessica Mandel, Loren Poulsen, Marius Schwartz, Hal Sider, Thomas Stemwedel, Theresa Sullivan, Daniel Vincent and David Weiskopf. Other team members included Alexandre Asancheyev, Dzmitry Asinski, Daniel Cherette, Kelly Dickson, Georgi Giozov, Otto Hansen, Evan Hernstadt, Margaret Hlebowitsh, Nauman Ilias, Alice Kaminski, Constance Kelly, John Kelly, Andrew Linde, Jonathan McClure, Evan McKay, Federico Mini, Avisheh Mohsenin, Robert Oandasan, Joel Papke, Michael Sabor, Saikun Shi, Judy Smith, Ben Spulber, Ka Hei Tse, Duo Xu and Allan Zhang.

In addition to in-house counsel for AT&T and Time Warner, including David R. McAtee, Paul T. Cappuccio, David Lawson, Jim Meza, David Smutny and many others, Compass Lexecon worked closely with counsel from the seven outside law firms representing AT&T and Time Warner, including Daniel M. Petrocelli, M. Randall Oppenheimer, Katrina Robson and Sergei Zaslavsky from O’Melveny & Myers LLP; Wm. Randolph Smith, Christopher A. Cole and Jeane A. Thomas from Crowell & Moring LLP; Michael Kellogg, Evan Leo, Kevin Miller and Aaron Panner from Kellogg, Hansen, Todd, Figel & Frederick PLLC; Richard L. Rosen, Debbie Feinstein, Maureen R. Jeffreys and Jonathan Gleklen from Arnold & Porter Kaye Scholer LLP; Robert C. Walters, Mike Raiff, Joshua Lipton, Sean M. Royall and Eric J. Stock from Gibson, Dunn & Crutcher LLP; C. Frederick Beckner III, Peter D. Keisler and Jonathan E. Nuechterlein from Sidley Austin LLP; and Peter T. Barbur, Kevin J. Orsini, Christine A. Varney and Allison Davido from Cravath, Swaine & Moore LLP.