On November 20, 2017, the Department of Justicesued AT&T, DirecTV and Time Warner for an attempted merger worth $85.4 billion. If the merger was successful, AT&T, which owns satellite TV provider DirecTV, would acquire Time Warner, a cable TV company that owns popular channels such as HBO and CNN. The move to block the merger shocked many who believed that the Department of Justice was overstepping the bounds of antitrust legislation, or corporate regulations meant to promote fair competition. Meanwhile, a wide variety of consumer advocates applauded the deal as protecting consumers from a media and telecommunications monopoly. In the backdrop of the contentious merger is a rich history of antitrust litigation that sheds light on how precedent-shattering the Department of Justice’s recent actions are.

The discussed merger falls under the definition of a vertical merger. A vertical merger is essentially a merger between two companies that previously interacted with each other in a relatively non-competitive context e.g. buying and selling to and from each other. Horizontal mergers, on the other hand, are between companies that are in direct competition with each other. A prominent example of a horizontal merger is the merger between HP and Compaq in 2001, as both HP and Compaq broadly competed in the information technology market. The news of the merger prompted a Federal Trade Commission (FTC) investigation that concluded with the FTC voting 5-0 to not take any enforcement action, and the merger was completed. The question then arises: what about vertical mergers? The most prominent example of a vertical merger is the acquisition of NBCUniversal by Comcast. The deal was initiated in the spring of 2009, and it quickly fell under government scrutiny. This merger falls under the conditions of a vertical merger: Comcast is a cable and internet company, and NBCUniversal manages a multiplicity of television channels. There is no direct market competition of their products, however, there is a significant amount of interaction between the services that they provide. For example, you need cable from Comcast in order to access NBCUniversal’s TV channels, and you need internet from Comcast’s Xfinity service in order to access NBCUniversal’s online streaming services. Following lengthy review by various government agencies, the merger was allowed to continue. There were some stipulations that Comcast had to obey in order to complete the merger, but they were minor and did not fundamentally change the structure of the merger.

The distinction between vertical and horizontal mergers constitutes a large part of  AT&T’s argument for why the merger ought to be allowed. The recent history of antitrust regulation of vertical mergers by the Department of Justice shows that the Department is far more lax than it is when it comes to horizontal mergers. In the reviews of UTC/Goodrich,Google/ITA, Monsanto/Delta & Pine Land, the Justice Department allowed the mergers to occur, with some adjustments (usually the selling off or divestiture of certain assets) in each case. The most recent case is that of Lam/KLA, in which the merger was voluntarily called off due to antitrust concerns. However, the record is clear: vertical mergers seem to escape stringent regulation in the recent history of the Department of Justice. Furthermore, it can be argued that vertical mergers actually increase competition and efficiency in the marketplace. According to former Attorney General Robert H. Bork, vertical mergers create efficiencies by cutting sales and distribution costs and facilitating the flow of information.

The Department of Justice, on the contrary, promotes the argument that the merger ultimately hurts consumers. According to the head of the Justice Department’s antitrust division, the merger could potentially lead to an increase in television bills and fewer options for consumers. This is because AT&T would effectively control both the means and ends of television consumption, and could restrict access to what people consume. There is also the possibility that AT&T could have an anti-competitive effect on the online streaming market by keeping access to certain Time Warner channels exclusive to their proprietary streaming services. The Justice Department in its official complaint cited Section 7 of the Clayton Act of 1914 (15 U.S. Code § 18), which plainly states that mergers are prohibited in the case that “the effect of such acquisition may be substantially to lessen competition.” This definition includes vertical mergers as Congress made clear in amendments to the Clayton Act in 1950. The burden to prove that the merger would substantially lessen competition falls to the Department of Justice in this case.

The AT&T and Time Warner merger has prompted widespread discussion of how we should approach antitrust litigation in the United States. AT&T has argued that the legal precedent for blocking a vertical merger is weak, while the Department of Justice has argued that the harm to consumers will be significant. The trial will take place on March 19 and will be overseen by Judge Richard Leon, a Senior Judge of the United States District Court for the District of Columbia. Judge Leon is the same judge who oversaw the Comcast/NBCUniversal merger and is regarded as a maverick in the legal realm with no clear political leanings. For now, a historic antitrust decision rests solely in his hands.