[00:00:10] Speaker 04:
Good morning.

[00:00:10] Speaker 00:
Good morning, Your Honor, and may it please the Court, Michael Murray for the United States.

[00:00:15] Speaker 00:
After this $108 billion merger, the nation's largest TV distributor and a TV programmer with critically important content will be able to extract hundreds of millions of dollars more for TV programming because they can threaten to poach the rival's customers if they don't pay up.

[00:00:31] Speaker 00:
The Distra Court's contrary conclusion suffers two pervasive logical inconsistencies that I'd like to focus on today.

[00:00:39] Speaker 00:
First, the district court concluded that before the merger, bargaining leverage depends on the threat of blackouts.

[00:00:45] Speaker 00:
But that after the merger... Depends on what?

[00:00:47] Speaker 00:
The threat of blackouts.

[00:00:50] Speaker 04:
Oh, yes.

[00:00:50] Speaker 00:
All right.

[00:00:51] Speaker 00:
But that after the merger, bargaining leverage depends on whether blackouts will actually happen.

[00:00:57] Speaker 00:
Both of those can't be true.

[00:00:59] Speaker 00:
Second, the district court also concluded that the new company will maximize its profits

[00:01:05] Speaker 00:
when that will help consumers, but won't do so when that will hurt consumers.

[00:01:10] Speaker 00:
Again, both can't be true.

[00:01:13] Speaker 06:
You're stating it in a way that creates the inconsistency.

[00:01:19] Speaker 06:
To recognize that the principle of maximization across corporate is an incentive is not to say that a particular actor would act in a particular fashion in order to achieve that goal, is it?

[00:01:36] Speaker 06:
I can recognize the principle without recognizing that it creates the particular incentive for the particular act that you're arguing in this case.

[00:01:44] Speaker 00:
I think that's right, Your Honor.

[00:01:46] Speaker 00:
What we're saying here is that applying the logic of copper weld, which holds that corporations will maximize their overall profits across divisions, means that Time Warner, after the merger, will operate to maximize the overall.

[00:02:04] Speaker 06:
It does not ever mean that Time Warner will necessarily conclude that the corporate profits are enhanced more by blacking out

[00:02:12] Speaker 06:
and creating the possibility of a cancellation and transfer of customers, then would be the case if they went ahead and didn't black out and got the normal advertising and rights profits.

[00:02:27] Speaker 06:
It's two different things, isn't it?

[00:02:29] Speaker 06:
That's right, then I don't see the inconsistency.

[00:02:34] Speaker 00:
Your Honor, I don't think anyone has argued here, unless I'm misunderstanding your question, that Time Warner will not act to maximize its profits.

[00:02:43] Speaker 00:
And what we've put forward is that by threatening blackouts, knowing that blackouts are less costly because DirecTV is in the same company, it will obtain more money for the overall corporation.

[00:02:58] Speaker 04:
But didn't the district court acknowledge precisely what Judge Santel's question states, that there is this principle?

[00:03:07] Speaker 04:
He acknowledged it.

[00:03:10] Speaker 04:
There wasn't any dispute about it in that sense.

[00:03:14] Speaker 04:
But given what had happened in the market and what was happening in the market,

[00:03:20] Speaker 04:
didn't necessarily follow that the profit path was through blackouts as opposed to maximizing distribution, lower cost, et cetera.

[00:03:32] Speaker 00:
I think that's one way to read the court's opinion, Your Honor.

[00:03:35] Speaker 04:
If that's so, and our standard is clear error, where is the clear error?

[00:03:41] Speaker 00:
The clear error, Your Honor, if we take that interpretation of the opinion, I just want to be clear that's not how

[00:03:47] Speaker 00:
the government's brief understands the opinion.

[00:03:51] Speaker 00:
But if we take that interpretation, the only evidence that the court pointed to in the record for that particular proposition was a statement from an MBCU official, an MBCU executive, stating that in their particular company, they don't consider a particular identity.

[00:04:13] Speaker 00:
But of course, MBCU and Comcast are under

[00:04:17] Speaker 00:
a consent decree from the FCC and the Department of Justice where the FCC and the Department of Justice agreed and in fact the defendants urged the very theory and prediction that is at issue in this case and so before the FCC what the defendants told the FCC was that a standard economic model predicts that this proposed transaction would significantly increase the price that other MVDs pay

[00:04:46] Speaker 00:
for MBCU programming.

[00:04:48] Speaker 04:
So what do you do with all the district court's findings about the nature and the change in the market and the evidence about this dramatic change in the last five years?

[00:04:58] Speaker 00:
Yes, Your Honor.

[00:04:59] Speaker 00:
The district court and certainly the government agrees that the industry is evolving.

[00:05:04] Speaker 00:
But I think what the way to think about that point is, is that there was also testimony in the record, and this is in the district court's opinion, that the defendants consider DirecTV and their MVPD business their golden goose or their cash cow that they're trying to preserve.

[00:05:21] Speaker 00:
And so though the industry is certainly changing, the incentives are still the same to preserve, just as they were in the Comcast-MBCU merger, which was a few years ago.

[00:05:30] Speaker 04:
But what I'm trying to explore with you is the incentive to maximize profit may be the same, but is it necessarily by the same path as existed in the previous market condition prior to this five-year period?

[00:05:49] Speaker 00:
Yes, I understand that, Your Honor.

[00:05:50] Speaker 00:
I don't think anyone at trial argued that, or on appeal has argued that it would be less profitable for Time Warner to ignore direct TV.

[00:06:06] Speaker 00:
What we're saying here, and I think what the evidence showed was that

[00:06:09] Speaker 00:
that in rejecting that analysis, Time Warner and the overall company would be leaving money on the table.

[00:06:16] Speaker 00:
So they would see hundreds of millions of dollars on the table.

[00:06:19] Speaker 00:
They would say, I don't want that, and then turn away.

[00:06:22] Speaker 06:
Yeah, but there are hundreds of millions of dollars, whatever you're doing.

[00:06:27] Speaker 06:
If you're going on blackout, you're losing all of the normal advertising, subscription profits that you would normally be getting.

[00:06:36] Speaker 06:
It's not that they're giving up all profit in order to get

[00:06:40] Speaker 06:
what you're saying they should get here with the blackout threat, it is that they could be making a calculus that would go either way.

[00:06:49] Speaker 00:
I think that's right, Your Honor.

[00:06:50] Speaker 06:
The principle of maximization just does not lead to either necessary result.

[00:06:56] Speaker 06:
It's a method of analysis.

[00:06:57] Speaker 06:
It's not a conclusion.

[00:06:59] Speaker 06:
Certainly, Your Honor.

[00:07:00] Speaker 06:
You have to put assumptions or evidence in in order to work an equation.

[00:07:05] Speaker 00:
The government, of course, agrees with, I think, most of what you said, but what we're saying here is not the new company will, in fact, blackout.

[00:07:14] Speaker 00:
That's what the district court was myopically focused on, but rather that there's a threat of blackouts, and that threat of blackouts will allow Time Warner to increase the prices for its rivals.

[00:07:24] Speaker 06:
If the threat is perceived as a possible prediction of reality, then the threat leads to nothing, just as the judge could be construed to have said.

[00:07:34] Speaker 06:
But if you have an empty thread of blackout, you're not going to get a heck of a lot of leverage out of that.

[00:07:41] Speaker 00:
Yes, Your Honor.

[00:07:42] Speaker 00:
I don't think that that's the proper way to understand the district court's opinion except for its focus, and that would be contrary to the wealth of evidence at trial regarding the threat of blackouts.

[00:07:52] Speaker 00:
So I'll point, Your Honor, to JA 1713, which lists, and I'll be careful because it's a sealed document, but it lists the blackouts.

[00:07:58] Speaker 06:
Careful about the sealed document.

[00:08:00] Speaker 00:
Yes, Your Honor.

[00:08:01] Speaker 00:
It lists the blackouts in this industry.

[00:08:03] Speaker 00:
And then I'll point, Your Honors, also

[00:08:04] Speaker 00:
to JA 506-07 which is not sealed and this is testimony from the defendant's own executives stating that they almost went dark they almost had a blackout with five major distributors in the preceding five or six years with Time Warner Cable over a penny in 2012 with DirecTV with Dish with Altis and with Charter and so what this shows is that the threat of blackouts is real in this industry

[00:08:31] Speaker 00:
The wealth of evidence that the district court didn't focus on because he was focused on whether, incorrectly, blackouts will actually occur, the wealth of evidence showed that blackouts are routinely threatened.

[00:08:42] Speaker 00:
In fact, HBO's executive, which is part of Time Warner, threatened charter with a blackout.

[00:08:48] Speaker 00:
The CEO of Turner,

[00:08:50] Speaker 00:
said that blackouts are always a possibility.

[00:08:52] Speaker 00:
The former chief negotiator Braylon testified blackouts are always a possibility.

[00:08:57] Speaker 00:
In fact, we prepared drop analyses to see what will happen when there's a blackout.

[00:09:02] Speaker 00:
And distributors testified to the same.

[00:09:05] Speaker 00:
So there's a wealth of evidence in this case indicating that the threat of blackouts is very real.

[00:09:11] Speaker 00:
And what the district court did instead was focus on whether blackouts will actually happen.

[00:09:16] Speaker 00:
inconsistency an error because it also concluded that before the merger Time Warner has bargaining leverage because of the threat of blackouts.

[00:09:25] Speaker 00:
So it can't be the case your honor that before the merger the leverage comes from the threat of blackouts but that after the merger the leverage comes from whether blackouts will actually happen.

[00:09:34] Speaker 06:
That's inconsistency.

[00:09:40] Speaker 06:
risk of unfair competition or whatever the language is in the statute there, it can be the case that you can have a threat before and a threat after, and the threat after is not sufficiently greater to make it a Wagner actor problem.

[00:09:58] Speaker 00:
So I don't think that's what the court was concluding and I'll point your honor to JA 117 on that front where the court said that, excuse me,

[00:10:10] Speaker 00:
The court said that I conclude that the government has failed to clear the first hurdle of showing that the proposed merger is likely to increase Turner's bargaining leverage.

[00:10:19] Speaker 00:
And there's some other citations in our brief about where the court concluded that there was no increase in bargaining leverage, not, as my colleagues on the other side have argued, that there was no material increase of bargaining leverage.

[00:10:30] Speaker 00:
I think, Your Honor, you used the term no significant increase in bargaining leverage.

[00:10:33] Speaker 06:
That would be better, certainly.

[00:10:35] Speaker 06:
However, if the judge did make a finding that there was no increase, that certainly would include the lesser finding that there's no material increase, would it not?

[00:10:45] Speaker 00:
Yes, if he said there's no increase, then no, I think, means no, Your Honor.

[00:10:50] Speaker 06:
Where is the plain error?

[00:10:53] Speaker 00:
The clear error, Your Honor, is that before the merger, he concluded that blackout, the leverage, was based on the threat of blackouts.

[00:11:02] Speaker 00:
After the merger, when he concluded there was no increased leverage, he solely focused on whether there was, whether blackouts would actually happen.

[00:11:09] Speaker 00:
And that's just the same type of inconsistency we have in Hines.

[00:11:12] Speaker 00:
So in Hines, we have the same type of inconsistency where the court held in part of the opinion, the district court held in part of the opinion,

[00:11:19] Speaker 00:
that there was a single market for jarred baby food.

[00:11:22] Speaker 00:
And then in assessing the defendant's rebuttal case, it said, well, these two defendants don't compete against each other in this jarred baby food market.

[00:11:30] Speaker 00:
And this court said, we can't have that type of inconsistency.

[00:11:33] Speaker 00:
That sort of inconsistency can't stand.

[00:11:35] Speaker 00:
An opinion divided against itself shouldn't stand.

[00:11:38] Speaker 00:
And so it held that that was not proper.

[00:11:41] Speaker 00:
That's the same type of inconsistency that we have here.

[00:11:44] Speaker 07:
How are we supposed to?

[00:11:48] Speaker 07:
assess the offer that AT&T Time Warner made with respect to the arbitration, the offer to arbitration and no blackouts.

[00:12:05] Speaker 07:
What are we supposed to do with that?

[00:12:08] Speaker 07:
What did the district court do with that?

[00:12:09] Speaker 07:
Did the district court rely upon that

[00:12:13] Speaker 07:
to say that there really wasn't a credible threat of blackouts and that blackouts were infeasible?

[00:12:20] Speaker 00:
I don't think that's what the district court did.

[00:12:22] Speaker 00:
So I'll point your honors to JA 196 where the court's discussion of the arbitration offer is primarily occurring.

[00:12:30] Speaker 00:
That's a footnote, a couple of paragraphs in the opinion, and there he says that the arbitration offer makes him more skeptical, or be more skeptical, I think are the exact words, of the government's case.

[00:12:43] Speaker 00:
So I don't think that there's a finding on the arbitration offer

[00:12:46] Speaker 00:
in the sense that AT&T would like there to be.

[00:12:50] Speaker 00:
And that makes sense because this arbitration offer is really too little, too late.

[00:12:55] Speaker 00:
And let me spell that out.

[00:12:57] Speaker 00:
So the too little is that this arbitration offer is very different from what it was attempting to be modeled on, the arbitration offer for Comcast, NBCU.

[00:13:07] Speaker 07:
Well, it's not just in the footnote.

[00:13:15] Speaker 07:
I guess that's footnote 51 is what you're talking about on page 149 of the opinion.

[00:13:20] Speaker 07:
There's another part of the opinion, which of course, because I'm looking for it, I can't find it.

[00:13:28] Speaker 07:
I think you mean JA 152, Your Honor.

[00:13:36] Speaker 07:
Yeah, here it is on page 105 of the opinion.

[00:13:40] Speaker 07:
I don't know the JA site because I have the opinion as a separate document that I've been working with.

[00:13:46] Speaker 07:
where it's really pages, I guess, 104 and 105, where the district court says that the arbitration proceedings envisioned by Turner's offer are basically similar to what happened with Comcast, NBCUniversal.

[00:14:02] Speaker 07:
And then it says on page 105 at the end of that first paragraph, given all these similarities, I conclude that Professor Carlton's econometric analysis of the pricing effects

[00:14:16] Speaker 07:
et cetera, et cetera, can be afforded probative weight in predicting the potential pricing effects of the challenge merger.

[00:14:25] Speaker 07:
It seems that the district court relies on those arbitration offers to credit the other side's expert, and the other side's expert is what kills your case.

[00:14:43] Speaker 07:
isn't there essentially a finding with respect to those contracts that's key to this decision below?

[00:14:53] Speaker 00:
I think the only finding that is in these pages, Your Honor, is that

[00:14:58] Speaker 00:
the arbitration offer makes Professor Carlton's analysis of the Comcast-MBC merger sufficiently comparable that it has some probative weight, which I believe is how the district court put it.

[00:15:11] Speaker 00:
But what this is not is a finding that the arbitration offer somehow

[00:15:17] Speaker 00:
renders, blackouts, and feasible.

[00:15:19] Speaker 00:
It makes sense that there is no such finding because the only testimony in the record on the arbitration offer from industry witnesses comes from Charter, Cox, and Dish, all of whom testified that they thought that this was an unproven risky arbitration offer that did not change the game for them.

[00:15:38] Speaker 07:
But the district court also said there in footnote 30 at the bottom of page 105 of its opinion that

[00:15:47] Speaker 07:
I have confidence that Turner's arbitration offer will have real-world effect.

[00:15:54] Speaker 07:
I mean, I don't see how we're supposed to come away from all of this discussion without concluding that the district court essentially made a finding that this arbitration offer was real, tangible, enforceable, would affect

[00:16:16] Speaker 07:
the marketplace and the bargaining position of the parties, et cetera, et cetera.

[00:16:22] Speaker 07:
But yet, your brief doesn't make an argument that any such finding was clear error.

[00:16:31] Speaker 00:
Your Honor, I don't think we can read from this one line in a footnote about an unspecified real world effect, that there is some sort of alternative holding of the district court that can be

[00:16:43] Speaker 00:
deferred to.

[00:16:44] Speaker 00:
This is a pretty slender read to say.

[00:16:46] Speaker 07:
I mean, it's not just there.

[00:16:48] Speaker 07:
I've just pointed to other language in the text, not the footnote.

[00:16:52] Speaker 07:
And then there's subsequent language along the same lines.

[00:16:58] Speaker 07:
And I guess I'm just trying to understand.

[00:17:00] Speaker 07:
I mean, on the one hand, you're saying that the district court

[00:17:09] Speaker 07:
clearly aired because in a post-merger world, the threat of blackouts wouldn't change.

[00:17:19] Speaker 07:
The efficacy of that threat wouldn't change.

[00:17:24] Speaker 07:
But yet, in the post-merger world, there are these contracts that have been offered for arbitration that weren't there before.

[00:17:33] Speaker 07:
And the district court seemed to rely on those contracts.

[00:17:37] Speaker 07:
So how can we just ignore that and say the district court has irrationally switched positions?

[00:17:47] Speaker 00:
Your Honor, I want to make sure I'm understanding your question.

[00:17:50] Speaker 00:
I don't think that the district court said anywhere in the opinion

[00:17:54] Speaker 00:
except perhaps from intuiting from a couple of lines and footnotes that the arbitration offer somehow changed the game.

[00:18:02] Speaker 00:
That's what AT&T wants the opinion to look like on appeal, but that's not what it actually looks like.

[00:18:08] Speaker 00:
There's some line in the text, I'll get a paragraph or so that, as Your Honor pointed out,

[00:18:12] Speaker 00:
There's two footnotes on the issue.

[00:18:14] Speaker 00:
And there's good reason for that in light of both the testimony that I mentioned that was unrebutted from those distributors, but also in light of the Supreme Court's view on what we should make of these post-acquisition type of maneuvers.

[00:18:26] Speaker 00:
As we've discussed in our brief, the courts have looked sort of skeptically on these.

[00:18:32] Speaker 00:
And the key case there I'll point you to is General Dynamics, which explained that this type of post-acquisition evidence courts should treat skeptically, and that in fact the Supreme Court had twice rejected that type of evidence.

[00:18:46] Speaker 00:
And the reason that it rejects that type of evidence, the Supreme Court did, is because it's unproven and it's risky, just like it is in this case.

[00:18:53] Speaker 00:
So unlike the Comcast-MBCU merger, where the arbitration offer

[00:18:58] Speaker 00:
was based on fair market value and there was a way to assess that because Comcast was a regional distributor.

[00:19:04] Speaker 00:
Here, DirecTV is a national distributor, so there is no competitive benchmark.

[00:19:08] Speaker 00:
Also in Comcast MBCU, the arbitration offer was backed by the de novo review of the FCC.

[00:19:15] Speaker 00:
We don't have that here, we have a private offer

[00:19:17] Speaker 00:
among parties.

[00:19:18] Speaker 00:
And so that's the reason that the Supreme Court has looked skeptically on this type of evidence is that it's unproven and risky.

[00:19:28] Speaker 00:
And that's exactly what I think the district court's mentions of this mean to elevate these footnotes and the paragraph Your Honor pointed out into a whole new opinion.

[00:19:40] Speaker 00:
seems to be exactly the type of concern that the Supreme Court was raising, namely that we're putting too much weight on something that played a bit part in the district court's opinion.

[00:19:52] Speaker 00:
I see that my opening time is about to expire.

[00:19:54] Speaker 06:
We're not very good at obeying the clock or something.

[00:19:58] Speaker 06:
But with Robinson City, it controls the bar, but only God can control the bench.

[00:20:03] Speaker 06:
We have a couple of questions.

[00:20:05] Speaker 06:
It may not be of critical importance,

[00:20:08] Speaker 06:
the language in your brief, you assert that the district judge obviously did not understand economic principles.

[00:20:17] Speaker 06:
His ruling was consistent with the testimony of the witness, Professor Carlton, was it not?

[00:20:23] Speaker 00:
Some parts were and some parts were not, Your Honor.

[00:20:26] Speaker 00:
Professor Carlton testified that corporations maximize their profits overall.

[00:20:30] Speaker 00:
So in that sense, it was inconsistent.

[00:20:33] Speaker 06:
No, it was not.

[00:20:34] Speaker 06:
We've already been over that.

[00:20:35] Speaker 06:
We won't go back to that.

[00:20:37] Speaker 06:
We may just disagree, Your Honor.

[00:20:46] Speaker 00:
I think that's one reading of the district court's opinion, Your Honor, and we've been over this.

[00:20:54] Speaker 00:
I don't want to continue to disagree just for the sake of it.

[00:20:57] Speaker 00:
But I think you may have another question that you were getting to.

[00:21:00] Speaker 06:
It's related.

[00:21:01] Speaker 06:
Did you note the amicus brief of the 37th Scholar?

[00:21:05] Speaker 00:
Yes, Your Honor.

[00:21:06] Speaker 06:
And that's people like Richard Epstein, Henry Butler, Christopher Yu, who were all saying that this judge's opinion reflected a deep understanding of economics.

[00:21:15] Speaker 06:
Do you still propose, as you said in your brief, that he just didn't understand economic principles?

[00:21:20] Speaker 00:
Your Honor, we stand by what's in our brief.

[00:21:23] Speaker 00:
And of course, the leading antitrust treatise writer is an amici for our side, saying the district court failed to properly apply principles economics.

[00:21:33] Speaker 06:
And I think he's- A different thing than failing to understand principles.

[00:21:36] Speaker 06:
The application of it may get down to a difference in Chicago or London, but it isn't the same thing as not understanding to apply it differently than your expert wants him to, or your amicus wants him to.

[00:21:51] Speaker 00:
Your Honor, I think in our brief, we use the words misapply and misunderstand almost interchangeably.

[00:21:56] Speaker 00:
So I'm not sure that we're actually disagreeing about what we're talking about.

[00:22:01] Speaker 04:
All right.

[00:22:02] Speaker 04:
Help me understand this $352 million in savings to customers.

[00:22:10] Speaker 00:
Sure, Your Honor.

[00:22:10] Speaker 04:
The first time the district court refers to that, I think, as savings to direct TV.

[00:22:20] Speaker 04:
And later on,

[00:22:21] Speaker 04:
He refers to it more generally as savings to customers.

[00:22:26] Speaker 04:
And the argument, in part, is that just reflects a complete misunderstanding by the district court of what was happening in this area and what Professor Shapiro was trying to point out.

[00:22:38] Speaker 00:
Yes, you're exactly right, Your Honor.

[00:22:39] Speaker 04:
Now I know, but what's the response?

[00:22:42] Speaker 00:
Sure.

[00:22:42] Speaker 00:
So the way that the district court used the $350 million was not the type of concession that they talk about.

[00:22:50] Speaker 00:
And it couldn't be under this court's decision in Anthem and under the way that Professor Shapiro's model works.

[00:22:56] Speaker 00:
So what Anthem states with respect to efficiencies defenses is that the key is the amount of inefficiency that is passed through to consumers.

[00:23:06] Speaker 00:
What the $350 million is, though, is the amount that will

[00:23:10] Speaker 00:
possibly be realized to the new company, not the pass-through.

[00:23:13] Speaker 00:
The pass-through amount, your honor,

[00:23:15] Speaker 00:
is 78 million dollars, but that number cannot be derived independently of the amount of raised prices to rivals and the amount of that that is passed on to consumers because in the simulation both are figured out at the same time, both are derived at the same time.

[00:23:33] Speaker 00:
One can't say Professor Shapiro is wrong about everything except 78 million dollars.

[00:23:37] Speaker 00:
The model doesn't work that way.

[00:23:39] Speaker 00:
That's not how the math comes out and it can't be derived.

[00:23:42] Speaker 04:
All right, so then AT&T says, well, even if your bargaining model is accepted on its own terms and the arbitration no blackout mechanism is ignored, the government still failed

[00:24:02] Speaker 04:
to satisfy its additional burden of showing that the net retail prices will likely be higher.

[00:24:10] Speaker 04:
And then it goes through these three points, and you dispute them in your brief.

[00:24:15] Speaker 04:
But in terms of a clear error standard of review, how do you prevail in terms of the inflated subscriber loss rate finding, the diversion rates and margins?

[00:24:29] Speaker 04:
and then that the district court had improperly relied, ignored the pre-existing contracts.

[00:24:35] Speaker 00:
Your Honor, I don't think we have to prevail in the way that Your Honor is outlining, because the government was not under an obligation to quantify the harm in the way that AT&T believes.

[00:24:47] Speaker 00:
That's what Brown Shoe.

[00:24:48] Speaker 04:
No, I understand that.

[00:24:50] Speaker 04:
Well, I understand your argument.

[00:24:51] Speaker 04:
But what I'm trying to understand is they're saying this part of the argument is assume you're right.

[00:24:59] Speaker 04:
on your economic theory and how it works.

[00:25:03] Speaker 04:
The problem is, where was the evidence to show that the district court clearly erred in finding that what you did need to show to support the application of the model in this case wasn't there?

[00:25:21] Speaker 00:
Yes, Your Honor, and I think the way to think about that is the way that the district court thought about that on page 156 and then again on 16 of the JA, not the district court opinion.

[00:25:32] Speaker 00:
What the court says is that Professor Shapiro's model is also insufficient to rule for the government.

[00:25:39] Speaker 00:
So it's not correct to think of Professor Shapiro's model here on appeal

[00:25:43] Speaker 00:
as an alternative ground for affirmance when what it was in the district court was another reason to rule for the government and then he rejected that other reason to rule for the government.

[00:25:52] Speaker 00:
All that is to say is that the government didn't have to put on the quantification in Professor Shapiro's model.

[00:25:58] Speaker 00:
So if we just take the quantification out, the government can still prevail.

[00:26:02] Speaker 00:
That's what Brown Shoe stands for when it says that Section 7 is not about exclusively mathematical tests.

[00:26:08] Speaker 04:
And that's what ANFM stands for when it says that the loss of- And counsel, I'll concede that you're more familiar with this than I am.

[00:26:15] Speaker 04:
But my understanding of the issue here was that these are valid economic principles.

[00:26:24] Speaker 04:
But it's not enough to just cite the principle.

[00:26:27] Speaker 04:
You have to show it fits within the particular context you're dealing with, and that's what

[00:26:36] Speaker 04:
As I understand, this argument is all about.

[00:26:39] Speaker 04:
That's before us.

[00:26:41] Speaker 00:
Yes, your honor, but Professor Shapiro's quantification had very little to do with the actual fit.

[00:26:47] Speaker 00:
So what the fit that they're talking about was established by was the numerous defendant executives who testified, the industry witnesses who testified, and then another part of Professor Shapiro's testimony.

[00:27:00] Speaker 00:
Not the quantification, but the first half where he talked about, in sort of a summary fashion, what all this meant, how Nash bargaining worked,

[00:27:07] Speaker 00:
and how the incentives would play out.

[00:27:11] Speaker 00:
That's separate from his quantification.

[00:27:13] Speaker 00:
And so in that part of his testimony, what he explained was that in a situation like this, the incentives change and DirecTV has a different incentive.

[00:27:22] Speaker 00:
All of that, just that part, putting aside the quantification was enough for the government to prevail.

[00:27:30] Speaker 04:
All the government had was that after the merger, the incentives change.

[00:27:37] Speaker 04:
That was enough for the government to meet its burden without putting any numbers in?

[00:27:44] Speaker 00:
No, no.

[00:27:45] Speaker 00:
Yes and no.

[00:27:47] Speaker 00:
And let me explain, because that was a double answer there.

[00:27:50] Speaker 00:
What the government had to show was that the three key inputs, so to speak, were all not zero.

[00:27:57] Speaker 00:
As long as they were all not zero, that subscriber loss diversion rate margin, as long as all of them were not zero, then there's an increase in cost to the rivals.

[00:28:06] Speaker 00:
No one at trial testified that any of them were zero.

[00:28:09] Speaker 00:
And so even putting aside Professor Shapiro's quantification of exactly how much

[00:28:13] Speaker 00:
each number in is, the government was able to make its case out because none of the numbers were zero.

[00:28:19] Speaker 00:
And so that means that there was a raised price for rivals, which means that there's an anti- I don't understand that.

[00:28:25] Speaker 07:
I thought that the briefing said that if you change the number from 9 percent to 5 percent in Shapiro's model with respect to, I guess, the number of customers who would

[00:28:43] Speaker 07:
I guess leave if there was a blackout that that completely changed the.

[00:28:50] Speaker 07:
the outcome of the modeling such that there was no longer a price increase.

[00:28:57] Speaker 07:
Am I correct about that?

[00:28:59] Speaker 00:
Yeah, I think that's right, Your Honor.

[00:29:00] Speaker 00:
It's true that the model was sensitive, which is, of course, a virtue of the model, not a bug, as some would have us believe.

[00:29:06] Speaker 00:
It's good that the model changes when the numbers change.

[00:29:09] Speaker 00:
But I think what that goes to show, I don't think that establishes what I think is the implicit premise of your question, that that somehow

[00:29:17] Speaker 00:
dooms the government's case because we didn't have to do any of the quantification to get any numbers out of it.

[00:29:24] Speaker 00:
So once we established the testimony from the witnesses about how the incentives would change and there was no testimony that any of the numbers were zero, there's an increased harm.

[00:29:35] Speaker 00:
Then the burden of production goes over to the other side in the Baker Hughes framework to put forward some sort of efficiency defense or some sort of other explanation.

[00:29:47] Speaker 06:
I mean, the saving about however many million it was, the two different burdens of it, I guess, but that savings, that evidence is in there.

[00:29:56] Speaker 06:
Your own expert put that in.

[00:29:57] Speaker 06:
Yes, Your Honor, but that's only true if you also... If you use the zero numbers and have a smaller result than that saving, then haven't you lost your carrying of the burden?

[00:30:09] Speaker 06:
You have to show that there is... You have to show that there's going to be a harm to competition.

[00:30:15] Speaker 06:
You have to show that there's going to be a harm to competition, a substantial one.

[00:30:19] Speaker 06:
Certainly, Your Honor.

[00:30:20] Speaker 06:
And if you have a saving that more than counterbalances the increase in cost that you're talking about, or the increase in the model that you're talking about, then you haven't carried your burden, have you?

[00:30:32] Speaker 00:
Yes, that's also generally true, Your Honor.

[00:30:34] Speaker 00:
But you can't just take the $78 million and throw away everything else, because it's all intermingled.

[00:30:40] Speaker 00:
It's interdependent in the merger simulation model.

[00:30:42] Speaker 00:
You can't derive the $78 million without also crediting Professor Shapiro's testimony on the other points.

[00:30:49] Speaker 06:
We're past that.

[00:30:50] Speaker 06:
We're talking about your statement that if the number is anything greater than zero, then you've carried your burden.

[00:30:56] Speaker 06:
That doesn't follow.

[00:30:57] Speaker 06:
If there is the showing of the $78 million or $300-some million, whichever it is, if there is a showing of that, don't you have to show that there is an increase using the Shapiro, the NICE model that Shapiro was using?

[00:31:10] Speaker 06:
Don't you have to show that that number will wind up with a product that is greater than what the saving has been shown by the other parts of the evidence?

[00:31:19] Speaker 00:
I think that's right, Your Honor, but let me try this a different way so that we're not misunderstanding each other.

[00:31:23] Speaker 00:
The district court stated on JA-101 that it was not doing balancing, that what it concluded was that there was no increased costs, full stop, no increased costs at all tribal distributors.

[00:31:35] Speaker 00:
That does not make sense if any of the numbers are, if all of the numbers are not zero.

[00:31:40] Speaker 00:
It's just flatly inconsistent.

[00:31:41] Speaker 00:
That can't be the case.

[00:31:42] Speaker 06:
I'm sorry, Your Honor.

[00:31:44] Speaker 06:
Remember where the burdens are.

[00:31:46] Speaker 06:
Oh, sure.

[00:31:47] Speaker 06:
You have to have carried the burden there in the district court.

[00:31:51] Speaker 06:
And then here again, you have to show that there's plain error in the district court.

[00:31:56] Speaker 06:
And if the savings number is greater than what results from the nice analysis conducted by Shapiro, then you haven't carried that burden, have you?

[00:32:09] Speaker 00:
Well, Your Honor.

[00:32:12] Speaker 00:
Your Honor, the $78 million is inseparable from the rest of Shapiro.

[00:32:15] Speaker 00:
So we can't just say that that's just freestanding on the ledger.

[00:32:19] Speaker 00:
And that's not what the district court, in fact, did.

[00:32:21] Speaker 00:
He said on JA 101 that he was not doing balancing, that he said that there was no increase.

[00:32:26] Speaker 00:
And another way to think about that is that the government didn't make out its prima facie case in this case.

[00:32:31] Speaker 00:
And even though, as I pointed out, if those numbers are not zero, all three of those numbers are not zero, and there's no testimony in the record that there was, there is an increased cost to rivals.

[00:32:41] Speaker 04:
So under the government's first theory, though, which is what we've been discussing, the government had to show that the proposed merger is likely to substantially lessen competition by increasing Turner's bargaining leverage in affiliate negotiations.

[00:33:04] Speaker 04:
So some of those adverbs, it seems to me, just fly in the face of your statement about if all the numbers are zero, you win.

[00:33:11] Speaker 04:
Under at least this first theory.

[00:33:13] Speaker 00:
Under the prima facie case, Your Honor.

[00:33:17] Speaker 00:
I think that what Your Honor said is in some tension with Brown Shoe.

[00:33:20] Speaker 00:
So in Brown Shoe, there was no quantification.

[00:33:23] Speaker 04:
No, what I read was simply your first theory.

[00:33:28] Speaker 00:
Yes, Your Honor.

[00:33:29] Speaker 04:
All right.

[00:33:29] Speaker 04:
So you had to put in some evidence somehow beyond just the economic theory that

[00:33:38] Speaker 04:
The merger would substantially lessen competition.

[00:33:42] Speaker 04:
And your first theory was it would increase Turner's bargaining leverage in affiliate negotiations.

[00:33:50] Speaker 04:
And the district court heard testimony, made some credibility findings, and explained why he rejected some of the testimony on which you are heavily relying.

[00:34:05] Speaker 00:
Yes, Your Honor, although I don't think he made any adverse credibility findings with respect to the distributor witnesses who testified, and this is Cox, Charter, and Disch, that they were concerned about excessive pricing increases.

[00:34:20] Speaker 00:
That's a direct quote from the Charter witness.

[00:34:23] Speaker 00:
There's no adverse credibility finding about that issue.

[00:34:26] Speaker 00:
There's certainly a lot of findings in the Dischord opinion on other witnesses.

[00:34:29] Speaker 00:
but I don't think there's anything about that.

[00:34:31] Speaker 00:
And that's exactly the same type of evidence that the government puts on in prima facie cases all the time, and it's exactly the same type of evidence that entirely carried the day in cases like Brown Shoe, where there was no quantification, there was none of this regression simulation modeling that the government put on.

[00:34:48] Speaker 00:
It would be sort of perverse to say that the government is worse off for putting on a quantification

[00:34:53] Speaker 00:
and attempting to provide a readout.

[00:34:56] Speaker 06:
I don't think anybody's saying you're worse off putting on the quantification.

[00:34:58] Speaker 06:
I think we are saying that if you're going to rely on an economic model, you have to rely on it with quantification.

[00:35:05] Speaker 06:
The Bayer theorem of John Nash's theorem doesn't prove anything in a particular case.

[00:35:12] Speaker 06:
You have to have numbers to make a model work.

[00:35:14] Speaker 06:
That's what a model is.

[00:35:15] Speaker 00:
Your Honor, I don't think that's consistent with antitrust precedents like Brown-Shoe or Anthem.

[00:35:21] Speaker 06:
What in Brown-Shoe is that inconsistent with?

[00:35:23] Speaker 00:
There was no quantification in Brown Shoe.

[00:35:25] Speaker 00:
What they did was they put on testimony explaining the harms from the vertical merger.

[00:35:31] Speaker 00:
They didn't attempt to quantify those in any respect.

[00:35:33] Speaker 00:
Now, the harms in Brown Shoe were an anthem where this court accredited the idea that the loss of Cigna's high-touch medical practice was itself anti-competitive.

[00:35:44] Speaker 00:
None of that involved a quantification.

[00:35:46] Speaker 00:
I don't think it's, I think your honor is drawing a distinction that the government respectfully disagrees with.

[00:35:53] Speaker 06:
Brown shoe using modeling?

[00:35:56] Speaker 00:
No, your honor, but.

[00:35:57] Speaker 06:
It's not using modeling, so whether or not, whatever Brown shoe said, it has nothing to do with whether you have to use numbers in order to make modeling relevant into a real world case.

[00:36:09] Speaker 00:
Your honor, I disagree respectfully with the premise of that question, which is that

[00:36:14] Speaker 00:
The testimony about how Nash bargaining works is not modeling in the same sense, I think, that Your Honor is using it to refer to quantification.

[00:36:22] Speaker 00:
That's just a way to explain the witness testimony.

[00:36:25] Speaker 00:
That's exactly what they had in Brown's shoe.

[00:36:26] Speaker 00:
You might think of it as like an opening or closing argument sets up how the witnesses will be framed.

[00:36:32] Speaker 00:
That's what Professor Shapiro did here with respect to Nash bargaining.

[00:36:35] Speaker 00:
He took the words of the distributors, and he helped the district court understand that.

[00:36:40] Speaker 00:
That was not a quantification.

[00:36:41] Speaker 00:
That's the first half of Professor Shapiro's testimony.

[00:36:45] Speaker 00:
And that type of expert testimony is present, of course, in antitrust cases across the country.

[00:36:50] Speaker 00:
That's not a quantification, and it's not a modeling in the sense that you're using it, which I think is synonymous with... But if you're going to get the findings you want in the end, you have to have some numbers.

[00:37:00] Speaker 06:
It's not enough to say this is a valid theory that has been used in other antitrust cases.

[00:37:06] Speaker 06:
You have to have some numbers to show that you have the effect on competition, that you have to prove to carry your case.

[00:37:12] Speaker 00:
There were no numbers.

[00:37:13] Speaker 06:
See how you can credibly argue that you can simply present an economic principle, whether we're talking about modeling or some other way of presenting it.

[00:37:21] Speaker 06:
And so that's the principle.

[00:37:22] Speaker 06:
Therefore, we win.

[00:37:23] Speaker 00:
But that's not what I'm arguing, Your Honor.

[00:37:25] Speaker 00:
So let me try it again, because I think maybe we're misunderstanding each other.

[00:37:29] Speaker 00:
What we're saying here is that the government can put on evidence from industry witnesses, from the defendants themselves, from the defendants' own filings before the FCC, to show what will happen after the merger.

[00:37:40] Speaker 04:
So the probability of what will happen after the merger.

[00:37:45] Speaker 04:
So Professor Shapiro's model, according to his testimony, was designed to identify the incentives

[00:37:53] Speaker 04:
that would exist after the merger.

[00:37:56] Speaker 04:
So that's not putting a precise number, but your position is that is sufficient for the government to meet its initial burden of proof?

[00:38:07] Speaker 00:
Yes.

[00:38:08] Speaker 00:
I think that's exactly right, Your Honor.

[00:38:09] Speaker 00:
So one way to think about it is that Professor Shapiro actually has two separate lines of testimony.

[00:38:15] Speaker 00:
And the district court's opinions organization actually reflects this.

[00:38:18] Speaker 00:
The first half of his testimony is about what he thinks there's a reasonable probability of happening after the merger.

[00:38:24] Speaker 00:
And what he does is he looks at the industry testimony, he looks at the defendant's testimony, the defendant's filings, and he says, here's how I would analyze this as an expert witness.

[00:38:32] Speaker 00:
And then there's another part of Professor Shapiro's testimony that has to do with quantification.

[00:38:36] Speaker 00:
And what we're saying is we don't need that quantification part.

[00:38:39] Speaker 00:
We may or may not need the bargaining theory.

[00:38:41] Speaker 00:
It depends exactly how the witnesses, the bargaining theory testimony, it depends how the witnesses came in, whether they were understandable

[00:38:47] Speaker 00:
et cetera.

[00:38:48] Speaker 00:
But it certainly helps to have that type of expert testimony to help the judge make sense of it.

[00:38:53] Speaker 04:
So then to the extent that Professor Shapiro acknowledged that there were some, I'll use the word defects, in his analysis, what's your response?

[00:39:08] Speaker 00:
So I don't know if I'm not in the quantification part.

[00:39:12] Speaker 04:
I'm in the bargaining theory part.

[00:39:15] Speaker 00:
I'm not sure what exact defects you're referring to, Your Honor.

[00:39:18] Speaker 04:
I think Professor Shapiro thought that his explanation of- Taken into account the long-term contracts, for example.

[00:39:25] Speaker 04:
He said he hadn't examined some of the underlying data, that type of thing.

[00:39:30] Speaker 00:
Right, so for example, with the long-term contracts, I think it's clear from antitrust principles and the Supreme Court's case law in Cargill and El Paso that that's not the type of reason to put aside particular testimony.

[00:39:44] Speaker 00:
Because what we're concerned about is the arresting anti-competitive tendencies in their insipency.

[00:39:50] Speaker 04:
I know, but just help me out here.

[00:39:51] Speaker 04:
If they're long-term contracts, doesn't that affect the incentives?

[00:39:57] Speaker 04:
In other words, my incentives may be different.

[00:39:59] Speaker 04:
if I'm not faced with obligations under long-term contracts.

[00:40:03] Speaker 04:
That's what I'm trying to focus on.

[00:40:04] Speaker 04:
That type of defect could affect the incentives

[00:40:11] Speaker 04:
after merger.

[00:40:12] Speaker 04:
That's all I'm trying to understand, the government's position on that.

[00:40:14] Speaker 00:
I think that's right if they're permanent contracts, but if they're occasionally renewed or renegotiated, then the incentives will just wait one year to be realized.

[00:40:24] Speaker 00:
I think that's right in response to your honor's question.

[00:40:29] Speaker 00:
But I think what Professor Shapiro's ultimate analysis on the long-term contracts was exactly spot on in light of the court's decisions in El Paso Natural Gas, where there was a long-term contract and the court wasn't

[00:40:40] Speaker 00:
the Supreme Court wasn't concerned, and also in Cargill, where there was a potential short-term drop in prices contemplated with a potential long-term increase in prices.

[00:40:49] Speaker 00:
And the Supreme Court, again, was not concerned about that discrepancy.

[00:40:53] Speaker 00:
And so I think that's both appropriate and accurate for Professor Shapiro to consider.

[00:41:02] Speaker 00:
I see that my time has opened up.

[00:41:06] Speaker 00:
I do have a question.

[00:41:07] Speaker 00:
Oh, I'm sorry, Your Honor.

[00:41:11] Speaker 07:
So I'm not sure that I understand what your position is with respect to the $350 million savings efficiency number.

[00:41:26] Speaker 07:
So it appears that

[00:41:31] Speaker 07:
Whatever that number is, it isn't a number that anyone said would be actually passed on to consumers, at least not the witnesses said that.

[00:41:40] Speaker 07:
But that is what the district court said at least twice in its opinion.

[00:41:47] Speaker 07:
That seems somewhat troubling and I'll have questions for the other side about that.

[00:41:53] Speaker 07:
But the amicus brief of the Open Markets Institute, I think it is,

[00:41:59] Speaker 07:
says that once the plaintiffs establish that there's a reasonable probability of a substantial reduction in competition from the merger, that's it.

[00:42:13] Speaker 07:
That there is no efficiency defense, so to speak.

[00:42:19] Speaker 07:
And so all of this discussion about efficiencies, I mean they don't lay all of this out, but

[00:42:26] Speaker 07:
what they seem to be saying is that it's really beside the point.

[00:42:34] Speaker 07:
That doesn't seem to be the way that you're arguing this or that you argued this in your brief.

[00:42:41] Speaker 07:
Am I wrong about that or help me understand what your position is?

[00:42:45] Speaker 00:
No, I think you're right about that.

[00:42:46] Speaker 00:
We've taken the position following the Anthem decision that if there is an efficiencies defense then it has to be focused on the

[00:42:55] Speaker 00:
pass through a number.

[00:42:57] Speaker 00:
And so here, in some sense, the court doesn't have to focus on how to resolve the question that was discussed in the anthem, because the district court, as Your Honor pointed out, had the wrong number.

[00:43:10] Speaker 00:
AT&T tries to just sub in the new number, and it really can't do that.

[00:43:15] Speaker 00:
And it's not just two times, Your Honor.

[00:43:16] Speaker 00:
I think it's four or five times that the $350 million or $352 million comes up.

[00:43:22] Speaker 00:
in the opinion.

[00:43:23] Speaker 00:
So that is the way that we've addressed it.

[00:43:27] Speaker 00:
Whatever the efficiency's defense is, however that works, and we realize there's dispute among circuits, perhaps within the circuits, on that point, it can't be what AT&T has suggested, which is that we just say 350 million, which is not the pass-through number, and then we call it quits.

[00:43:47] Speaker 00:
That can't be the case.

[00:43:50] Speaker 07:
If we agree with you on that, is that sufficient to remand?

[00:43:57] Speaker 07:
Even if we disagree with you about everything else?

[00:44:00] Speaker 00:
So I don't know if that is, Your Honor, to be honest.

[00:44:04] Speaker 00:
Obviously, I'd like to answer that question, yes.

[00:44:06] Speaker 00:
But I think the best way to understand the district court's opinion is to conclude that it didn't actually do balancing, that it just said that there was no price increase to the rival distributors.

[00:44:20] Speaker 00:
And so it didn't even really do the type of balancing that I think my colleagues on the other side would have you believe, such that there is a balance in the ledger

[00:44:30] Speaker 00:
350 or 78 million.

[00:44:32] Speaker 00:
I don't think that's what the court did.

[00:44:33] Speaker 00:
And I'd point, Your Honor, to JA 101 on that point, where it says that it's not doing the type of balancing.

[00:44:38] Speaker 00:
Just no price increases is its conclusion.

[00:44:41] Speaker 00:
And so I think that answers Your Honor's question.

[00:44:48] Speaker 00:
All right.

[00:44:48] Speaker 00:
Thank you.

[00:44:48] Speaker 00:
I reserve the rest of my time for rebuttal.

[00:44:50] Speaker 00:
Thank you.

[00:44:51] Speaker 04:
Yes, thank you.

[00:44:51] Speaker 04:
All right.

[00:44:53] Speaker 04:
Counsel, let me give for the 27 antitrust scholars.

[00:45:02] Speaker 06:
As opposed to the 37th bill.

[00:45:04] Speaker 05:
Yes, right.

[00:45:06] Speaker 01:
Good morning, your honors.

[00:45:07] Speaker 01:
My name is Eric Citron.

[00:45:09] Speaker 01:
I'm appearing here for the 27 law professor, Amiki, who filed in support of neither party.

[00:45:15] Speaker 01:
I just wanted to thank the court for giving us some time to share our perspective, maybe say a word about what we're doing here.

[00:45:22] Speaker 01:
The reason that my clients wanted to participate in this case is that there are two points that are made in a really important past part of the district court's opinion.

[00:45:31] Speaker 01:
It's the part where he's rejecting the application of the Nash bargaining model.

[00:45:35] Speaker 01:
We're saying essentially that he doesn't think it fits in this case.

[00:45:39] Speaker 01:
And both of the reasons that he gives there we think represents some pretty serious confusion about important points in antitrust law.

[00:45:48] Speaker 01:
One of the points is essentially legal.

[00:45:50] Speaker 01:
It has to do with how copper well ought to be applied and understood.

[00:45:53] Speaker 01:
The other point is essentially economic.

[00:45:55] Speaker 01:
It has to do with how the Nash bargaining model works.

[00:45:58] Speaker 01:
And I'm going to start with the second one because I think that's where the greatest opportunity for confusion is.

[00:46:03] Speaker 01:
If you look at the district court's opinion, it's pretty clear he thinks that he has a special case on his hands, because even after the merger, Time Warner is going to have an incentive to make a deal that's going to be way better off, more profitable, if it does deal instead of going into a long-term blackout.

[00:46:20] Speaker 01:
And here's the really important point.

[00:46:23] Speaker 01:
That's not a special case for Nash bargaining.

[00:46:25] Speaker 01:
That's the ordinary case for Nash bargaining.

[00:46:28] Speaker 01:
The whole point of the Nash theorem, the whole problem John Nash is trying to solve, is what happens when both sides are better off from making a deal?

[00:46:38] Speaker 01:
How do they divide up the spoils, the surplus that making a deal creates?

[00:46:43] Speaker 04:
So let me ask you on JA 131, where the district court says

[00:46:48] Speaker 04:
that the use of the Nash bargaining model in this context of affiliate fee negotiations counts as a mark against defendant's attempts to disavow the applicability of the theory in this case.

[00:47:04] Speaker 04:
And there's a parenthetical saying it's a weak, faint one.

[00:47:08] Speaker 04:
But he says, rather, my conclusion in this case doesn't turn on the defendant's protestations that the theory is preposterous.

[00:47:16] Speaker 04:
et cetera.

[00:47:17] Speaker 04:
It says it's on my evaluation of the shortcomings in the profferred third party competitor testimony, the testimony about the complex nature of these negotiations and the low likelihood of long term

[00:47:32] Speaker 04:
Turner blackout and the real-world pricing data and experiences.

[00:47:37] Speaker 04:
Are you saying one or more of those points is wrong as a matter of, what, economic principle?

[00:47:45] Speaker 01:
Yeah, a matter of economic principle, for sure.

[00:47:48] Speaker 01:
And thank you for drawing my attention, because I wasn't going to mention this part of this passage, but it's an important one.

[00:47:54] Speaker 01:
The testimony about the complex nature of these negotiations and the low likelihood of a long-term blackout.

[00:48:00] Speaker 01:
Right.

[00:48:01] Speaker 01:
The Nash bargaining model predicts that blackouts would be infrequent and probably never occur because both sides are better off making a deal.

[00:48:12] Speaker 01:
That's not a special fact about this case.

[00:48:15] Speaker 01:
It is an ordinary fact.

[00:48:16] Speaker 01:
It is what we expect to find.

[00:48:18] Speaker 01:
when both sides are better off making a deal.

[00:48:21] Speaker 01:
And so this is part of the reason.

[00:48:22] Speaker 07:
But what about the language that's cited in I think the 37 scholars amicus brief from I guess it's the 1953 Nash article where Nash seems to endorse that or suggest that the threat's got to be realistic.

[00:48:41] Speaker 01:
The threat has to be credible.

[00:48:42] Speaker 01:
And I'm very happy to talk about why the threat should be understood as credible in this case.

[00:48:48] Speaker 01:
I just want to point out that the likelihood that the parties will actually go to war or go into a labor strike or have some catastrophic outcome isn't an input into the model, even when you're worried about the credibility of the threat.

[00:49:01] Speaker 01:
It's just an output.

[00:49:02] Speaker 01:
We're trying to figure out what's going to happen, how they're going to divide up the surplus.

[00:49:07] Speaker 01:
We expect them to make a deal.

[00:49:09] Speaker 01:
Low probability of having a blackout is the expected outcome, not the extraordinary one.

[00:49:14] Speaker 01:
The reason I think you have to understand the threat as credible in this case is that we know before the merger that Turner was not giving away its content for free.

[00:49:24] Speaker 01:
It had at least enough bargaining leverage that there was a price at which it was willing to walk away.

[00:49:30] Speaker 01:
And this is sort of a misunderstanding the district court has.

[00:49:32] Speaker 01:
Credibility when you're talking about prices, agreed prices, it's not like an on-off switch.

[00:49:38] Speaker 01:
It's credible at a particular price.

[00:49:41] Speaker 01:
If you had said, Turner, you pay me to display your content so you'll get advertising dollars, Turner might say, no, I'm not going to do that.

[00:49:51] Speaker 01:
And that means that at some price point, it's credible.

[00:49:54] Speaker 01:
And what happens here, the 100 pound weight to the 950 pound weight footnote, the intuition there is that they're both fatal.

[00:50:02] Speaker 01:
We know the first one's not fatal.

[00:50:04] Speaker 01:
There's some price at which Turner will walk away.

[00:50:06] Speaker 01:
And that price is demonstrably changing when the alternative to making a deal gets better for Turner.

[00:50:12] Speaker 01:
And that's what happens.

[00:50:14] Speaker 01:
That's what Professor Shapiro's testimony is.

[00:50:17] Speaker 01:
After the merger, if Turner doesn't make a deal, that will get better.

[00:50:21] Speaker 01:
That outcome is better for Turner.

[00:50:24] Speaker 01:
Not better than making a deal.

[00:50:25] Speaker 01:
Making a deal is always better.

[00:50:27] Speaker 01:
But the downside risk goes down a little bit.

[00:50:30] Speaker 01:
That means that the price at which they're willing to make a deal goes up.

[00:50:33] Speaker 01:
And the prices that we expect them to impose on their counterparties in negotiations goes up, too.

[00:50:39] Speaker 01:
And so this thing that blackouts are unlikely, that Turner is still going to be interested in making a deal afterwards, I think some real aspects of confusion, you can see them on pages 116 and 117 of the opinion, 163 and 164, when he says,

[00:50:59] Speaker 01:
And Professor Shapiro acknowledged that a long-term blackout of Turner content, even post-merger, would cause Turner to lose more than the merged entity would gain.

[00:51:07] Speaker 01:
That's, again, what we expect.

[00:51:10] Speaker 01:
If that wasn't true, this would be a really trivial case.

[00:51:13] Speaker 01:
It would just mean that Turner didn't have an interest in making a deal, and never would.

[00:51:17] Speaker 01:
Again, the hard problem is when both sides do have an interest in making a deal, and we're trying to figure out how they divide it up.

[00:51:24] Speaker 01:
So that's the first point.

[00:51:25] Speaker 01:
The second point.

[00:51:26] Speaker 04:
So can I just go to 163, JA 163?

[00:51:31] Speaker 01:
Yeah.

[00:51:33] Speaker 01:
So the judge seems to think that it's notable that Professor Shapiro acknowledged that a long-term blackout of Turner content, even after the merger, would cause Turner to lose more in affiliate fee and advertising revenues than the merged entity would gain.

[00:51:49] Speaker 01:
Right?

[00:51:49] Speaker 01:
Again, that it would hurt Turner more not to agree is not a special fact or a notable fact about this case.

[00:51:57] Speaker 01:
It's the ordinary fact.

[00:51:58] Speaker 01:
That's what makes this a Nash bargaining case at all.

[00:52:01] Speaker 01:
If that wasn't true, Turner's view would be, I'm not making a deal.

[00:52:05] Speaker 01:
I'm better off with no deals.

[00:52:07] Speaker 01:
And we'd have a totally different kind of case on our hand.

[00:52:09] Speaker 01:
It wouldn't involve Nash bargaining.

[00:52:11] Speaker 06:
But if there is in the case discussion of the maximization across the corporate structure of profits,

[00:52:17] Speaker 06:
Just not what the judge wrote there germane to the understanding of that principle, or the applicability of that principle?

[00:52:25] Speaker 01:
I'm not sure that I understand exactly what you're asking.

[00:52:28] Speaker 01:
And I just want to make sure that I'm responsive.

[00:52:30] Speaker 06:
He's saying that the judge's language concerning the relative profit loss of the blackout, or not having the blackout,

[00:52:43] Speaker 06:
is not germane to the decision that should have been made by the judge in this case.

[00:52:47] Speaker 06:
Do I understand that correctly?

[00:52:49] Speaker 01:
Yes, that's right.

[00:52:50] Speaker 06:
However, in the evidence presented by the government in this case, there was discussion of the principle of maximizing profits across the corporate structure.

[00:52:59] Speaker 06:
It was not what the judge had to write here or what the judge wrote here germane to the discussion of that subject.

[00:53:05] Speaker 01:
I think he is saying something about the maximization of profits across.

[00:53:09] Speaker 01:
But I think that point is also very problematic.

[00:53:11] Speaker 01:
And that's the other one that my clients wanted to participate in the case to point out.

[00:53:18] Speaker 01:
The way that Copperweld works is that after the merger happens, it's impossible for AT&T and Time Warner to coordinate their conduct in any way that would violate the antitrust laws.

[00:53:29] Speaker 01:
They're a merged entity.

[00:53:30] Speaker 01:
That's what Copperweld says.

[00:53:32] Speaker 01:
They have only a unitary interest.

[00:53:35] Speaker 01:
That means that we have to assume that after the merger they're going to find some way to maximize profits for the parent company.

[00:53:44] Speaker 01:
Because if they do, there's nothing the antitrust laws can say about it anymore.

[00:53:49] Speaker 01:
This is our only opportunity to intervene.

[00:53:52] Speaker 01:
And that's why it's really important that we have a rule

[00:53:55] Speaker 01:
that says when two parties merge, we assume that they are going to do the thing that maximizes the parents' profits.

[00:54:02] Speaker 01:
And that is another point.

[00:54:03] Speaker 06:
It's a different question than determining what the thing is that maximizes profits.

[00:54:08] Speaker 06:
Oh, for sure.

[00:54:09] Speaker 06:
Again, we're back to the same problem we had with the government.

[00:54:11] Speaker 06:
It's not enough to state the principle.

[00:54:13] Speaker 06:
You have to show how that principle affects the burden under the antitrust law.

[00:54:18] Speaker 01:
I think that's right, although I completely agree.

[00:54:21] Speaker 01:
The underlying principle is that they will maximize profits however that is done.

[00:54:25] Speaker 06:
which may or may not involve bargaining to blackout, bargaining to impasse.

[00:54:31] Speaker 01:
Oh, and again, remember, the Nash marketing model predicts that it doesn't involve imposing a blackout.

[00:54:38] Speaker 01:
It's just threatening a blackout.

[00:54:39] Speaker 06:
Nonetheless, back to my original question, the judge's language was germane in terms of how the government presented its case, since the government brought in the principle of maximizing profits across the corporate structure.

[00:54:51] Speaker 06:
Was it not?

[00:54:52] Speaker 01:
I mean, I think that his language is not germane to the correct question that he needs to be asking, which is what happens if Time Warner and AT&T figure out the position that is profit maximizing for the parent company after the merger.

[00:55:10] Speaker 01:
And the position that is profit maximizing for the parent company after the merger is to only accept a slightly higher price, or at least a somewhat higher price, than it accepts right now.

[00:55:21] Speaker 01:
You cannot assume that district court seems willing to indulge the possibility that because it's complicated or something like that, they're just going to direct Time Warner to continue maximizing Time Warner's revenue and Direct TV to maximizing Direct TV's revenue.

[00:55:37] Speaker 01:
And Time Warner won't even be willing to threaten things that might divert some profits to Direct TV.

[00:55:44] Speaker 01:
And we shouldn't indulge that assumption.

[00:55:46] Speaker 04:
So do you have the record in front of you, Jay?

[00:55:50] Speaker 01:
I have only the district court's opinion in front of me.

[00:55:53] Speaker 04:
Page 117, district court's opinion, that last paragraph in view of the evidence.

[00:56:00] Speaker 04:
You would say all of that illustrates the misunderstanding?

[00:56:06] Speaker 01:
Yes, unfortunately, yes.

[00:56:08] Speaker 01:
In view of the evidence on the prospects of a long-term blackout, again, the prospects of a long-term blackout are not actually an input into the model.

[00:56:17] Speaker 01:
We need to be worried about the district court's opinion precisely because he's

[00:56:22] Speaker 01:
quite focused on whether or not blackouts are likely or not.

[00:56:25] Speaker 01:
And in Nash bargaining, again, the prediction of the Nash model is that the parties will agree, typically on the first day.

[00:56:32] Speaker 01:
They just, like the district court says, but seems to misunderstand, they threaten blackouts one against the other and the other against the one until they reach some division of the joint benefits of their deal.

[00:56:44] Speaker 04:
So what's the difference between what you're telling us

[00:56:49] Speaker 04:
And what I understood your brief to be urging us to conclude is that vertical mergers, per se, are fine as far as the antitrust laws are concerned.

[00:57:05] Speaker 01:
Well, I first of all hope there's no difference between what I'm saying now and what's in the brief.

[00:57:09] Speaker 04:
No, no.

[00:57:10] Speaker 04:
This is just to help me understand.

[00:57:12] Speaker 04:
OK.

[00:57:13] Speaker 04:
And I thought that was the thrust of Judge Santel's questions to you as well.

[00:57:19] Speaker 04:
The rule isn't that vertical mergers implicate no antitrust concerns under the antitrust laws.

[00:57:32] Speaker 04:
Do you agree with that?

[00:57:33] Speaker 01:
They certainly do implicate concerns under the antitrust laws.

[00:57:36] Speaker 04:
All right.

[00:57:36] Speaker 04:
So a district court faced with this situation has to deal with some of these circumstances, doesn't it?

[00:57:45] Speaker 01:
Well, it depends what you mean by these circumstances.

[00:57:47] Speaker 04:
Well, I cited you to the last part.

[00:57:50] Speaker 01:
What's wrong with this paragraph?

[00:57:51] Speaker 01:
What he should be concerned about is not the prospects of a long-term blackout, but what would happen to either party after the merger if a blackout occurred.

[00:58:02] Speaker 01:
It doesn't matter how likely that is to happen.

[00:58:05] Speaker 01:
The model actually predicts that it's very unlikely to happen.

[00:58:08] Speaker 01:
But the way that bargaining parties divide up the spoils of agreement has to do with how valuable it is to the one and the other to reach that agreement.

[00:58:18] Speaker 01:
He needs to be concerned, I think this language is helpful, he needs to be concerned with the stakes of a blackout or the stakes of failing to agree, not the odds of failing to agree.

[00:58:28] Speaker 01:
The odds don't go into the model, they come out of the model.

[00:58:31] Speaker 01:
They're an output.

[00:58:32] Speaker 01:
They're something that the model predicts.

[00:58:35] Speaker 01:
In order to apply the model correctly, you need to be focused on finding the stakes for the two parties.

[00:58:42] Speaker 01:
And what Professor Shapiro is testifying to, and this makes economic sense, it does fit,

[00:58:47] Speaker 01:
is the stakes of a blackout for Turner will go down after the merger because some of the counterparties lost subscribers will be redirected to Turner's corporate parent, AT&T.

[00:59:04] Speaker 07:
So how does the Nash model work in the NBC Universal Comcast world with the arbitration, no blackout provisions?

[00:59:16] Speaker 01:
I mean, I think it works the same way.

[00:59:19] Speaker 01:
What we need to figure out is what the consequence is of the arbitration offer.

[00:59:27] Speaker 01:
What we need to do is assume that the parties don't agree.

[00:59:30] Speaker 01:
And instead of not agreeing, I'm not sure what happens.

[00:59:34] Speaker 01:
Go into arbitration, sometimes go into arbitration, might not go into arbitration.

[00:59:38] Speaker 01:
I don't think we have a position on exactly how the arbitration offer would fit if it was bona fide.

[00:59:45] Speaker 07:
I'm not asking about the arbitration offer in this case.

[00:59:49] Speaker 07:
I'm saying in a known case.

[00:59:53] Speaker 07:
a merger that has happened and was approved with that stipulation, the NBC-Universal Comcast merger.

[01:00:00] Speaker 07:
Does Nash bargaining still

[01:00:06] Speaker 07:
is it still relevant if we were to examine that?

[01:00:11] Speaker 01:
It's absolutely relevant.

[01:00:12] Speaker 01:
It is substantially more complicated.

[01:00:15] Speaker 01:
So once you assume that there's the ironclad arbitration rule, then the alternative to making a deal isn't a blackout anymore.

[01:00:25] Speaker 01:
It's an arbitration.

[01:00:26] Speaker 01:
And we'd be trying to predict what the possible outcomes of the arbitration are.

[01:00:34] Speaker 01:
That prediction is economically critical.

[01:00:36] Speaker 01:
It is obviously not what the district court is doing in this case.

[01:00:40] Speaker 01:
There's no discussion of anything like this.

[01:00:43] Speaker 01:
And so it doesn't erase any concern or make the model inapplicable.

[01:00:49] Speaker 01:
It just changes what the walk away situation is when the parties don't agree.

[01:00:53] Speaker 01:
So you would want to see some analysis of it.

[01:00:55] Speaker 01:
I just want to make one other point about the arbitration offer, and it relates to the copper weld point I was making.

[01:01:00] Speaker 01:
If, before we accept post-merger, post-complaint conduct as a bomb to a merger that we're worried about, we need to be really sure that this offer that AT&T is making is ironclad.

[01:01:15] Speaker 01:
It's not going to change.

[01:01:16] Speaker 01:
It couldn't be revoked or altered.

[01:01:19] Speaker 01:
Because if it is revoked or altered, it's not like NBCU Comcast where it's a condition of the merger.

[01:01:24] Speaker 01:
This merger cannot be unwound.

[01:01:26] Speaker 01:
So if that arbitration term is essential to our theory of why this can't hurt consumers, we need at least a finding from the district court that this offers ironclad as a matter of law and is definitely going to have some effect.

[01:01:38] Speaker 04:
Well, he makes the finding.

[01:01:39] Speaker 04:
I know the government doesn't agree.

[01:01:41] Speaker 04:
I don't think that he's confident.

[01:01:44] Speaker 04:
The district court says he's confident that AT&T isn't going to walk away from this.

[01:01:49] Speaker 01:
Yeah, I don't think we know enough about, let's say my clients and I know enough about the arbitration offer to say any more than that it's very important that we be certain that it is ironclad.

[01:02:01] Speaker 01:
There's an argument that it may not even be irrevocable under Georgia law.

[01:02:05] Speaker 01:
None of that is in the district court opinion.

[01:02:07] Speaker 01:
That's worrisome.

[01:02:09] Speaker 01:
That's all I really want to make sure I communicate about it.

[01:02:11] Speaker 04:
Thank you.

[01:02:12] Speaker 01:
OK, thank you very much.

[01:02:17] Speaker 04:
All right, we're here for counsel for our police.

[01:02:22] Speaker 02:
Good morning, Your Honors, and may it please the Court.

[01:02:25] Speaker 02:
I'd like to address, in the course of my time here, Judge Wilkins, your questions about arbitration and the $352 million in consumer savings, Judge Rogers, your questions about the role of the discussion of inputs in the model, and Judge Santel, your questions about the roles of the model and quantification.

[01:02:41] Speaker 02:
Because I think, actually, those questions individually and in combination really cut through so much of what the Council for the Government and the amici have said today.

[01:02:51] Speaker 02:
because the decision below turned on a series of very specific and independent factual findings.

[01:02:58] Speaker 02:
And the government and the amici have largely ignored those findings that established that the government didn't meet its burden of showing that this particular merger would likely cause a retail price increase for video subscribers.

[01:03:10] Speaker 02:
Let me start with the arbitration issue, Judge Wilkins, that you raised, because everything that Mr. Citron said before the last two minutes and everything that Mr. Murray said is all premised on the idea that these companies can wield a credible threat of a permanent blackout, that they will walk away from a distributor.

[01:03:28] Speaker 02:
And in fact, the government says on page 43 of its brief that if Turner truly couldn't walk away, there would be no leverage.

[01:03:35] Speaker 02:
Well, Turner truly can't walk away now because of the arbitration no blackout commitment.

[01:03:40] Speaker 02:
That is a commitment which is legally enforceable and which says that any distributor at the point of an impasse can invoke it.

[01:03:47] Speaker 02:
And then we have to continue to provide their signal.

[01:03:50] Speaker 02:
There's no temporary blackout.

[01:03:52] Speaker 02:
There's no pro-blackout.

[01:03:52] Speaker 07:
Where is the finding on the district court to that effect?

[01:03:55] Speaker 02:
Well, what the district court said, Your Honor, in the footnote that Your Honor pointed to and in the earlier portion in the text, he called this extra icing on the cake already frosted, by which he meant, I think, that this was an additional reason.

[01:04:07] Speaker 02:
And he made several findings in those portions.

[01:04:09] Speaker 02:
First, he said that

[01:04:10] Speaker 02:
distributors would invoke it, second he said we would honor it, and third he said it would have real-world impact and affect these negotiations.

[01:04:20] Speaker 02:
And it only can affect the negotiations in one way, which is by taking the blackout off the table.

[01:04:26] Speaker 02:
And you know, Mr. Citron said a moment ago, it doesn't make the Nash model inapplicable to have the arbitration blackout.

[01:04:33] Speaker 02:
It makes Professor Shapiro's litigation model

[01:04:36] Speaker 02:
absolutely applicable and professor Shapiro said that he said it would require an entirely different model in order to capture and reflect the arbitration commitment arbitration commitment wasn't a commitment for

[01:04:51] Speaker 07:
every contract going forward forever, was it?

[01:04:55] Speaker 07:
It was just for this next set of... For the next seven years.

[01:05:00] Speaker 02:
And we chose seven years, Your Honor, because it mirrored the period of time that the government found sufficient to address all competitive concerns in the Comcast NBCU proceeding in 2011.

[01:05:10] Speaker 02:
And look, we had thought that if that was sufficient for the government then, in the last administration, it would be sufficient now.

[01:05:17] Speaker 02:
It wasn't.

[01:05:17] Speaker 02:
And so we made the commitment anyway and took it to the court.

[01:05:20] Speaker 02:
And the government's response here is very, very telling because it really had no response.

[01:05:25] Speaker 02:
Professor Shapiro said it would take a completely different model than mine to capture the real world that will actually be in effect because of this arbitration commitment in which you can't black out.

[01:05:36] Speaker 02:
And we asked him, well then, how can you justify going forward with your model?

[01:05:39] Speaker 02:
And he said there's another government witness, an expert witness, Professor Cuoca.

[01:05:43] Speaker 02:
he will explain.

[01:05:44] Speaker 02:
And then the government never called professor Cuoca.

[01:05:48] Speaker 02:
So on this record there literally is no response and these are findings your honor.

[01:05:53] Speaker 02:
We will honor it, the other side will invoke it, it will have real-world effect and it takes everything that people have said about the threat of a blackout off the table.

[01:06:02] Speaker 02:
What it means is that not only doesn't Turner have more leverage as a result of the merger, Turner has less leverage as a result of the merger.

[01:06:11] Speaker 02:
Turner has relinquished

[01:06:13] Speaker 02:
the source of leverage that the government identified in its view as the principal way to extract higher prices.

[01:06:20] Speaker 02:
So that is one thing that by itself ought to be sufficient to resolve the case.

[01:06:26] Speaker 02:
But then to go on, Judge Rogers, to your questions about the inputs, because there are all sorts of problems with Professor Shapiro's model.

[01:06:34] Speaker 02:
I mean, to begin with, there is the point, Judge Wilkins, that you made that when you said it kills the case,

[01:06:40] Speaker 02:
The district court found based on the trial evidence that no prior vertical transactions in this industry showed the price increase that Professor Shapiro's government model predicts, meaning it was wrong with respect to every transaction that existed in the real world that you run against it.

[01:06:58] Speaker 02:
We put forward that analysis, and it's important to know what the government did in response.

[01:07:02] Speaker 02:
The government did not put any contrary empirical analysis there.

[01:07:06] Speaker 02:
It did not do what Professor Shapiro said in a prior merger proceeding

[01:07:11] Speaker 02:
you should do when you try to apply bargaining theory to a merger, which is test it against real-world transactions and see whether the model actually gets the answer right.

[01:07:20] Speaker 02:
It got the answer right none of the times.

[01:07:22] Speaker 02:
The district court credited that testimony.

[01:07:25] Speaker 02:
The government didn't even challenge it as erroneous, much less clearly erroneous in the opening brief.

[01:07:30] Speaker 02:
So as this case comes to the court, it is established that the model does not correctly predict price effects from mergers in this industry.

[01:07:38] Speaker 02:
And that's before you even get to the fact that it leaves out the fact that going forward, you will have no blackout threat at all, but instead this arbitration remedy.

[01:07:47] Speaker 02:
And so then, Judge Rogers, the question is, well, what about the inputs?

[01:07:51] Speaker 02:
The district court could have stopped right where I just said, but he didn't.

[01:07:56] Speaker 02:
He went on and said, even though we have not been shown that the model is a valid predictor of prices, I am going to see what happens when you actually run the model.

[01:08:05] Speaker 02:
He accepted the model and scrutinized the inputs that the government had plugged into it.

[01:08:10] Speaker 02:
And critically, when the court accepted the model,

[01:08:13] Speaker 02:
It was accepting all of the government's economic presuppositions about bargaining leverage and the economics of bargaining and profit maximization and all of those things.

[01:08:23] Speaker 02:
It was also accepting the government's view of the extent of consumer benefits, the $78 million.

[01:08:30] Speaker 02:
it is correct that there are places in the opinion.

[01:08:33] Speaker 02:
The government predicted that there'd be $352 million in cost savings to AT&T, which would result in $78 million of cost savings to customers.

[01:08:42] Speaker 02:
And there are places in the opinion where the district court mischaracterized the government's prediction as being $352 million rather than $78 million of savings to the retail customers.

[01:08:53] Speaker 02:
But that makes absolutely no difference to the outcome of the case, as I think Mr. Murray acknowledged when he said that error alone.

[01:09:00] Speaker 02:
couldn't be a candidate for reversal because when the court went on to apply the model it was applying professor Shapiro's view of the 78 million dollars of consumer benefits and what the trial showed about that model was its extreme fragility and its extreme sensitivity to even modest changes in the inputs and with respect to Mr. Murray that is a bug it is not a feature because at the end of the day when you apply

[01:09:27] Speaker 02:
all of the government's economic assumptions and every one of its preferred inputs, it still predicts only a 0.2 percent price increase, which the district court found had not been subjected to any statistical testing, had not been shown to be statistically significant, was statistically indistinguishable.

[01:09:49] Speaker 07:
That's an amount for each consumer, you know, let's say it's a 25 cents a quarter, but that's per month.

[01:09:58] Speaker 02:
Yes, on a cable, yes.

[01:09:59] Speaker 07:
And there's, you know, upwards of a hundred million or so consumers that are paying that, right?

[01:10:06] Speaker 02:
That's right, Your Honor.

[01:10:07] Speaker 02:
We do think that the percentage is a fair way to characterize it in the same way that, you know, a two dollar increase in the price of gas is significant and a two dollar increase in the price of a car is not.

[01:10:18] Speaker 02:
Even if you multiply that two dollar increase by, you know, all of the car transactions in a year,

[01:10:22] Speaker 02:
But the key thing we think is this, whether you think about it in the absolute number or the percentage number, the key thing is how sensitive it is to minor corrections in the inputs.

[01:10:33] Speaker 02:
And this will be true whether you use the percentage or the absolute number, because just minor corrections completely flips the result from predicting a retail price increase of 0.2%,

[01:10:46] Speaker 02:
to a retail price decrease often of much higher magnitude.

[01:10:51] Speaker 02:
And when the result is so tiny, has not been shown to be statistically significant, and flips once you correct what are really obvious errors in the reliability.

[01:11:04] Speaker 02:
And Judge Rogers, I'd like to address just a couple of those inputs because they alone provide grounds for affirming this case because of the stark unreliability of the inputs that the government used.

[01:11:16] Speaker 02:
But the first key input was the subscriber loss rate that Mr. Murray referred to, and that's the estimate of how many customers would leave a distributor if Turner wasn't there and go somewhere else.

[01:11:27] Speaker 02:
And Professor Shapiro said he was estimating a range of 9% to 14%.

[01:11:33] Speaker 02:
and 9% was the figure he plugged into his model.

[01:11:36] Speaker 02:
He acknowledged, as you said, Judge Wilkins, that if you change that 9% to 5%, just made that one change, the entire predicted price increase goes away and it becomes a predicted price decrease.

[01:11:50] Speaker 02:
So where did that 9% come from?

[01:11:52] Speaker 02:
Well, first of all, it's completely out of whack with every known permanent blackout that's occurred in this industry which are recited in the opinion

[01:11:59] Speaker 02:
which were 2% and 2.5%.

[01:12:02] Speaker 02:
The 9% came from a consulting report that the firm Altman-Velandry produced for its cable client charter.

[01:12:10] Speaker 02:
And on pages JA 170 through 174, the court goes through methodological failing after methodological failing of that report.

[01:12:18] Speaker 02:
And the government challenged none of those findings as erroneous, much less clearly so.

[01:12:24] Speaker 02:
But then there was even the bigger problem, which is where that 9% number came from.

[01:12:29] Speaker 02:
The reason we talked about changing 9% to 5% is that 5% was the number.

[01:12:35] Speaker 02:
in the Altman-Velandry report that was presented as the, quote, final report to charter.

[01:12:41] Speaker 02:
It was changed later via an email that was sent by the Altman-Velandry project manager from the boarding line at the airport with no additional empirical work, nearly doubled.

[01:12:53] Speaker 02:
And Professor Shapiro, when he was confronted with this at his deposition, had no idea

[01:12:58] Speaker 02:
that that was the provenance of the number.

[01:13:00] Speaker 02:
That alone makes it unreliable.

[01:13:03] Speaker 02:
It was the government's burden to show below that it was reliable.

[01:13:07] Speaker 02:
It's the government's burden here to show that it was clearly erroneous for the district court to find it unreliable.

[01:13:14] Speaker 02:
Neither of those showings could be made given the complete

[01:13:17] Speaker 02:
ignorance of the government's expert about how that number was actually created and if you change that number to the original five percent the price increase goes away.

[01:13:28] Speaker 02:
And then you get to the second input where something very similar happened because there was this key cord cutting number of ten percent that Professor Shapiro used.

[01:13:36] Speaker 02:
Where did that come from?

[01:13:37] Speaker 02:
It came from the same Altman-Velandry report, and the trial evidence revealed that their original empirical number had been slashed by 40 percent.

[01:13:46] Speaker 02:
And nobody, including Professor Shapiro, could explain why.

[01:13:50] Speaker 02:
Professor Shapiro said he didn't even know if he knew about that when he decided to adopt the number.

[01:13:55] Speaker 02:
And we made that a centerpiece of that section of our brief.

[01:13:58] Speaker 02:
The government in its reply brief doesn't even try to defend or explain why the number was slashed 40 percent.

[01:14:04] Speaker 02:
But again, if you just take that input, keep everything else constant, and make that one change, the price increase that the government's model predicts flips into a price decrease.

[01:14:15] Speaker 04:
So, as I hear your argument then, it's first of all, whatever virtues the model may have, and Professor Shapiro's opinion, all that disappears with

[01:14:33] Speaker 04:
the addition of the arbitration clause.

[01:14:36] Speaker 04:
And Judge Wilkins was exploring earlier how solid that is.

[01:14:41] Speaker 04:
And all we have is that footnote finding by the district court that he's confident that AT&T will not walk away.

[01:14:52] Speaker 04:
Do you view that as a finding, that it's permanent for seven years, that there's no uncertainty under state law?

[01:15:00] Speaker 02:
Absolutely, Your Honor, and let me specifically address.

[01:15:03] Speaker 02:
In the reply brief, the government makes one argument with respect to state law.

[01:15:07] Speaker 02:
It says that under Georgia law, an offer without consideration is not enforceable.

[01:15:12] Speaker 02:
So let me just be very specific here.

[01:15:14] Speaker 02:
First of all, most of these contracts are under New York law, not Georgia law, and that principle isn't there.

[01:15:19] Speaker 02:
Even under Georgia law, once the commitment is accepted, it is enforceable.

[01:15:23] Speaker 02:
So what they're suggesting is that in whatever interval of time, between the time we make the offer and before the other side accepts, under Georgia law, we might have a claim that it's not enforceable.

[01:15:35] Speaker 02:
But that's the gap that Judge Leon has filled in his opinion when he finds, and I do think it is a finding, that we will honor it.

[01:15:43] Speaker 02:
And of course we will honor it.

[01:15:44] Speaker 02:
We're now judicially stopped

[01:15:46] Speaker 02:
from not honoring it.

[01:15:47] Speaker 02:
We've gone to a district court, and I'm going to this court saying we're going to honor it.

[01:15:52] Speaker 02:
He relied on it apart.

[01:15:53] Speaker 02:
Your honors are welcome to rely on it.

[01:15:55] Speaker 02:
And we are absolutely judicially stopped because, of course, we don't make an offer like this in the marketplace and intend to say, you know, we had our fingers crossed behind our back when we made it.

[01:16:04] Speaker 02:
Go away.

[01:16:04] Speaker 02:
That's not going to happen.

[01:16:06] Speaker 04:
Well, we take you at your word.

[01:16:08] Speaker 04:
Thank you, Your Honor.

[01:16:10] Speaker 04:
No, but I mean, it's serious.

[01:16:13] Speaker 04:
Because that means that the district court's approval of the proposed merger was contingent

[01:16:24] Speaker 04:
on the arbitration clause being a condition of the merger.

[01:16:28] Speaker 02:
Yes.

[01:16:28] Speaker 02:
I mean, the only thing I would say, it was one of several independent grounds.

[01:16:32] Speaker 02:
No, I understand.

[01:16:32] Speaker 02:
But I mean, this is critical.

[01:16:33] Speaker 02:
But absolutely, Your Honor.

[01:16:34] Speaker 02:
So we are absolutely committed to this.

[01:16:35] Speaker 04:
Because I don't understand you to say that the government must prevail both on the economic theory proposition as well as what we're calling the quantification theory.

[01:16:46] Speaker 04:
that the bargaining theory model can work, but it simply didn't work here based on the evidence your argument is that the government presented, particularly in view of the arbitration clause.

[01:17:00] Speaker 02:
That's exactly the point.

[01:17:02] Speaker 02:
It really goes to the distinction that Judge Santel was drawing earlier between the Nash bargaining theory writ large and what that tells you and the litigation model that the government constructed here.

[01:17:14] Speaker 02:
Because the Nash bargaining theory doesn't tell you

[01:17:16] Speaker 02:
what's gonna happen to this merger.

[01:17:18] Speaker 02:
The government had to construct a litigation model with various assumptions and inputs and others to demonstrate that even though it conceded that there would be benefits, that the harms would outweigh the benefits.

[01:17:30] Speaker 02:
And that's why some measure of quantification was necessary, because once you concede there are benefits, you have to make some showing in some fashion that the harms will be greater, and that's what the model was designed to do.

[01:17:41] Speaker 02:
And so just to take a step back here in terms of what really happened at this trial,

[01:17:46] Speaker 02:
The government came forward with this model as its effort to meet its burden of proof to show that the harms outweigh its conceded benefits.

[01:17:55] Speaker 02:
At the outset, we showed that it didn't, in fact, it wasn't a good model.

[01:17:59] Speaker 02:
It didn't correctly predict prices from real mergers, from any of them that had happened in the industry.

[01:18:04] Speaker 02:
The government presented no contrary analysis and that was a really big problem.

[01:18:08] Speaker 02:
And then the court looked further and found that the model was just not taking into account

[01:18:13] Speaker 02:
big major influences on the outcomes of these negotiations and pricing.

[01:18:18] Speaker 02:
Things like the arbitration clause, which completely changed the game.

[01:18:22] Speaker 02:
And then he nonetheless went on further, and he said, OK, let's assume the model is a good predictor.

[01:18:27] Speaker 02:
Let's assume it takes into account every relevant factor, and let's see what it actually predicts as to retail prices.

[01:18:33] Speaker 02:
And that's where we got into the input discussion, and the fact that one input was emailed from an airport boarding line.

[01:18:39] Speaker 07:
But let me go back to that.

[01:18:43] Speaker 07:
The provenance of this Altman-Velandry study, as best as I can tell from the district court, I'm looking at page 122 of its opinion, I don't know what the JA site is, was that this was created by this consulting firm for charter

[01:19:08] Speaker 07:
and the court says to help them predict their subscriber losses in the event of permanent blackouts with various programming networks.

[01:19:19] Speaker 07:
So this was to be a document the charter would use to help it analyze, I guess, its bargaining position vis-a-vis programming networks, right?

[01:19:32] Speaker 07:
Yes.

[01:19:33] Speaker 07:
So why in the world would the consultant

[01:19:38] Speaker 07:
give charter bad information or overestimate the subscriber losses.

[01:19:49] Speaker 07:
So the charter would feel like that it was in a weaker position than it really actually is in.

[01:19:56] Speaker 07:
That doesn't make any sense.

[01:19:58] Speaker 02:
I want to be careful about how I answer that question, Your Honor, because I want to acknowledge that there's no definitive finding in the district court in answer to that question.

[01:20:06] Speaker 02:
But certainly, in terms of the facts that were made known, this is a report

[01:20:12] Speaker 02:
that shortly after the change was made was supplied to the Department of Justice by Charter, and Charter is an opponent of this merger.

[01:20:22] Speaker 02:
And the change that was made from the airport boarding line, this was a report that covered every programmer, the change that was made from the airport boarding line by email, 5% to 9%, was made by the Altman-Villandry project manager after a meeting with Charter, but with no additional empirical work.

[01:20:39] Speaker 02:
But for our purposes, while we have our concerns and suspicions about what lay behind it, the district court didn't resolve that.

[01:20:46] Speaker 02:
It gives him pause, he said, but he did not resolve that.

[01:20:50] Speaker 02:
And I don't want to suggest that this court should base a conclusion on our suspicions.

[01:20:56] Speaker 02:
It is sufficient that a number created that way is completely unreliable and certainly unreliable when the government's expert says he did not know that's how it was developed.

[01:21:09] Speaker 02:
when he relied on it.

[01:21:11] Speaker 02:
And that and the slashing the 40 percent that he didn't know, that was the reason for the district court's observation that the governance expert seemed unfamiliar with the provenance of the materials and the data that he was dealing with.

[01:21:24] Speaker 02:
And so here we are at a stage where the question is simply,

[01:21:27] Speaker 02:
Was it clearly erroneous for the district court to find unreliable a number that was changed in this fashion, whatever the reason, let's even assume it was good faith, but was changed in this fashion?

[01:21:40] Speaker 02:
And the expert didn't even know that that's where it came from.

[01:21:44] Speaker 02:
And that's just the one aspect of it we focused on.

[01:21:48] Speaker 02:
You know, it also was completely out of whack from the 2% and the 2.5% and the other actual record evidence of real-world experience with permanent blackouts.

[01:21:59] Speaker 02:
And you know, the government doesn't really contest any of what I've just said in their brief.

[01:22:03] Speaker 02:
They make just one argument.

[01:22:05] Speaker 02:
about this number.

[01:22:06] Speaker 02:
And their one argument is it doesn't really matter, they say, whether the nine percent was a good number or a bad number.

[01:22:12] Speaker 02:
The point is that all that really matters is what Charter subjectively believed.

[01:22:15] Speaker 02:
Now that's not a theory they raised for this appeal, but there are two problems with it in any event.

[01:22:20] Speaker 02:
One is there is no evidence below about what Charter believed.

[01:22:23] Speaker 02:
The government called one witness from Charter.

[01:22:26] Speaker 02:
He was asked whether he could testify that he believed this number to be accurate or reasonable, and he said he just wasn't familiar with it enough.

[01:22:33] Speaker 02:
to say that.

[01:22:33] Speaker 02:
So there is no evidence in this record about what Charter believed.

[01:22:37] Speaker 02:
And the reason there's no evidence about what Charter believed is that it was never the government's theory below that these numbers should be judged on the basis of the subjective understanding of a single cable operator.

[01:22:49] Speaker 02:
When Professor Shapiro described what question he was asking, this is at JA 737, he said, it's exactly the question that we're asking.

[01:22:57] Speaker 02:
What would happen

[01:22:58] Speaker 02:
to subscribership if there was a long-term blackout of Turner.

[01:23:02] Speaker 02:
What would happen?

[01:23:03] Speaker 02:
What is the right prediction?

[01:23:04] Speaker 02:
What is a reasonable prediction, not what did one distributor

[01:23:08] Speaker 02:
believed because, in fact, when distributors believed lower numbers, the 2% and the 2.5% I referred to from the blackouts of Viacom, Professor Shapiro said, I don't agree with those numbers.

[01:23:19] Speaker 02:
I think the right number is more like 9% to 14%.

[01:23:21] Speaker 02:
So this is really an estimate, a range that has no colorable foundation in this record.

[01:23:29] Speaker 02:
And if this one correction is made, then the entire

[01:23:34] Speaker 02:
result flips.

[01:23:35] Speaker 02:
And so, you know, the government and, you know, Judge Santel, you talked about the relationship between the Nash theory and the model.

[01:23:43] Speaker 02:
This is all about not whether Nash is right or wrong, but a litigation model has to be subjected to the testing and probing of the adversarial process.

[01:23:52] Speaker 02:
And this one just absolutely fell apart.

[01:23:54] Speaker 07:
And the government should not be asking this court to... But the government's position is that we actually didn't need to put this model on.

[01:24:03] Speaker 07:
We could have established this with kind of what they call the first half of the expert testimony of Shapiro, which is simply that his expert view that applying the Nash principles and the Copperweld principles to this merger, there will be, it will

[01:24:31] Speaker 07:
there's a reasonable probability that's going to affect competition such that the merger should be blocked.

[01:24:37] Speaker 07:
And they didn't need numbers, just like you didn't need numbers in Brown Shoe, etc.

[01:24:42] Speaker 07:
What's your response to that?

[01:24:44] Speaker 02:
Well, they said that after the numbers all fell apart.

[01:24:47] Speaker 02:
And with all respect to your honor.

[01:24:49] Speaker 07:
Well, sometimes, you know, lawyers over try their cases and they go for the belt and suspenders and then the suspenders break.

[01:24:57] Speaker 07:
And then they say, Judge, don't worry about my broken suspenders.

[01:25:00] Speaker 07:
I still got the belt.

[01:25:02] Speaker 02:
This was not a case in which the government over-tried its case, Your Honor.

[01:25:06] Speaker 02:
If you take the model out, there is really nothing here that demonstrates anything other than a concern and a theory that there might be this leverage

[01:25:17] Speaker 02:
There has to be a demonstration of two things.

[01:25:21] Speaker 02:
One, a substantial lessening of competition.

[01:25:24] Speaker 02:
And two, once the government has conceded significant consumer benefits, which it has, $78 million annually in price decreases is significant consumer benefits.

[01:25:35] Speaker 02:
then it itself agreed it has to balance the harm against the benefits.

[01:25:40] Speaker 02:
So the reason that the government tried to quantify this was not that it was over trying its case and was adding things in and it was extra icing on a cake already frosted on its side.

[01:25:49] Speaker 02:
The reason it was doing this is it had to.

[01:25:51] Speaker 02:
It said there were going to be benefits from this merger and it acknowledged, in fact, if... The Open Markets Institute amicus brief says that's wrong.

[01:26:00] Speaker 07:
What should we do with that?

[01:26:02] Speaker 02:
With respect, Your Honor, that wasn't even the government's position below.

[01:26:06] Speaker 02:
What the government's counsel said at the trial was, we agree 100 percent at the end of the day that we're the plaintiff.

[01:26:14] Speaker 02:
We have got to be persuasive on the balance of these two.

[01:26:17] Speaker 02:
And I should just be clear.

[01:26:19] Speaker 02:
This is not a question of an efficiencies defense.

[01:26:22] Speaker 02:
We put on an efficiencies defense and the judge didn't rely on any of it.

[01:26:25] Speaker 02:
Nothing in the judge's opinion relied on anything we put in our defense on efficiencies.

[01:26:31] Speaker 02:
It was the government's affirmative case that said we are going to show, that was their claim, an average retail price increase.

[01:26:39] Speaker 02:
And if you're going to show an average retail price increase, you have to put on evidence of what's going to go up and what's going to go down.

[01:26:45] Speaker 02:
You can't just say, well, it's going to go down a little, it's going to go up a little, it's going to go down a huge amount, but we only have to show that it's going to go up a little in one segment.

[01:26:53] Speaker 02:
You are making a claim about an average.

[01:26:54] Speaker 02:
So that's why Professor Shapiro, he wasn't doing this out of the goodness of his heart.

[01:26:58] Speaker 02:
He said, this is a vertical merger.

[01:27:00] Speaker 02:
The methodology I'm bringing is to identify the benefits, identify the harms, and I'm going to show to you, he said, that the harms outweigh the benefits.

[01:27:08] Speaker 02:
That's where the model came in.

[01:27:10] Speaker 02:
That's where the quantification came in.

[01:27:12] Speaker 02:
If you subtract that from what happened below,

[01:27:15] Speaker 02:
you have no case for substantial lesson competition, no case that the balance of harms tilts against this transaction.

[01:27:23] Speaker 02:
And look, the only other thing I would say is this.

[01:27:24] Speaker 02:
The government and Insomniac have suggested that this case is about the future of vertical merger law enforcement or some big principle of law.

[01:27:33] Speaker 02:
It's not about any of those things.

[01:27:34] Speaker 02:
It was about very specific evidence.

[01:27:37] Speaker 02:
And if the district court here is affirmed, as we obviously think it should be,

[01:27:43] Speaker 02:
that's not going to prevent the government from bringing factually supported merger cases in the future.

[01:27:49] Speaker 07:
But the district court's opinion, and I might have missed it, but I looked very closely for it, it didn't cite Copperweld once.

[01:28:03] Speaker 07:
not once.

[01:28:05] Speaker 07:
That's correct, Your Honor.

[01:28:06] Speaker 07:
And then there's really not much of any acknowledgment of the unity of organization and profit maximization by the single firm.

[01:28:23] Speaker 07:
And indeed, the district court makes a finding based on what reasonable minds could call self-serving testimony

[01:28:34] Speaker 07:
that Time Warner is going to really continue negotiating these deals the same after the merger as before.

[01:28:45] Speaker 07:
The district court seems to disclaim the key holding of Copperwell.

[01:28:54] Speaker 07:
And if we, you say that this case doesn't really have any big implications,

[01:29:00] Speaker 07:
Well, the amici say otherwise, and don't they have a fair point that if we just simply affirm here without really grappling with that, we're saying that Copperwell isn't really the legal presumption that the Supreme Court

[01:29:18] Speaker 07:
said that it is.

[01:29:19] Speaker 07:
And isn't that above our pay grade?

[01:29:23] Speaker 02:
I disagree both, Your Honor, with that characterization of the opinion and with what the consequences of affirmance would be.

[01:29:30] Speaker 02:
And let me deal with both of those separately, which is, first of all, you're right that the opinion never cites Copperweld, because there was no disagreement, not on our side, not with the government, not with the district court,

[01:29:41] Speaker 02:
about the principle that firms will profit maximize across divisions.

[01:29:45] Speaker 02:
And the court didn't need to cite Copperwell because it was accepting that proposition, and it does so at pages 114 to 115, JA 161 to 162, where it accepts the proposition.

[01:29:58] Speaker 02:
It says the court accepts, and the proposition is a firm with multiple divisions will act to maximize profits across them.

[01:30:04] Speaker 02:
So that legal principle was not the subject of disagreement, not between the parties, not from the district court.

[01:30:10] Speaker 02:
What was the subject of disagreement was not whether firms profit maximize, but how, in this case, they would profit maximize.

[01:30:18] Speaker 02:
And that's what all the evidence goes to.

[01:30:20] Speaker 02:
And what the district court was reciting here, what he said was, I'll be very specific, he said,

[01:30:28] Speaker 02:
as the witnesses indicated, this is page 115, vertically integrated corporations have previously determined that the best way, and now I'm paraphrasing, to maximize profits

[01:30:39] Speaker 02:
is not to pursue the government's theory that there's some untapped leverage out there that suddenly can produce higher prices for the same content the day after the merger than you had before.

[01:30:51] Speaker 02:
What he was reporting was the witness testimony that people in the past who have been in vertically integrated companies have not believed that.

[01:30:59] Speaker 02:
They don't accept that that's the way to profit maximize.

[01:31:01] Speaker 02:
They want to profit maximize, but they pursue a different path, which is just to get their programming on as many different distribution platforms as they can.

[01:31:11] Speaker 02:
And this was the uniform testimony of every witness, not just our witnesses, but the government witnesses, every witness who had worked

[01:31:19] Speaker 02:
at a vertically integrated company.

[01:31:21] Speaker 02:
Every one of them said, we don't believe this theory.

[01:31:23] Speaker 02:
We didn't act about this theory.

[01:31:25] Speaker 02:
No one from high up told me, do something different in the programming negotiations than what you used to do, because you need to start taking into account this other division across the country.

[01:31:35] Speaker 02:
That instruction never came.

[01:31:37] Speaker 02:
People just kept on negotiating the same way they always did, because they don't believe the pot of gold that the government says is there is really there.

[01:31:46] Speaker 02:
So in terms of the consequences of affirmance,

[01:31:49] Speaker 02:
you know if the court agrees with what I just said even if your honor doesn't agree with that characterization of the opinion the court could write that in the opinion and there'd be no issue about precedent or anything else because this is what we think the opinion said it certainly is our position we think it's the right one

[01:32:05] Speaker 02:
And I think with that understood, the only thing an affirmance in this case would really stand for as a legal proposition is that models, litigation models that seek to implement economic theories have to be shown to be valid and not merely assumed.

[01:32:23] Speaker 02:
And that when you do modeling, you have to use reliable inputs and demonstrate that your predictions are statistically significant before those predictions will be credited.

[01:32:32] Speaker 02:
That's all the case stands for.

[01:32:34] Speaker 04:
Thank you.

[01:32:35] Speaker 02:
Thank you.

[01:32:40] Speaker 04:
Good morning.

[01:32:46] Speaker 03:
Good morning, Your Honor.

[01:32:47] Speaker 03:
May it please the Court, Andrew Pincus, representing the 37 economists and antitrust scholars appearing here as a meekie supporting affirmance.

[01:32:56] Speaker 03:
I think the Court's questions have really focused in on the critical issue that we presented in our brief and the critical issue before the Court, which is that an economic theory by itself can't predict likely outcomes in a particular industry contest.

[01:33:10] Speaker 03:
And so the critical task for the economist is to make the right factual assumptions

[01:33:14] Speaker 03:
that reflect those real-world characteristics in order to reliably predict the likely future behavior.

[01:33:21] Speaker 03:
We think the District Court understood the economic theory, understood the critical importance of those factual predicates, and as the Court has been discussing, held for multiple independent reasons that the facts just weren't here to support the economist projections.

[01:33:36] Speaker 03:
And I think it's important that the District Court actually eschewed both parties' advanced broad legal theories,

[01:33:43] Speaker 03:
The court didn't rule on a broad legal theory.

[01:33:46] Speaker 03:
It didn't make broad statements about economic theory.

[01:33:48] Speaker 03:
It really ruled narrowly based on the facts.

[01:33:51] Speaker 03:
And I think it's helpful to look at the Nash theory as an example of how that worked.

[01:33:56] Speaker 03:
The court didn't, of course, hold Nash inapplicable.

[01:34:00] Speaker 03:
But the Nash theory is at quite a high level of generalization.

[01:34:04] Speaker 03:
But the insight really is that in a negotiation, fallbacks matter.

[01:34:07] Speaker 03:
And the fallbacks will influence the bargain.

[01:34:12] Speaker 03:
propagated that theory in a very simple context, a one-off bilateral negotiation in which he made clear there were no prior commitments between the parties.

[01:34:23] Speaker 03:
So it's a challenge to apply that here.

[01:34:26] Speaker 06:
He expressly wrote that if there was prior bargaining agreement between the parties, it would render his theory inapplicable or replaceable.

[01:34:35] Speaker 03:
Exactly your honor and economists have begun to look at the multilateral repeat player context to see how to apply it and there is no consensus now in the economic literature about how to do that as we explain in our brief because it's a complicated problem.

[01:34:48] Speaker 03:
That's the factual context though that appears in this industry and the other context that appears in this industry is that there are relevant prior commitments.

[01:34:58] Speaker 03:
There are

[01:35:00] Speaker 03:
MFN clauses, there are the arbitration commitment, and there are the FCC's program access rules, all of which are relevant and would have to be considered in some way, none of which I should say were considered by the government.

[01:35:14] Speaker 03:
So the challenge here is to take that very general theory and figure out how to apply it, what assumptions to make, and how to put those assumptions into the cake

[01:35:24] Speaker 03:
in order to come up with credible predictions.

[01:35:27] Speaker 03:
And the district court held the government failed to do that both with respect to Professor Shapiro's general assessment

[01:35:36] Speaker 03:
and with respect to the model.

[01:35:37] Speaker 03:
A lot of the conversation here has been about the model.

[01:35:40] Speaker 03:
But just to talk a little bit about the general assessment, what the district court said is, I'm going to look at the real world evidence of what's happened when there have been integrations like this.

[01:35:53] Speaker 03:
And for three reasons, I conclude that this kind of integrated entity doesn't have bargaining leverage that is going to lead to a price increase.

[01:36:03] Speaker 03:
And he relied on three things.

[01:36:05] Speaker 03:
on the econometric analysis by Professor Carlton that the prior instances of vertical integration did not lead to higher programming prices and the district court rejected the government's arguments as a matter of fact for distinguishing those transactions.

[01:36:18] Speaker 03:
It looked to consistent testimony by current and former negotiators that integration was irrelevant to the fair strategy and of course as the discussion has indicated the court cited the arbitration no blackout commitment

[01:36:30] Speaker 03:
which eliminates the blackout threat.

[01:36:33] Speaker 03:
So putting aside the model, just looking at the real world evidence, the court said my factual finding is based on this evidence that the theory that Professor Shapiro was propagating based on Nash just isn't supported.

[01:36:50] Speaker 03:
the court turned to the model.

[01:36:51] Speaker 03:
And in addition to the output of problems that Mr. Keisel referred to, there are design problems because the model's design doesn't incorporate any of the differences from the Nash simplified world that I mentioned.

[01:37:05] Speaker 03:
It doesn't address the fact that this is multilateral repeat player negotiation.

[01:37:09] Speaker 03:
It doesn't

[01:37:10] Speaker 03:
address these prior commitments.

[01:37:12] Speaker 03:
And most importantly, it gets the credible fallback wrong.

[01:37:16] Speaker 03:
The model is based on a credible fallback assumption of permanent blackouts.

[01:37:20] Speaker 03:
And what the district court found as a fact is that permanent blackouts were not a credible threat.

[01:37:25] Speaker 03:
Temporary blackouts might be the credible threat.

[01:37:28] Speaker 03:
So with those flaws in the design of the model, it's not surprise

[01:37:32] Speaker 03:
in addition to the output problems that Mr. Keisler talked about, that there was no credible result.

[01:37:38] Speaker 03:
The outputs of the model could incredibly predict what was going to happen.

[01:37:42] Speaker 04:
Let me just ask you, this is beyond the case, I understand.

[01:37:45] Speaker 04:
But the government files a complaint, and it has an expert based on what state of the world is at that point.

[01:37:57] Speaker 04:
And then as things move forward,

[01:38:00] Speaker 04:
The merger agreement is modified by what you're being told is this permanent seven-year commitment on arbitration.

[01:38:10] Speaker 04:
From your experience, is the option then simply to ask for a continuance and have another expert model developed?

[01:38:24] Speaker 04:
Now, there are all kinds of timing considerations here, I understand.

[01:38:27] Speaker 04:
But I'm just wondering, I mean, the whole nature of the case changes once this arbitration

[01:38:35] Speaker 04:
condition is added.

[01:38:38] Speaker 04:
And the government's expert was flat-footed on that.

[01:38:42] Speaker 04:
I mean, acknowledged that you need a new model.

[01:38:46] Speaker 03:
Well, Your Honor, I don't think it's flat-footed, and I'm not the expert on the facts.

[01:38:50] Speaker 03:
But I think just in terms of the real-world timing in this case, this happened very early on in the case.

[01:38:55] Speaker 03:
In fact, the government had a second expert, which I think Mr. Keisler mentioned, who was prepared to testify on the impact of the arbitration

[01:39:03] Speaker 03:
no blackout commitment.

[01:39:05] Speaker 03:
So this happened early enough that not only could Mr. Shapiro, if Professor Shapiro had revised his model, but it was early enough so that the government could have an expert ready to testify, they didn't call that expert.

[01:39:16] Speaker 04:
All right.

[01:39:16] Speaker 04:
So it's not a question, and I take it back about the government being flat footed.

[01:39:19] Speaker 03:
I don't think it's a question.

[01:39:20] Speaker 03:
I don't think it's an issue in this case.

[01:39:20] Speaker 04:
The government anticipated, but perhaps for whatever reason, decided not to call that expert.

[01:39:26] Speaker 03:
All right.

[01:39:27] Speaker 03:
So I don't think there's any problem of them being a sandbag.

[01:39:29] Speaker 03:
All right.

[01:39:29] Speaker 04:
The timing thing is not.

[01:39:30] Speaker 04:
Thank you.

[01:39:31] Speaker 03:
Thank you very much.

[01:39:38] Speaker 00:
Thank you, Your Honor.

[01:39:43] Speaker 00:
I'd like to just make three quick points in rebuttal.

[01:39:47] Speaker 00:
The first is that the AT&T, my colleagues on the other side, are asking this Court to make findings that are not there.

[01:39:54] Speaker 00:
And the best evidence of that is the discussion of the arbitration offer.

[01:39:59] Speaker 00:
There's no finding about what the real world impact of arbitration will be.

[01:40:03] Speaker 00:
All that we have on that is the testimony from the distributors.

[01:40:06] Speaker 00:
We have the testimony from Cox.

[01:40:08] Speaker 00:
Cox has witnessed one of the cable companies that said, this does not have any weight.

[01:40:12] Speaker 00:
We have a testimony from the dishes executive that says that this is too risky.

[01:40:17] Speaker 07:
What if we write that they are judicially stopped from non-honoring?

[01:40:22] Speaker 00:
Your Honor, I don't think that's the only problem with the arbitration offer.

[01:40:25] Speaker 00:
The primary problem, what these witnesses were actually testifying about, was that they didn't know how it would work because it imposes on the arbitrator a standard of fair market value.

[01:40:35] Speaker 00:
And then we have a nationwide distributor like DirecTV, unlike a regional distributor like Comcast, as in the MBCU-Combass merger.

[01:40:43] Speaker 07:
But isn't there a nationwide distributor in Dish?

[01:40:48] Speaker 00:
Yes, Your Honor, but the way that the arbitrator has to calculate fair market value is based on what the price of Turner's content should be.

[01:40:56] Speaker 00:
And so here, when we have the nationwide distributor of DirecTV affecting the price of the Turner content, that makes it different from the Comcast MBCU merger.

[01:41:06] Speaker 00:
There's also a second reason, Your Honor,

[01:41:08] Speaker 00:
which is that in the Comcast-MBCU merger, the arbitral remedy was backed by the de novo arbitral review by the FCC, as opposed to here, where it's a private offer between two parties.

[01:41:23] Speaker 00:
So they had the FCC as a backstop.

[01:41:25] Speaker 00:
And that's another reason that both Professor Shapiro, actually, and Cox testified that it was risky for them.

[01:41:32] Speaker 00:
They gave it no weight.

[01:41:34] Speaker 00:
And so I think that's what we have on the arbitration issue.

[01:41:36] Speaker 00:
And that is consistent with the court's treatment of it and the Supreme Court's recognition that this type of remedy issue, where the party has proposed some sort of remedy to a merger that is admittedly creating problems, as the court said in General Dynamics, is not the right way to view it.

[01:41:55] Speaker 00:
And I see that I'm expired out of my time.

[01:41:57] Speaker 00:
Oh, please go on.

[01:41:59] Speaker 00:
Oh, thank you, Your Honor.

[01:42:00] Speaker 00:
The second thing that I wanted to say in rebuttal was they're asking you to create a revised opinion in another respect as well.

[01:42:10] Speaker 00:
They're asking you to make Professor Shapiro's analysis and the rejection thereof by the district court an independent ground for affirmance.

[01:42:17] Speaker 00:
I think, though, that I heard my colleague on the other side respond to Judge Rogers' question by saying, when she asked him, is it an independent ground for affirmance, in slightly different words, I think he said no.

[01:42:29] Speaker 00:
And so I think that that's an important concession that the audio tape will record.

[01:42:35] Speaker 00:
The other thing that I wanted to mention, Your Honor, is in response to Judge Wilkins' question about the $350 million and whether that's an independent ground for reversal, I wanted to make sure I was clear.

[01:42:44] Speaker 00:
If this court's rationale is based on Professor Shapiro's analysis and the district court's treatment of it, then the $350 million is independently problematic because of this court's decision in anthem.

[01:42:56] Speaker 00:
And the last point I'd like to make, Your Honor,

[01:42:59] Speaker 00:
on the corporate maximization issue, the profit maximization issue that Judge Santel and I, and I think perhaps others were discussing.

[01:43:06] Speaker 00:
What we have to believe here for the district court's anti-Copperweld reasoning to hold is that the new company will maximize distribution of content over using its leverage to increase profits.

[01:43:22] Speaker 00:
That's contrary to Copperweld.

[01:43:24] Speaker 00:
It was the dissent in Copperweld that said that there should be a fact-specific inquiry.

[01:43:29] Speaker 00:
as to whether the companies are integrated.

[01:43:31] Speaker 00:
That's on 796 of the Copperwell descent.

[01:43:34] Speaker 00:
The Supreme Court majority took no notice of that.

[01:43:36] Speaker 00:
It said, no, the corporation behaves as a unity of interest.

[01:43:40] Speaker 00:
And that's what's incorrect about the district court's decision.

[01:43:45] Speaker 00:
If I may, I'll say one additional thing about, actually two additional things, one about Professor Carlton and one about the Altman-Villandry study.

[01:43:56] Speaker 00:
With respect to Professor Carlton, this is another example of the other side attempting to cut and paste the opinion to create a better opinion.

[01:44:04] Speaker 00:
Professor Carlton's analysis, it is true the district court looked at that, his analysis of prior vertical mergers, although I think he only actually gave probative weight to the Comcast MBCU one if you read the opinion closely.

[01:44:16] Speaker 00:
But that's not some sort of independent ground for affirmance.

[01:44:19] Speaker 00:
That's one part, I think it's 35 pages into the district court's analysis.

[01:44:24] Speaker 00:
So that can't by itself be sufficient, cutting and pasting the opinion and putting it back together to make a new opinion.

[01:44:30] Speaker 00:
And then with respect to Altman-Villandry, and this is my last point,

[01:44:34] Speaker 00:
I think the key there is that the district court, excuse me, the government repeatedly argued in the district court, the first statement in its statement of facts about the Altman-Velandry study was that it mattered because it was what charter thought.

[01:44:46] Speaker 00:
Professor Shapiro testified on JA 709, the reason he's looking at the Altman-Velandry study is because it's what charter thinks, that's JA 709.

[01:44:54] Speaker 00:
And so this was the position all along.

[01:44:56] Speaker 00:
And that does mean that the Altman-Velandry study has to be looked at a different light.

[01:45:01] Speaker 00:
Now, they've thrown up a lot of smoke about an edit being made in a waiting room for an airplane.

[01:45:05] Speaker 00:
Of course, what that all gets to is that Altman-Velandry independently decided that it needed to update its methodology.

[01:45:12] Speaker 00:
That's what our brief details.

[01:45:13] Speaker 00:
It needed to fix its methodology.

[01:45:15] Speaker 00:
It's true that an executive at Altman-Velandry sent one email from a waiting room, as I'm sure we all do.

[01:45:21] Speaker 00:
But what also happened is that Altman-Velandry then subsequently, later, perhaps after the plane landed,

[01:45:26] Speaker 00:
updated the rest of its methodology and the rest of its data on a going forward basis.

[01:45:31] Speaker 00:
So I don't think that they can get quite the weight out of that that they would like.

[01:45:35] Speaker 00:
And in any event, Your Honor, the Altman-Velandry number is supported by a sealed drop analysis from Comcast, so I won't mention the number.

[01:45:43] Speaker 00:
But it is supported by that, and Professor Shapiro also mentioned that.

[01:45:47] Speaker 00:
In conclusion, this is a merger that will shape the industry for decades to come, though the other side likes to say that it's a 0.2% price increase that adds up for hundreds of millions of dollars over time.

[01:45:58] Speaker 00:
The district court's decision on such a merger should be free of inconsistencies, and we would ask this court to reverse and remand for further consideration.

[01:46:05] Speaker 00:
Thank you.

[01:46:06] Speaker 04:
Thank you.

[01:46:07] Speaker 04:
We will take the case under advisement.

[01:46:10] Speaker 04:
Stand please.

[01:46:12] Speaker 04:
This honorable court now stands adjourned until tomorrow morning at 9.30 a.m.