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AT&T Chairman and CEO Randall Stephenson vowed to fight the government suit and complete the acquisition of Time Warner

AT&T Chairman and CEO Randall Stephenson vowed to fight the government suit and complete the acquisition of Time Warner

THE JUSTICE DEPARTMENT filed a lawsuit Monday to block AT&T’s planned $85 billion acquisition of Time Warner, in a move that could signal tougher scrutiny for tech companies.

The lawsuit breaks with the recent DOJ tradition of approving mergers between companies that don’t directly compete, such as AT&T and Time Warner. The government followed that traditional thinking in allowing Comcast to acquire NBCUniversal in 2011.

AT&T is the nation’s largest provider of traditional pay television service thanks to its acquisition of DirecTV. Time Warner, meanwhile, owns popular content outlets like CNN, HBO, TBS, and Warner Brothers. According to its complaint, the DOJ worries that if AT&T were allowed to buy Time Warner, the combined company could raise fees for Time Warner content to pay-TV competitors such as Comcast and Charter. That could drive up costs for consumers, or prod them into switching to AT&T’s own pay-TV services to access the programming they want.

It’s not unusual for the DOJ to determine that consumers might be harmed by a so-called vertical merger, between companies that don’t compete against each other. What’s unusual is how the DOJ decided to deal with it. In the Comcast/NBCUniversal merger, for example, Comcast agreed to continue licensing NBCUniversal content to other digital video providers and to not block or throttle content for its internet subscribers. Berin Szóka, president of the pro-market advocacy group TechFreedom, said in a statement that the the DOJ’s new lawsuit marked the first time since 1978 that a vertical merger has ended up in court.

Daniel Birk, a partner at the law firm Eimer Stahl, says merger conditions, known as “behavior remedies” tend to be favored by left-leaning government officials who are more comfortable regulating industries. But the DOJ’s new head of antitrust Makan Delrahim told the New York Times he doesn’t like these sorts of agreements and would prefer to see companies sell or spin off divisions that pose competition concerns before a merger is approved.

One catch is that last year, before he was nominated to the DOJ, Delrahim told the Business News Network that he saw no problem with the AT&T/Time Warner merger. That will inevitably lead to questions about whether the DOJ is moving to block the merger because of President Trump’s well known dislike of CNN’s coverage of him.

AT&T vows to fight the suit and complete the acquisition. “Today’s DOJ lawsuit is a radical and inexplicable departure from decades of antitrust precedent,” AT&T general counsel David R. McAtee said in a statement. “Vertical mergers like this one are routinely approved because they benefit consumers without removing any competitor from the market. We see no legitimate reason for our merger to be treated differently.”

During a press conference Monday evening, McAtee said any evidence that shows the government pursued the case for reasons other than applying the law would hurt the DOJ’s case.

Even if the DOJ wins this case, it won’t necessarily be able to apply the same legal theories to tech companies. But the fact that the Justice Department is willing to break with recent precedent suggests a tougher line on antitrust enforcement and doesn’t bode well for Silicon Valley.

Tech companies are under increasing pressure from across the political spectrum. A growing number of expertsquestions whether the enormous amounts of data that the largest tech companies have amassed is justification for government action.

Some writers have suggested that the government take a tougher line on deals where tech giants acquire promising startups; such deals have generally received little scrutiny. Last month, technology analyst and blogger Ben Thompson argued that the government had failed the public by approving Facebook’s acquisitions of Instagram and WhatsApp and should block future acquisitions, even small ones, unless the company agrees to more stringent conditions.

“I am optimistic that [Delrahim] will pursue strong enforcement,” says Anant Raut, a former Justice Department lawyer who now works for the advocacy group Public Knowledge. “There’s the assumption that an administration that leans to the right might not be as aggressive on vertical mergers. If they do choose to challenge this one it’s an indication that enforcement will be as strong or stronger than it has been the last few years.”