United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued December 6, 2018 Decided February 26, 2019

No. 18-5214

UNITED STATES OF AMERICA,

APPELLANT

v.

AT&T, INC., ET AL.,

APPELLEES

Appeal from the United States District Court

for the District of Columbia

(No. 1:17-cv-02511)

Michael F. Murray, Deputy Assistant Attorney General, 

U.S. Department of Justice, argued the cause for appellant. 

With him on the briefs were Kristen C. Limarzi, Robert B. 

Nicholson, Adam D. Chandler, Patrick M. Kuhlmann, Mary 

Helen Wimberly, and Daniel E. Haar, Attorneys.

Eric F. Citron argued the cause for amici curiae 27 

Antitrust Scholars in support of neither party. With him on the 

brief was Mary Jean Moltenbrey.

Laurence M. Sandell was on the brief for amicus curiae 

Cinémoi North America in support of appellant United States 

of America.
2

Jeffrey A. Lamken was on the brief for amici curiae 

Professor William P. Rogerson, et al. in support of appellant.

Jonathan W. Cuneo, Joel Davidow, and Gene Kimmelman

were on the brief for amici curiae American Antitrust Institute, 

et al. in support of appellant.

Jonathan E. Taylor was on the brief for amicus curiae

Open Markets Institute in support of plaintiff-appellant and 

vacatur.

Peter D. Keisler argued the cause for appellees. With him 

on the brief were Joseph R. Guerra, Richard D. Klingler, 

Jonathan E. Neuchterlein, C. Frederick Beckner III, Kathleen 

Moriarty Mueller, William R. Drexel, Daniel M. Petrocelli, M. 

Randall Oppenheimer, Jonathan D. Hacker, Katrina M. 

Robson, and David L. Lawson. Aaron M. Panner entered an 

appearance.

Andrew J. Pincus argued the cause for amici curiae 37 

Economists, Antitrust Scholars, and Former Government 

Antitrust Officials in support of appellees. With him on the 

brief were Mark W. Ryan and Michael B. Wimberly.

Brad D. Schimel, Attorney General, Office of the Attorney 

General for the State of Wisconsin, Misha Tseytlin, Solicitor 

General, Jeff Landry, Attorney General, Office of the Attorney 

General for the State of Louisiana, Elizabeth Baker Murrill, 

Solicitor General, Hector Balderas, Attorney General, Office 

of the Attorney General for the State of New Mexico, Tania 

Maestas, Chief Deputy Attorney General, Mike Hunter, 

Attorney General, Office of the Attorney General for the State 

of Oklahoma, Mithun Mansinghani, Solicitor General, Steve 

Marshall, Attorney General, Office of the Attorney General for 
3

the State of Alabama, Robert Tambling, Assistant Attorney 

General, Christopher M. Carr, Attorney General, Office of the 

Attorney General for the State of Georgia, Andrew A. Pinson, 

Solicitor General, Andy Beshear, Attorney General, Office of 

the Attorney General for the Commonwealth of Kentucky, 

Sean D. Reyes, Attorney General, Office of the Attorney 

General for the State of Utah, Tyler R. Green, Solicitor 

General, Peter F. Kilmartin, Attorney General, Office of the 

Attorney General for the State of Rhode Island, Michael W. 

Field, Assistant Attorney General, Alan Wilson, Attorney 

General, Office of the Attorney General for the State of South 

Carolina, and James Emory Smith, Jr., Deputy Solicitor 

General, were on the bipartisan brief for amici curiae the States 

of Wisconsin, et al. in support of defendants-appellees.

Donald B. Verrilli, Jr., Justin P. Raphael, Peter C. 

Tolsdorf, Steven P. Lehotsky, and Daryl Joseffer were on the 

brief for amici curiae The Chamber of Commerce of the United 

States of America, et al. in support of defendants-appellees.

Thomas M. Johnson, Jr., General Counsel, Federal 

Communications Commission, David M. Gossett, Deputy 

General Counsel, Richard K. Welch, Deputy Associate General 

Counsel, and James M. Carr, Counsel, were on the brief for 

amicus curiae Federal Communications Commission in 

support of neither party.

Bruce D. Brown, Katie Townsend, and Gabriel Rottman

were on the brief for amicus curiae The Reporters Committee

For Freedom of the Press in support of neither party.

Before: ROGERS and WILKINS, Circuit Judges, and 

SENTELLE, Senior Circuit Judge.

Opinion for the court filed by Circuit Judge ROGERS.
4

ROGERS, Circuit Judge: On October 22, 2016, AT&T Inc. 

announced a proposed merger with Time Warner Inc. The 

government sued to enjoin this vertical merger under Section 7 

of the Clayton Act, 15 U.S.C. § 18, and now appeals the denial 

of its request for a permanent injunction. United States v. 

AT&T Inc., 310 F. Supp. 3d 161, 254 (D.D.C. 2018). Although

it pursued three theories of antitrust violation in the district 

court, the government on appeal challenges only the district 

court’s findings on its increased leverage theory whereby costs 

for Turner Broadcasting System’s content would increase after 

the merger, principally through threats of long-term 

“blackouts” during affiliate negotiations.

At trial, the government presented expert opinion on the

likely anticompetitive effects of the proposed merger on the 

video programming and distribution industry as forecast by

economic principles and a quantitative model. It also presented 

statements by the defendants in administrative proceedings

about the anticompetitive effects of a proposed vertical merger

in the industry seven years earlier. The defendants responded 

with an expert’s analysis of real-world data for prior vertical 

mergers in the industry that showed “no statistically significant 

effect on content prices.” The government offered no 

comparable analysis of data and its expert opinion and 

modeling predicting such increases failed to take into account

Turner Broadcasting System’s post-litigation irrevocable 

offers of no-blackout arbitration agreements, which a

government expert acknowledged would require a new model. 

Evidence also indicated that the industry had become dynamic 

in recent years with the emergence, for example, of Netflix and 

Hulu. In this evidentiary context, the government’s objections

that the district court misunderstood and misapplied economic 

principles and clearly erred in rejecting the quantitative model

are unpersuasive. Accordingly, we affirm.
5

I.

Section 7 of the Clayton Act prohibits mergers “where in 

any line of commerce or in any activity affecting commerce in 

any section of the country, the effect of such acquisition may 

be substantially to lessen competition.” 15 U.S.C. § 18

(emphasis added). Congress acted out of concern with 

“probabilities, not certainties” inasmuch as “statutes existed 

[only] for dealing with clear-cut menaces to competition . . . .

Mergers with a probable anticompetitive effect were to be 

proscribed by [the Clayton Act].” Brown Shoe Co. v. United 

States, 370 U.S. 294, 323 (1962). It left to the courts the 

difficult task of assessing probabilities in the commercial 

marketplace in the interest of “halting ‘incipient monopolies 

and trade restraints outside the scope of the Sherman Act,’”

Rothery Storage & Van Co. v. Atlas Van Lines, Inc., 792 F.2d 

210, 220 (D.C. Cir. 1986) (quoting Brown Shoe, 370 U.S. at 

318 n.32). Therefore, Section 7 “applies a much more stringent 

test than does the rule-of-reason analysis under section 1 of the 

Sherman Act.” Id. Although Section 7 requires more than a 

“mere possibility” of competitive harm, it does not require 

proof of certain harm. Brown Shoe, 370 U.S. at 323 n.39. 

Instead, the government must show that the proposed merger is 

likely to substantially lessen competition, which encompasses 

a concept of “reasonable probability.” Id.

Neither the government nor the defendants challenge

application of the burden-shifting framework in United States 

v. Baker Hughes, 908 F.2d 981, 982–83 (D.C. Cir. 1990), for 

horizontal mergers that the district court applied to consider the

effect of the proposed vertical merger of AT&T and Time 

Warner on competition. Under this framework, the 

government must first establish a prima facie case that the 

merger is likely to substantially lessen competition in the 

relevant market. United States v. Anthem, 855 F.3d 345, 349 
6

(D.C. Cir. 2017). But unlike horizontal mergers, the 

government cannot use a short cut to establish a presumption 

of anticompetitive effect through statistics about the change in 

market concentration, because vertical mergers produce no 

immediate change in the relevant market share. See Dept. of 

Justice & Fed. Trade Comm’n, Non-Horizontal Merger 

Guidelines § 4.0 (June 14, 1984) (“1984 Non-Horizontal 

Merger Guidelines”). Instead, the government must make a 

“fact-specific” showing that the proposed merger is “likely to 

be anticompetitive.” Joint Statement on the Burden of Proof at 

Trial at 3–4. Once the prima facie case is established, the 

burden shifts to the defendant to present evidence that the 

prima facie case “inaccurately predicts the relevant 

transaction’s probable effect on future competition,” Anthem, 

855 F.3d at 349 (quoting Baker Hughes, 908 F.2d at 991), or to 

“sufficiently discredit” the evidence underlying the prima facie

case, id. Upon such rebuttal, “the burden of producing 

additional evidence of anticompetitive effects shifts to the 

government, and merges with the ultimate burden of 

persuasion, which remains with the government at all times.” 

Baker Hughes, 908 F.2d at 983.

The relevant market definition is also undisputed by the 

government and the defendants. (For ease of reference, we 

refer hereinafter to defendants AT&T Inc., Direct TV Group 

Holdings, LLC, and Time Warner Inc. as “AT&T.”) The 

district court accepted the government’s proposal that the 

product market is the market for multichannel video 

distribution. Although this market definition excludes 

distributors of only on-demand content, such as Netflix and

Hulu, the district court considered the impact of the increasing

presence of these distributors on the multichannel video 

programming and distribution industry. AT&T, 310 F. Supp. 

3d at 196–97. The district court also accepted the 

government’s proposed geographic market, which included 
7

over 1,100 local multichannel video distribution markets. Id. 

at 197. The government did not rely on any particular market 

for enjoining the proposed merger; one of its experts 

aggregated the alleged harms in the local markets to derive a 

total measure of nationwide economic harm. See Proposed 

Findings of Fact of the United States 13 (May 8, 2018).

As the government has presented its challenges to the 

district court’s denial of a permanent injunction, the question 

for this court is whether the district court’s factual findings are 

clearly erroneous. FED. R. CIV. P. 52(a); see FTC v. H.J. Heinz

Co., 246 F.3d 708, 713 (D.C. Cir. 2001). This is a deferential 

standard. Zenith Radio Corp. v. Hazeltine Research, Inc., 395 

U.S. 100, 123 (1969). “A finding is ‘clearly erroneous’ when 

although there is evidence to support it, the reviewing court on 

the entire evidence is left with the definite and firm conviction 

that a mistake has been committed.” United States v. Gypsum 

Co., 333 U.S. 364, 395 (1948). Findings that are plausible in 

light of the entire record are not clearly erroneous, Anderson v. 

City of Bessemer City, N.C., 470 U.S. 564, 575, 577 (1985), so

“[w]here there are two permissible views of the evidence, the 

factfinder’s choice between them cannot be clearly erroneous,” 

id. at 574 (citing United States v. Yellow Cab Co., 338 U.S. 

338, 342 (1949)); see also Cooper v. Harris, 137 S. Ct. 1455, 

1465 (2017). A finding may be clearly erroneous when it is

illogical or implausible, Anderson, 470 U.S. at 577, rests on 

internally inconsistent reasoning, Heinz, 246 F.3d at 718, or 

contains errors of economic logic, FTC v. Advocate Health 

Care Network, 841 F.3d 460, 464 (7th Cir. 2016).

The government contends that it has made the requisite

showing of error because the district court’s conclusion it had 

failed to meet its burden of proof “rests on two fundamental 

errors: the district court discarded the economics of bargaining,

and the district court failed to apply the foundational principle 
8

of corporate-wide profit maximization.” Appellant Br. 29, 37–

38. Further, the government contends that the district court 

used internally inconsistent logic when evaluating industry 

evidence and clearly erred in rejecting its expert’s quantitative 

model of harm.

In Part II, we provide an overview of the video 

programming and distribution industry. Then, as relevant to 

the issues on appeal, we summarize the evidence before the 

district court and its findings. In Part III, we address the 

government’s challenges to the district court’s findings.

II.

A.

The video programming and distribution industry 

traditionally operates in a three-stage chain of production. 

Studios or networks create content. Then, programmers 

package content into networks and license those networks to 

video distributors. Finally, distributors sell bundles of 

networks to subscribers. For example, a studio may create a 

television show and sell it to Turner Broadcasting System 

(“Turner Broadcasting”), a programmer, which would package 

that television show into one of its networks, such as CNN or 

TNT. Turner Broadcasting would then license its networks to 

distributors, such as DirecTV or Comcast.

Programmers license their content to distributors through 

affiliate agreements, and distributors pay “affiliate fees” to 

programmers. Programmers and distributors engage in what 

are oftentimes referred to as “affiliate negotiations,” which, 

according to evidence before the district court, can be lengthy 

and complicated. If a programmer and a distributor fail to 

reach an agreement, then the distributor will lose the rights to 

display the programmer’s content to its customers. This 
9

situation, known as a “blackout” or “going dark,” is generally 

costly for both the programmer, which loses affiliate fee 

revenues, and the distributor, which risks losing subscribers. 

Therefore, blackouts rarely occur, and long-term blackouts are 

especially rare. The evidence indicated, however, that

programmers and distributors often threaten blackouts as a 

negotiating tactic, and both may perform “go dark” analyses to 

estimate the potential impact of a blackout in preparation for 

negotiations.

The evidence before the district court also showed that the 

industry has been changing in recent years. Multichannel video 

programming distributors (“MVPDs”) offer live television 

content as well as libraries of licensed content “on demand” to 

subscribers. So-called “traditional” MVPDs distribute 

channels to subscribers on cable or by satellite. Recently, 

“virtual” MVPDs have also emerged. They distribute live 

videos and on-demand videos to subscribers over the internet 

and compete with traditional MVPDs for subscribers. Virtual 

MVPDs, such as DirecTV Now and YouTube TV, have been 

gaining market share, the evidence showed, because they are 

easy to use and low-cost, often because they offer subscribers 

smaller packages of channels, known as “skinny bundles.”

In addition, subscription video on demand services 

(“SVODs”) have also emerged on the market. SVODs, such as 

Netflix, do not offer live video content but have large libraries 

of content that a viewer may access on demand. SVODs also 

offer low-cost subscription plans and have been gaining market 

share recently. Increasingly, cable customers are “cutting the 

cord” and terminating MVPD service altogether. Often these 

customers do not exit the entertainment field altogether, but 

instead switch to SVODs for entertainment service.
10

Leading SVODs are vertically integrated, which means 

they create content and also distribute it. Traditional MVPDs 

typically are not vertically integrated with programmers. In 

2009, however, Comcast Corporation (“Comcast”) (a 

distributor and the largest cable company in the United States) 

announced a $30 billion merger with NBC Universal, Inc.

(“NBCU”) (a content creator and programmer), whereby it 

would control popular video programming that included the 

NBC broadcast network and the cable networks of NBC 

Universal, Inc. The government sued to permanently enjoin 

the merger under Section 7, alleging that Comcast’s “majority 

control of highly valued video programming . . . would prevent 

rival video-distribution companies from competing against the 

post-merger entity.” United States v. Comcast, 808 F. Supp. 

2d 145, 147 (D.D.C. 2011). The district court, with the 

defendants’ agreement and at the government’s urging, 

allowed the merger to proceed subject to certain remedies for 

the alleged anticompetitive conduct post-merger, including 

remedies ordered in a related proceeding before the Federal 

Communications Commission (“FCC”). Id. One remedy in 

the Comcast-NBCU merger was an agreement by the 

defendants to submit, at a distributor’s option, to “baseball 

style” arbitration — in which each side makes a final offer and 

the arbitrator chooses between them — if parties did not reach 

a renewal agreement. During the arbitration, the distributor 

would retain access to NBC content, thereby mitigating 

concerns that Comcast-NBCU may withhold NBC 

programming during negotiations in order to benefit Comcast’s 

distribution subscriptions. Comcast-NBCU currently operates 

as a “vertically integrated” programmer and distributor.

Now the government has again sued to halt a proposed 

vertical merger of a programmer and a distributor in the same 

industry. On October 22, 2016, AT&T Inc. announced its plan 

to acquire Time Warner Inc. (“Time Warner”) as part of a $108 
11

billion transaction. AT&T Inc. is a distribution company with 

two traditional MVPD products: DirecTV and U-verse. 

DirecTV transmits programming over satellite, while U-verse 

transmits programming over cable. Time Warner, by contrast, 

is a content creator and programmer and has three units: 

Warner Bros., Turner Broadcasting, and Home Box Office 

Programming (“HBO”). Warner Bros. creates movies, 

television shows, and other video programs. Turner 

Broadcasting packages content into various networks, such as 

TNT, TBS, and CNN, and licenses its networks to third-party 

MVPDs. HBO is a “premium” network that provides ondemand content to subscribers either directly through HBO 

Now or through licenses with third-party distributors. The 

merged firm would operate both AT&T MVPDs (DirecTV and 

U-verse) and Turner Broadcasting networks (which license to 

other MVPDs). The government alleged that “the newly 

combined firm likely would . . . use its control of Time 

Warner’s popular programming as a weapon to harm 

competition.” Compl. 2.

A week after the government filed suit to stop the proposed 

merger, Turner Broadcasting sent letters to approximately 

1,000 distributors “irrevocably offering” to engage in “baseball 

style” arbitration at any time within a seven-year period, 

subject to certain conditions not relevant here. According to 

President of Turner Content Distribution Richard Warren, the 

offer of arbitration agreements was designed to “address the 

government’s concern that as a result of being . . . commonly 

owned by AT&T, [Turner Broadcasting] would have an 

incentive to drive prices higher and go dark with [its] 

affiliates,” Tr. 1182 (April 3, 2018). In the event of a failure 

to agree on renewal terms, Turner Broadcasting agreed that the 

distributor would have the right to continue carrying Turner 

networks pending arbitration, subject to the same terms and 

conditions in the distributor’s existing contract.
12

B.

The government’s increased leverage theory is that “by 

combining Time Warner’s programming and DirecTV’s 

distribution, the merger would give Time Warner increased 

bargaining leverage in negotiations with rival distributors, 

leading to higher, supracompetitive prices for millions of 

consumers.” Appellant Br. 33. Under this theory, Turner

Broadcasting’s bargaining position in affiliate negotiations will 

change after the merger due to its relationship with AT&T

because the cost of a blackout will be lower. Prior to the 

merger, if Turner Broadcasting failed to reach a deal with a 

distributor and engaged in a long-term blackout, then it would 

lose affiliate fees and advertising revenues. After the merger, 

some costs of a blackout would be offset because some 

customers would leave the rival distributor due to Turner 

Broadcasting’s blackout and a portion of those customers 

would switch to AT&T distributor services. The merged 

AT&T-Turner Broadcasting entity would earn a profit margin 

on these new customers. Because Turner Broadcasting would 

make a profit from switched customers, the cost of a long-term 

blackout would decrease after the merger and thereby give it

increased bargaining leverage during affiliate negotiations with 

rival distributors sufficient to enable it to secure higher affiliate 

fees from distributors, which would result in higher prices for

consumers.

To support this theory of competitive harm, the 

government presented evidence purporting to show the realworld effect of the proposed merger. Specifically, it introduced

statements in prior FCC filings by AT&T and DirecTV that

vertical integration provides an incentive to increase prices and 

poses a threat to competition. Various internal documents of 

the defendants were to the same effect. Third-party 
13

competitors, such as cable distributors, testified that the merger 

would increase Turner Broadcasting’s bargaining leverage.

The government also presented the expert opinion of 

Professor Carl Shapiro on the likely anticompetitive effect of 

the proposed merger. He opined, based on the economic theory 

of bargaining — here, the Nash bargaining theory — that

Turner Broadcasting’s bargaining leverage would increase 

after the merger because the cost of a long-term blackout would 

decrease. His quantitative model predicted net price increases 

to consumers. Specifically, his model predicted increases in 

fees paid by rival distributors for Turner Broadcasting content 

and cost savings for AT&T through elimination of double 

marginalization (“EDM”). The fee increases for rival

distributors were based on the expected benefit to AT&T of a 

Turner Broadcasting blackout after the merger. Professor 

Shapiro determined the extent to which rival distributors and 

AT&T would pass on their respective cost increases and cost 

decreases to consumers. His model predicted: (1) an annual fee 

increase of $587 million for rival distributors to license Turner 

Broadcasting content, and cost savings of $352 million for 

AT&T; and (2) an annual net increase of $286 million in costs

passed on to consumers in 2016, with increases in future years.

AT&T responded by pointing to testimony of executives’ 

past experience in affiliate negotiations, and presenting 

testimony by its experts critiquing Professor Shapiro’s opinion 

and model. It purported to show through its own experts that 

the government’s prima facie case inaccurately predicted the 

proposed merger’s probable effect on competition. Professor

Dennis Carlton’s econometric analysis (also known as a 

regression analysis, Tr. 2473 (April 12, 2018)), showed that 

prior instances of vertical integration in the MVPD market had 

not had a “statistically significant effect on content prices,” id. 

at 2477, pointing to data on the Comcast-NBCU merger in 
14

2011 as well as prior vertical integration between News Corp.-

DirecTV and Time Warner Cable-Time Warner Inc., which 

split in 2008 and 2009, respectively. Professor Carlton and 

Professor Peter Rossi critiqued the “inputs” used by Professor 

Shapiro in his quantitative model, opining for instance that 

values he used for subscriber loss rate and diversion rate were 

not calculated through reliable methods. Professor Carlton also 

opined that Professor Shapiro’s quantitative model 

overestimated how quickly harm would occur because it failed

to consider existing long-term contracts.

Professor Shapiro, in turn, critiqued Professor Carlton’s 

econometric analysis as comparing different types of vertical 

mergers. Regarding the “inputs” to his quantitative model,

Professor Shapiro conceded that he was unaware the subscriber 

loss rate percentage he used (from a consultant report for 

Charter Communications, Inc.) had been changed after the 

report was presented to Charter executives. He also 

acknowledged that he had not considered the effects of the 

arbitration agreements offered by Turner Broadcasting and that 

to do so would require preparation of a new model. Tr. 2208, 

2325 (Apr. 11, 2018).

The district court acknowledged the uncertainty regarding 

the measure of proof for the government’s burden because

Section 7 does not require proof of certain harm. AT&T, 310 

F. Supp. 3d at 189–90 n.16. The government and AT&T had

used various phrases to describe the government’s burden, 

including that it must show an “appreciable danger” of 

competitive harm, or that it must show that harm is “likely” or 

“reasonably probable.” Id. The district court concluded that it 

need not articulate the differences between these phrases 

because “even assuming the ‘reasonable probability’ or 

‘appreciable danger’ formulations govern here . . . [its]

conclusions regarding the [g]overnment’s failure of proof 
15

would remain unchanged.” Id. Acknowledging also the lack 

of precedent and the complexity in establishing the correct 

approach in a Section 7 challenge to a proposed vertical 

merger, the district court viewed the outcome of the litigation 

to “turn[] on whether, notwithstanding the proposed merger’s 

conceded procompetitive effects, the [g]overnment has met its 

burden of establishing, through ‘case-specific evidence,’ that 

the merger of AT&T and Time Warner, at this time and in this 

remarkably dynamic industry, is likely to substantially lessen

competition in the manner it predicts.” Id. at 194 (quoting 

Proposed Conclusions of Law of the United States ¶ 25).

Several amici urge this court to speak definitively on the 

proper legal standard for evaluating vertical mergers. See

Amicus Curiae 27 Antitrust Scholars et al. Br. 10–16; Amicus 

Curiae Chamber of Commerce et al. Br. 5–8; Amicus Curiae 

Open Markets Institute Br. 16–20. There is a dearth of modern 

judicial precedent on vertical mergers and a multiplicity of 

contemporary viewpoints about how they might optimally be 

adjudicated and enforced. See, e.g., Amicus Curiae 27 

Antitrust Scholars et al. Br. 6–16; Amicus Curiae Chamber of 

Commerce et al. Br. 17–24. The government’s guidelines for 

non-horizontal mergers were last updated in 1984, over three 

decades ago. See 1984 Non-Horizontal Merger Guidelines. 

But there is no need to opine on the proper legal standards for 

evaluating vertical mergers because, on appeal, neither party 

challenges the legal standards the district court applied, and no 

error is apparent in the district court’s choices, see Amicus 

Curiae Open Markets Institute Br. 18–19 (citing cases). See 

generally Narragansett Indian Tribe v. Nat. Indian Gaming 

Com’n, 158 F.3d 1335, 1338 (D.C. Cir. 1998); Michel v. 

Anderson, 14 F.3d 623, 625 (D.C. Cir. 1994).

The district court found that the government had “failed to 

clear the first hurdle of showing that the proposed merger is 
16

likely to increase Turner [Broadcasting]’s bargaining leverage 

in affiliate negotiations.” AT&T, 310 F. Supp. 3d at 199. 

Although acknowledging, as Professor Shapiro had opined,

that the Nash bargaining theory could apply in the context of 

affiliate fee negotiations, the district court found more 

probative the real-world evidence offered by AT&T than that 

offered by the government. The econometric analysis of 

AT&T’s expert had examined real-world data from prior 

instances of vertical integration in the video programming and 

distribution industry and concluded that “the bulk of the results 

show no significant results at all, but many do show a decrease 

in content prices.” Id. at 216 (quoting Prof. Carlton, Tr. 2477

(April 12, 2018)); see id. at 207, 218. The district court also 

credited the testimony of several industry executives — e.g., 

Madison Bond, lead negotiator for NBCU, and Coleman 

Breland and Richard Warren, lead negotiators for Turner 

Broadcasting — that vertical integration had not affected their 

affiliate negotiations in the past. By contrast, the testimony 

from third-party competitors that the merger would increase 

Turner Broadcasting’s bargaining leverage was, the district 

court found, “speculative, based on unproven assumptions, or 

unsupported.” Id. at 214. Although Professor Shapiro’s 

opinion was that the Nash bargaining theory predicted an 

increase in Turner Broadcasting’s post-merger bargaining 

leverage, leading to an increase in affiliate fees, the district 

court found, in view of the industry’s dynamism in recent 

years, that Professor Shapiro’s opinion (by contrast with 

Professor Carlton’s) had “not been supported by sufficient realworld evidence.” Id. at 224.

Second, the district court found that Professor Shapiro’s 

quantitative model, which estimated the proposed merger 

would result in future increases in consumer prices, lacked 

sufficient reliability and factual credibility to generate 

probative predictions of future competitive harm. Relying on 
17

critiques by Professor Carlton and Professor Rossi, the district 

court found errors in the model “inputs,” for example, the value 

used for subscriber loss rate was not calculated through a 

reliable method. Neither the model nor Professor Shapiro’s 

opinion accounted for the effect of the irrevocably-offered 

arbitration agreements, which the district court stated would 

have “real world effects” on negotiations and characterized “as 

extra icing on a cake already frosted,” id. at 241 n.51, i.e., 

another reason the government had not met its first-level 

burden of proof.

The district court therefore concluded that the government 

failed to present persuasive evidence that Turner

Broadcasting’s bargaining leverage would “materially 

increase” as a result of the merger, id. at 204, or that the merger 

would lead to “any raised costs” for rival distributors or 

consumers, id. at 241 (emphasis in original). It therefore did 

not address the balancing analysis offered by Professor 

Shapiro’s quantitative model, nor the question whether any 

increased costs would result in a substantial lessening of 

competition.

III.

On appeal, the government contends that the district court

court (1) misapplied economic principles, (2) used internally 

inconsistent logic when evaluating industry evidence, and 

(3) clearly erred in rejecting Professor Shapiro’s quantitative 

model. Undoubtedly the district court made some problematic 

statements, which the government identifies and this court 

cannot ignore. And in the probabilistic Section 7 world,

uncertainty exists about the future real-world impact of the

proposed merger on Turner Broadcasting’s post-merger 

leverage. See Brown Shoe, 370 U.S. at 323. At this point, 

however, the issue is whether the district court clearly erred in 
18

finding that the government failed to clear the first hurdle in 

meeting its burden of showing that the proposed merger is 

likely to increase Turner Broadcasting’s bargaining leverage.

(1) Application of economic principles. The government 

contends that in evaluating the evidence in support of its 

increased leverage theory, the district court erroneously 

discarded or otherwise misapplied two economic principles —

the Nash bargaining theory and corporate-wide profit 

maximization.

(a) Nash bargaining theory. The Nash bargaining 

theory is used to analyze two-party bargaining situations,

specifically where both parties are ultimately better off by 

reaching an agreement. John F. Nash, Jr., The Bargaining 

Problem, 18 Econometrica 155 (1950). The theory posits that 

an important factor affecting the ultimate agreement is each 

party’s relative loss in the event the parties fail to agree: when 

a party would have a greater loss from failing to reach an 

agreement, the other party has increased bargaining leverage. 

Tr. 2193–94 (Shapiro, April 11, 2018). In other words, the 

relative loss for each party affects bargaining leverage and 

when a party has more bargaining leverage, that party is more 

likely to achieve a favorable price in the negotiation.

The district court had to determine whether the economic 

theory applied to the particular market by considering evidence 

about the “structure, history, and probable future” of the video 

programming and distribution industry. United States v. 

General Dynamics, 415 U.S. 486, 498 (1974) (internal 

quotation marks omitted); see also Brown Shoe, 370 U.S. at 

321–22 & n.38. As one circuit has put it, “[t]he Nash theorem

arrives at a result that follows from a certain set of premises,”

while the theory “asserts nothing about what situations in the 

real world fit those premises.” VirnetX, Inc., v. Cisco Sys. Inc., 
19

767 F.3d 1308, 1332 (Fed. Cir. 2014). The district court 

concluded that the government presented insufficient realworld evidence to support the prediction under the Nash 

bargaining theory of a material increase of Turner

Broadcasting’s post-merger bargaining leverage in affiliate 

negotiations by reason of less-costly long-term blackouts. The

government’s real-world evidence consisted of statements by 

AT&T Inc. and DirecTV in FCC regulatory filings that vertical 

integration, such as in the proposed Comcast-NBCU merger,

can give distributors an incentive to charge higher affiliate fees

and expert opinion and a quantitative model prepared by 

Professor Shapiro. The expert opinion and model were subject 

to deficiencies identified by AT&T’s experts, some of which 

Professor Shapiro conceded. By contrast, AT&T’s expert’s 

econometric analysis of real-world data showed that content

pricing in prior vertical mergers in the industry had not

increased as the Nash bargaining theory and the model 

predicted. Given evidence the industry was now “remarkably 

dynamic,” the district court credited CEO testimony about the 

null effect of vertical integration on affiliate negotiations. 

AT&T, 310 F. Supp. 3d at 194.

In other words, the record shows that the district court 

accepted the Nash bargaining theory as an economic principle 

generally but rejected its specific prediction in light of the 

evidence that the district court credited. The district court 

explained that its conclusion

does not turn on defendants’ protestations that the 

theory is ‘preposterous,’ ‘ridiculous,’ or ‘absurd.’ . . .

[but] instead on [its] evaluation of the shortcomings in 

the proffered third-party competitor testimony, . . . the 

testimony about the complex nature of these 

negotiations and the low likelihood of a long-term 

Turner [Broadcasting] blackout, . . . and the fact that
20

real-world pricing data and experiences of individuals 

who have negotiated on behalf of vertically integrated 

entities all fail to support the [g]overnment’s 

increased-leverage theory.

Id. at 207 (internal citations omitted).

More concerning is the government’s contention that the 

district court misapplied the Nash bargaining theory in a 

manner that negated its acceptance of the economics of 

bargaining by erroneously focusing on whether long-term 

blackouts would actually occur after the merger, rather than on 

the changes in stakes of such a blackout for Turner

Broadcasting. The government points to the district court’s 

statements that Professor Shapiro’s testimony was undermined 

by evidence that “a blackout would be infeasible.” AT&T, 310 

F. Supp. 3d at 223. The district court also stated that “there has 

never been, and is likely never going to be, an actual long-term 

blackout of Turner [Broadcasting] content.” Id. The district 

court noted that “Turner [Broadcasting] would not be willing 

to accept the ‘catastrophic’ affiliate fee and advertising losses 

associated with a long-term blackout.” Id. at 223–24 n.35

(emphasis in original).

The question posed by the Nash bargaining theory is

whether Turner Broadcasting would be more favorably 

positioned after the merger to assert its leverage in affiliate 

negotiations whereby the cost of its content would increase. 

Considered in isolation, the district court’s statements could be 

viewed as addressing the wrong question. Considered as part 

of the district court’s analysis of whether the stakes for Turner

Broadcasting would change and if so by how much, the

statements address whether the threat of long-term blackouts

would be credible, as posited by the government’s increased 

leverage theory. The district court found that after the merger 
21

the stakes for Turner Broadcasting would change only slightly,

so its threat of a long-term blackout “will only be somewhat 

less incredible.” Id. at 224 (quoting Professor Shapiro); see 

generally Brown Shoe, 370 U.S. at 328–29. Recognizing 

Professor Shapiro applied the Nash bargaining theory in 

opining that “if a party’s alternative to striking a deal improves, 

that party is more willing and able to push harder for a better 

deal because it faces less downside risk if the deal implodes,”

AT&T, 310 F. Supp. 3d at 223 n.35, the district court rejected

the assumption underlying the government’s theory that Turner

Broadcasting would gain increased leverage from this slight 

change in stakes. It relied on testimony that the small change 

in bargaining position from a less costly blackout would not 

cause Turner Broadcasting to take more risks, specifically

noting the Time Warner CEO’s analogy of the cost difference 

between having a 1,000-pound weight fall on Turner

Broadcasting and a 950-pound weight fall on it — the 

difference being unlikely to change the risk Turner 

Broadcasting would be willing to take. Id. at 224 n.36 (Jeff 

Bewkes, Time Warner CEO, Tr. 3121 (April 18, 2018)).

The district court’s statements identified by the 

government, then, do not indicate that the district court 

misunderstood or misapplied the Nash bargaining theory but 

rather, upon considering whether in the context of a dynamic 

market where a similar merger had not resulted in a

“statistically significant increase in content costs,” the district 

court concluded that the theory inaccurately predicted the postmerger increase in content costs during affiliate negotiations. 

Of course, it was not enough for the government merely to 

prove that after the merger the costs of a long-term blackout 

would change for Turner Broadcasting. Its theory is that

Turner Broadcasting’s bargaining leverage would increase 

sufficiently to enable it to charge higher prices for its content. 
22

The district court’s focus on the slight change in the cost of a

long-term blackout in finding Turner Broadcasting’s 

bargaining leverage would not meaningfully change aligns 

with determining whether the government’s evidence 

established that a change in the post-merger stakes for Turner

Broadcasting would likely allow it to extract higher prices 

during affiliate negotiations. The district court reasoned that 

because long-term blackouts are very costly and would 

therefore be infeasible for Turner Broadcasting even after the 

merger, there was insufficient evidence that “a post-merger 

Turner [Broadcasting] would, or even could, drive up prices by 

threatening distributors with long-term blackouts.” Id. at 223 

(emphasis in original). In finding the government failed to 

“prov[e] that Turner [Broadcasting]’s post-merger negotiating 

position would materially increase based on its ownership by 

AT&T,” id. at 204, the district court reached a fact-specific 

conclusion based on real-world evidence that, contrary to the 

Nash bargaining theory and government expert opinion on 

increased content costs, the post-merger cost of a long-term

blackout would not sufficiently change to enable Turner

Broadcasting to secure higher affiliate fees. Witnesses such as 

a Turner Broadcasting president Coleman Breland, AT&T 

executive John Stankey, and Time Warner CEO Jeff Bewkes, 

whom the district court credited, testified that after the merger 

blackouts would remain too costly to risk and that any change 

in that cost would not affect negotiations as the government’s 

theory predicted.

Not to be overlooked, the district court also credited the 

efficacy of Turner Broadcasting’s “irrevocable” offer of 

arbitration agreements with a no-blackout guarantee. It 

characterized the no-blackout agreements as “extra icing on a 

cake already frosted.” AT&T, 310 F. Supp. 3d at 241 n.51. In 

crediting Professor Carlton’s econometric analysis, the district 

court explained that it was appropriate to consider the analysis 
23

of the Comcast-NBCU merger because the Comcast-NBCU 

merger was similar to the proposed merger — a vertical merger 

in the video programming and distribution industry. There the 

government had recognized, “‘especially in vertical mergers,

that conduct remedies,’ such as the ones proposed [in the 

Comcast case], ‘can be a very useful tool to address the 

competitive problems while preserving competition and 

allowing efficiencies’ that ‘may result from the transaction.’” 

AT&T, 310 F. Supp. 3d at 169 n.3 (quoting Hr’g Tr. 15:16–21 

(July 27, 2011), Comcast, 808 F. Supp. 2d 145). Like there, 

the district court concluded the Turner arbitration agreements 

would have “real-world effect.” Id. at 217–18 n.30.

The post-merger arbitration agreements would prevent the 

blackout of Turner Broadcasting content while arbitration is 

pending. AT&T, 310 F. Supp. 3d at 217. As mentioned, Turner 

Broadcasting “irrevocably offer[ed]” approximately 1,000 

distributors agreements to engage in baseball style arbitration 

in the event the parties fail to reach a renewal agreement, and 

the offered agreement guarantees no blackout of Turner 

Broadcasting content once arbitration is invoked. AT&T’s 

counsel represented the no-blackout commitment is “legally 

enforceable,” Oral Arg. Tr. 53:7–8, and AT&T “will honor” 

the arbitration agreement offers, Oral Arg. Tr. 55:2, 61:22–25, 

62:1–10. Consequently, the government’s challenges to the 

district court’s treatment of its economic theories becomes 

largely irrelevant, at least during the seven-year period. 

Counsel for Amici Curiae 27 Antitrust Scholars explained that

arbitration agreements make the Nash bargaining model

premised on two-party negotiations “substantially more 

complicated,” Oral Arg. Tr. 50:10, and Professor Shapiro 

acknowledged that taking the arbitration agreements into 

account would require “a completely different model.” Tr. 

2325 (April 11, 2018).
24

Further, the government’s contention that the district court 

failed to properly weigh the probative force of the defendants’ 

statements in FCC filings is unavailing. During licensing and 

rulemaking proceedings before the FCC, DirecTV stated “a 

standard economic model” (i.e., the Nash bargaining theory) 

predicts that the proposed Comcast-NBCU merger “would 

significantly increase the prices other MVPDs pay for NBCU 

programming,” and two years later stated, similar to AT&T 

Inc. comments, that “vertically integrated MVPDs have an 

incentive to charge higher license fees for programming that is 

particularly effective in gaining MVPD subscribers than do 

non-vertically integrated MVPDs.”1

 The district court took 

judicial notice of these statements pursuant to Federal Rule of 

Evidence 201, explaining it was “hesitant” to assign significant 

evidentiary value to the prior regulatory filings because AT&T 

and DirecTV made the statements acting as competitors whose 

positions would be affected by FCC review. AT&T, 310 F. 

Supp. 3d at 206. FCC rules require all regulated parties —

whether applicants seeking to transfer licenses in connection 

with a proposed merger or competitors who oppose the merger 

— to provide only “[t]ruthful and accurate statements to the 

Commission” in adjudicatory proceedings. 47 C.F.R. § 1.17; 

see FCC Amicus Curiae Br. 3. The statements were admissible 

as party admissions pursuant to Federal Rule of Evidence 

 1 In re Matter of Applications of Comcast Corp., General Electric 

Co. and NBC Universal, Inc., for Consent to Assign Licenses or 

Transfer Control of Licensees, MB Docket No. 10-56, Reply 

Comments of DirecTV, Inc., 4 (Aug. 19, 2010); In re Matter of 

Revision of the Commission’s Program Access Rules et al., MB 

Docket No. 12-68 et al., Comments of DirecTV, LLC 19 (June 22, 

2012); In re Matter of Revision of the Commission’s Program Access 

Rules et al., MB Docket No. 12-68 et al., Comments of AT&T Inc. 

22 (June 22, 2012); In re Matter of Revision of the Commission’s 

Program Access Rules et al., MB Docket No. 12-68 et al., Reply 

Comments of AT&T Inc. 2 (July 23, 2012).
25

801(d)(2), see Talavera v. Shah, 638 F.3d 303, 309 (D.C. Cir. 

2011), yet even as admissions, the district court had to evaluate

their persuasive force in the circumstances before it, and the 

district court did. See VirnetX, 767 F.3d at 1332; cf. General 

Dynamics, 415 U.S. at 498; Owens v. Republic of Sudan, 864 

F.3d 751, 790 (D.C. Cir. 2017).

The district court accepted the FCC statements as 

probative of the proposition that the Nash bargaining theory 

could apply in the context of affiliate fee negotiations. But it

concluded generic statements that vertical integration “can” 

allow an entity to gain an unfair advantage over rivals were 

“informed by the state of the market at the time . . . and the 

particular inputs to the models presented to the FCC.” AT&T, 

310 F. Supp. 3d at 206. As such the FCC statements were “not 

particularly probative of whether [the proposed merger] could 

do the same with its programming in today’s more competitive 

marketplace,” with the rising presence of virtual MVPDs and 

SVODs, like Netflix and Hulu. Id. at 206–07; see also id. at 

173. The district court also noted that many of the statements 

in the FCC regulatory filings related to whether a vertically 

integrated programmer would withhold content, which 

Professor Shapiro opined would not occur here because it 

would be profitable for the merged firm to continue to license 

Turner programming. Id. at 206; see also id. at 201; Tr. 2218, 

2293. Once the district court credited AT&T’s expert’s

opinion based on an econometric analysis that the similar 

Comcast-NBCU merger had not had a “statistically significant 

effect on content costs,” id. at 218, the district court could 

understand that the defendants’ admissions at the time of the

Comcast-NBCU merger offered little probative support for the 

government’s increased leverage theory.

Thus, even viewing the statements to the FCC as 

supportive of the government, the district court’s finding of the 
26

efficacy of Turner Broadcasting’s irrevocable offers of noblackout arbitration agreements means the merger is unlikely 

to afford Turner Broadcasting increased bargaining leverage.

(b) Corporate-wide profit maximization. Still, the

government maintains that the reliance on past negotiation 

experience indicates that the district court misunderstood, and 

failed to apply, the principle of corporate-wide profit 

maximization by treating the principle as a question of fact, 

when “[t]he assumption of profit maximization is ‘crucial’ in 

predicting business behavior.” Appellant Br. 50 (citation 

omitted). This principle posits that a business with multiple 

divisions will seek to maximize its total profits. It was adopted 

as a principle of antitrust law in Copperweld Corp. v. 

Independent Tube Co., 467 U.S. 752, 771 (1984), holding that

a parent and a wholly-owned subsidiary are not capable of

conspiracy against each other under Section 1 of the Sherman 

Antitrust Act. Companies with multiple divisions must be 

viewed as a single actor, and each division will act to pursue 

the common interests of the whole corporation. See id. at 770.

The district court never cited Copperweld in its opinion, 

which is troubling given the government’s competitive harm 

theories and expert evidence based on economic principles. 

But the government’s position that the district court never 

accepted this economic principle overlooks that it did “accept 

Professor Shapiro’s (and the Government’s) argument that 

generally, ‘a firm with multiple divisions will act to maximize 

profits across them.’” AT&T, 310 F. Supp. 3d at 222 (citations 

omitted). And it ignores that if the merged firm was unable to 

exert the leverage required by the government’s increased 

leverage theory, then inquiring (as the district court did of 

Professor Shapiro) about an independent basis to conclude that 

the firm did have such leverage is not a rejection of the 

corporate-wide profit maximization principle.
27

The government maintains that the district court’s 

misapplication of the principle of corporate-wide profit 

maximization is evident from its statement the evidence 

suggests “vertically integrated corporations have previously 

determined that the best way to increase company wide profits 

is for the programming and distribution components to 

separately maximize their respective revenues.” Id. at 222–23. 

Stating that the programming and distribution divisions would 

“separately maximize their respective revenues” is contrary to 

the maximization principle to the extent separate units would 

act against the merged entity’s common interest. See 

Copperweld, 467 U.S. at 770. At this point in its opinion,

however, the district court was explaining why “that profitmaximization principle is not inconsistent with testimony that 

the identity of a programmer’s owner has not affected affiliate 

negotiations in real-world instances of vertical integration.” Id.

at 222. The district court can be viewed as conveying its 

understanding that Turner Broadcasting’s interest in spreading 

its content among distributors, not imposing long-term 

blackouts, would redound to the merged firm’s financial 

benefit, not that Turner Broadcasting would act in a manner 

contrary to the merged firm’s financial benefit. Industry

executives testified that “the identity of a programmer’s owner 

has not affected affiliate negotiations in real-world instances of 

vertical integration,” AT&T, 310 F. Supp. 3d at 222. For 

instance, the Chair of Content Distribution at NBC Universal 

testified that at Comcast-NBCU, he “never once took into 

account the interest of Comcast cable in trying to negotiate a 

carriage agreement” for NBC Universal. Tr. 2014 (Madison 

Bond, NBC Universal, Chairman of Content Distribution 

(April 10, 2018)); see also Tr. 1129 (Coleman Breland, Turner 

Broadcasting President (April 2, 2018)).
28

To the extent the government maintains this testimony is 

irreconcilable with the legal principle of corporate-wide profit 

maximization, it gives no credence to the district court’s focus

on “the best way to increase company wide profits,” referring 

to the merged firm. AT&T, 310 F. Supp. 3d at 222. In other 

words, the district court was explaining that real-world 

evidence reflected the profit-maximization principle. Even if 

the district court could have made clearer that it understood the 

principle was not a question of fact, the government does not 

explain how considering how that is done in a particular 

industry is contrary to the principle of corporate-wide profit 

maximization.

Nor is the conclusion that the merged firm would not be 

able to maximize its profits by raising prices during 

negotiations inconsistent with the principle of corporate-wide 

profit maximization. Based on the record evidence, the district 

court could plausibly understand that the proposed merger 

would not enable the merged entity to exert increased 

bargaining leverage by means of long-term blackouts and,

therefore, would not affect affiliate fee negotiations to raise 

content costs. See Anderson, 470 U.S. at 575, 577. Finding the 

distributor division’s interest would not affect Turner

Broadcasting’s negotiations with other distributors is 

consistent with the evidence that when a programmer and 

distributor merge, it is still in the best interests of the merged 

entity as a profit maximizer to license programming broadly to 

other distributors. Tr. 1129 (Breland (April 2, 2018)). That is,

instead of withholding content in an attempt to benefit the 

merged entity, programmers will seek to license their content 

to other distributors. In this instance, the district court 

concluded the principle and the real world “fit.” Moreover, 

AT&T’s view that the government’s claims of fundamental 

economic errors are ultimately irrelevant in light of Turner 
29

Broadcasting’s irrevocable arbitration/no blackout 

commitment is not implausible.

Similarly, contrary to the government’s position, the 

district court’s findings about post-merger negotiating are not 

internally inconsistent with its finding on the cost savings of 

the merger. The district court found, and the government 

agreed, that the merger would result in cost savings as a result 

of EDM. Pre-merger, both Turner Broadcasting and AT&T 

earned margins over cost before their products reached

consumers: Turner Broadcasting earned a profit margin when 

it licensed content to AT&T, and AT&T earned a profit margin 

when it sold content to consumers. Post-merger, Turner

Broadcasting would not earn a profit margin when licensing 

content to AT&T because the merged entity would eliminate 

that cost and, according to Professor Shapiro, pass on some of 

those cost savings to consumers in order to attract additional 

subscribers. For there to be EDM savings, Professor Shapiro 

opined, the merged firm must act on its unified interest across 

divisions. Thus, Turner Broadcasting, instead of maximizing 

its own revenue, would license its programming to AT&T for 

a lower price. The government did not contest AT&T’s 

position that a merged entity can maximize its own profits by 

eliminating cost even if it has no ability to secure higher prices 

from other companies during negotiations. At most, the 

government challenged the sufficiency of the evidence for

finding the merged entity would not be able to increase prices 

for Turner Broadcasting content. Reply Br. 13–14. But there 

is record evidence to support finding that AT&T would be able 

to eliminate its own costs without gaining the ability to raise 

Turner Broadcasting content prices.

(2) Inconsistent reasoning in evaluating trial testimony. 

The government further maintains that the district court used 
30

internally inconsistent reasoning when evaluating testimony 

from witnesses in the industry.

At trial, third-party distributors and executives from 

Comcast-NBCU and Time Warner testified about negotiations 

in the video programming and distribution industry. Thirdparty distributors testified about their concerns, and their 

reasons, that Turner Broadcasting would gain increased 

bargaining leverage as a result of the proposed merger. 

Comcast-NBCU and Time Warner executives testified that the 

interests of an affiliated distributor did not affect negotiations 

in their prior experiences negotiating on behalf of vertically 

integrated companies. The district court concluded that the 

third-party distributor testimony “fail[ed] to provide 

meaningful, reliable support for the [g]overnment’s increased 

leverage theory,” AT&T, 310 F. Supp. 3d at 211, while the 

executives’ testimony “undermine[d] the persuasiveness of the 

[g]overnment’s proof,” id. at 219. The district court declined 

to credit the third-party distributors’ testimony because “there 

is a threat that [third-party distributor] testimony reflects selfinterest,” id. at 211, yet dismissed the suggestion that testimony 

from the Time Warner executives should be discounted as 

potentially biased due to self-interest, id. at 219.

The government contends this reasoning was inconsistent

because self-interest existed on both sides of the issue of 

whether the proposed merger would have anticompetitive 

effects. Even so, the potential for self-interest was not the only

reason the district court found third-party distributor testimony 

of little probative value. Much of the third-party competitor 

testimony, the district court found, “consisted of speculative 

concerns,” id. at 212, and did not contain any analysis or factual 

basis to support key assumptions, such as how Turner

Broadcasting’s bargaining leverage would change and how 

many subscribers distributors would lose in a blackout. By
31

contrast, the Time Warner executives’ testimony did “not 

involve promises or speculations about the employees’ future, 

post-merger behavior” and instead recounted “what these 

executives previously experienced when working within a 

vertically integrated company.” Id. at 219. Their testimony 

was uniform among all testifying witnesses and corroborated 

by that of a Comcast-NBCU executive — a competitor of 

AT&T. To the extent the government also maintains the 

district court improperly discounted the third-party distributor 

testimony because it contradicted Professor Shapiro’s opinion 

that Turner Broadcasting would not actually withhold content 

from other distributors, any error in that regard does not 

demonstrate the district court clearly erred in discounting their 

testimony for the independent reasons that it rested on 

speculative, future predictions and lacked adequate factual 

support.

(3) Rejection of Professor Shapiro’s quantitative model.

Finally, the government contends that the district court clearly

erred in rejecting Professor Shapiro’s quantitative bargaining 

model. Specifically, that the district court erred in finding 

insufficient evidence to support Professor Shapiro’s 

calculations of fee increases for rival distributors and in finding 

no proof of any price increase to consumers.

Preliminarily, the court does not hold that quantitative 

evidence of price increase is required in order to prevail on a 

Section 7 challenge. Vertical mergers can create harms beyond 

higher prices for consumers, including decreased product 

quality and reduced innovation. See Amicus Curiae Open 

Markets Institute Br. 4–12. Indeed, the Supreme Court upheld

the Federal Trade Commission’s Section 7 challenge to Ford 

Motor Company’s proposed vertical merger with a major spark 

plug manufacturer without quantitative evidence about price 

increases. Ford Motor Co. v. United States, 405 U.S. 562, 567–
32

69, 578 (1972). Here, however, the government did not present 

its challenge to the AT&T-Time Warner merger in terms of 

creating non-price related harms in the video programming and 

distribution industry, and we turn to the government’s 

challenges to the district court’s handling of the quantitative 

evidence regarding the proposed merger’s predicted effect on 

consumer price.

Professor Shapiro presented a quantitative model that

predicted an annual net increase of $286 million being passed 

on to consumers in 2016, with increasing costs in future years. 

This figure was based on the model’s predictions of an annual 

fee increase of $587 million for rival distributors to license 

Turner Broadcasting content and cost savings of $352 million 

for AT&T. The district court accepted Professor Shapiro’s 

testimony about the $352 million cost savings from the merger. 

But it found that insufficient evidence supported the inputs and 

assumptions used to estimate the annual costs increases for 

rival distributors, crediting criticisms by Professor Carlton and 

Professor Rossi. Indeed, the district court found that the 

quantitative model as presented through Professor Shapiro’s 

opinion testimony did not provide an adequate basis to 

conclude that the merger will lead to “any” raised costs for 

distributors or consumers, “much less consumer harms that 

outweigh the conceded $350 million in annual cost savings to 

AT&T’s customers.” AT&T, 310 F. Supp. 3d at 241 (emphasis 

in original).

Whatever errors the district court may have made in 

evaluating the inputs for Professor Shapiro’s quantitative

model, the model did not take into account long-term contracts, 

which would constrain Turner Broadcasting’s ability to raise 

content prices for distributors. The district court found that the 

real-world effects of Turner Broadcasting’s existing contracts 

would be “significant” until 2021 and that it would be difficult 
33

to predict price increases farther into the future, particularly

given that the industry is continually changing and 

experiencing increasing competition. This failure, the district 

court found, resulted in overestimation of how quickly the 

harms would occur. Professor Shapiro acknowledged that 

predictions farther into the future, after the long-term contracts 

expire, are more difficult. Tr. 2317 (April 11, 2018). Neither 

Professor Shapiro’s opinion testimony nor his quantitative 

model considered the effect of the post-litigation offer of 

arbitration agreements, something he acknowledged would 

require a new model. And the video programming and 

distribution industry had experienced “ever-increasing 

competitiveness” in recent years. AT&T, 310 F. Supp. 3d at 

241. Taken together, the government’s clear-error contention 

therefore fails.

It is true that the district court misstated that the 

government had not proven that any price increases would 

“outweigh the conceded $350 million in annual cost saving to 

AT&T’s customers.” Id. Professor Shapiro testified that the 

merger would result in $352 million cost savings to AT&T and 

that not all those savings would be passed on to consumers. 

The $352 million, therefore, was not cost savings to consumers 

but to AT&T. But the district court did not weigh increased 

prices for consumers against cost savings for consumers, and 

instead found that the government had not shown at the first 

level that the merger was likely to lead to any price increases

for consumers because of the failure to show that costs for rival 

MVPDs would increase as a result of Turner Broadcasting’s 

increased leverage in affiliate negotiations after the merger. 

Counsel for the government and AT&T agree the error 

regarding the consumer savings value alone would not require 

remand because the district court’s opinion was not based on 

balancing any price increases against cost savings to 

consumers. Oral Arg. Tr. 36–37, 57:1–13. Consequently, 
34

because the government failed to meet its burden of proof

under its increased leverage theory at the first level, the error 

regarding cost savings was harmless error, see Czekalski v. 

LaHood, 589 F.3d 449, 453 (D.C. Cir. 2009); FED. R. CIV. P. 

61.

Accordingly, because the district court did not abuse its 

discretion in denying injunctive relief, see Anthem, 855 F.3d at 

352–53, we affirm the district court’s order denying a 

permanent injunction of the merger.
35