State AGs Likely to Have Impact on Proposed Comcast/Time Warner Cable Merger, Legal Experts Say

Some attorneys general are creating a joint task force with the Department of Justice to investigate the merger. “We are part of a multistate group reviewing the proposed transaction along with the U.S. DOJ Antitrust Division,” the Florida attorney general’s office said in a statement. New York’s attorney general -- which Guggenheim Partners analyst Paul Gallant, in an email to investors Wednesday, said is considered to have “a particularly effective antitrust division” that could “make some noise” (CD Mar. 20 p16) -- “expects” to be a part of the task force, an office spokesman told us.

Going into the investigation of the proposed merger, the “predominant view" of the attorneys general is likely in favor of blocking the merger because of anticompetitive concerns, said several of the observers, including former FTC Commissioner Pamela Jones Harbour, who was a deputy assistant attorney general in New York. She’s now co-leader of BakerHostetler’s privacy, data protection and antitrust law practice.

Whether the states maintain a united front remains to be seen. The New York attorney general’s spokesman said the task force, which is working with DOJ, is still forming. States, while trying to stay united, could also splinter, said Menaker & Herrmann antitrust and commercial litigation attorney Stephen Houck, as in the 1998 Microsoft antitrust case. In 2007 six states and the District of Columbia split from the original 20 state attorneys general and DOJ, seeking an extension of the provisions of a consent degree that settled the original Microsoft case. Houck, former chief of the New York attorney general’s antitrust bureau, was the lead counsel for the 20 states in the initial case and represented California and the other splinter states.

For the state attorneys general, the motivation to get involved stems from the need to enforce their own antitrust laws, some of which predate federal competition laws, Harbour said by email. “The States are rightfully protective of their sovereign authority. They have exercised it with respect to state and federal antitrust laws and will continue to do so,” she said. Additionally, states with content providers and cable companies will be motivated to protect those companies’ interests from the power of a large company, said Public Knowledge Senior Staff Attorney John Bergmayer. Houck said the Comcast/Time Warner Cable merger is one that has an “immediate and direct impact on consumers. That’s the type of case the AGs usually get involved in.” Intervention will also likely be politically popular, he said. “A lot of consumers don’t like their cable providers.”

The potential impacts could take a variety of forms, from prodding DOJ to act to pushing for concessions from Comcast and Time Warner Cable, the observers said. A Comcast spokeswoman did not respond to an inquiry about the task force.

"The DOJ considers the views of the state AGs,” BakerHostetler communications and cable lawyer Gary Lutzker, who saw that firsthand in representing a company seeking what ended up an unsuccessful merger attempt, said in an interview. He declined to name the company. “I had a meeting at the DOJ and there was a state AG on the line,” he said. Houck said, “If the DOJ is thinking about not filing a case, but they know that if they don’t file one, 15 states will, I think it factors into their thinking. If the states are successful, it doesn’t look so good for [the DOJ]."

For Comcast and Time Warner Cable, Houck said, “even if they convince DOJ [to approve the merger], they have to be concerned the states might file a lawsuit. Even if they're convinced the states are eventually going to lose, it slows down the deal. I've been in cases where behind the scenes the DOJ is ready to end the case, but there’s one state that’s holding out for more, and the parties agree to do a little more."

Lutzker, who’s been on the other side representing companies, agreed: “If Comcast becomes concerned that the issues the AGs are expressing, they may come forward with some proactive solution.” The threat of the AGs’ throwing a wrench in the deal can lead companies to agree to conditions that “go beyond what the agencies are allowed to do under the law,” he said. The FCC provisions barring the cable operator, in its role as an ISP, from discriminating against competing content in approving the 2011 Comcast/NBCUniversal merger (CD Jan 19/11 p1) are an example of companies agreeing to conditions beyond legal requirements to grease the skids, Lutzker said.

"Whether or not [states] have any power under the law, if it would smooth the way for a company, it’s in the interests of the parties to address it. … Sometimes you agree to things that you might not like in particular, but [consideration] ‘A’ is more important than [consideration] ‘B’ and we can live with ‘B,'” Lutzker said. In the Comcast/NBCUniversal case, attorneys general from Missouri, Texas, Washington, California, and Florida joined DOJ in negotiating the consent decree with the companies.

Attorneys general from 23 states, the District of Columbia and Puerto Rico also joined DOJ’s antitrust division in seeking to block the 2002 proposed merger between EchoStar Communications and Hughes Electronics, which owns DirecTV, as a violation of the Clayton Act. In another case the antitrust division, joined by Pennsylvania and five other states, also filed suit in federal court to block the planned merger between US Airways and American Airlines. In the subsequent consent decree, the airlines agreed to ensure competition by allocating slots and gates for low-cost airlines.

The attorneys general generally work in concert with DOJ in examining major mergers, said Spencer Weber Waller, faculty director of Loyola University Chicago’s Institute for Consumer Antitrust Studies and a former federal antitrust attorney. “If they're not satisfied, they may go to court and request relief. It’s not unheard of for states to go at it alone.” Waller said states will likely seek conditions protecting content providers and cable companies: “If this deal is going to be approved, at a minimum, I would think there would be nondiscrimination policies upstream and downstream and some arbitration mechanism for disputes involving pricing and terms of access,” Waller said.