The DOJ alleges that the companies' merger would violate section 7 of the Clayton Act [text, PDF], which prohibits asset acquisitions that create monopoly-like restraints on competition. Because the merger has yet to commence and the case's readiness for court proceedings may be challenged, the DOJ brought suit under Section 15 of the Clayton Act, which gives the DOJ authority to institute legal proceedings to prevent and restrain violations of the Act.
The complaint alleges several facts concerning the proposed merger and the current state of competition among cable television providers and video distributors. To explain the potential problems posed by the merger, the lawsuit describes the effect of small "online video distributors" on the dynamic between cable television providers and consumers, stating: "[a]s these online services improve and expand, they bring increasing competition to traditional video distributors—competition that benefits consumers, but which AT&T/DirecTV fears will disrupt the industry and deteriorate its high profit margins." Further, the DOJ argues that the proposed merger would have a negative on competition among television providers and especially Time Warner's television networks, including TNT, TNN, CNN and HBO, stating:
[T]he merger would result in higher prices for consumers of traditional subscription television because it would give the merged company the power to raise the prices that competing video distributors pay to it for Time Warner’s popular TV networks for no reason other than that those networks would now be owned by AT&T/DirecTV. . . The merger would thus substantially lessen competition by giving the merged company the additional leverage to charge its rival video distributors higher prices for its networks than Time Warner’s current market power would otherwise allow, making those distributors less able to compete effectively with the merged company.The lawsuit is one of few the government has filed seeking to prevent proposed merger and acquisitions among companies, and may show an adjustment in the government's attitude [Washington Post report] toward dealing with such events.
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