What the Justice Department will argue to get its AT&T appeal

The Justice Department’s renewed effort to thwart AT&T’s merger with Time Warner rests on claims that a federal judge misunderstood “fundamental principles of economics,” according to court documents. Asking a federal appeals court to swiftly consider their case against the telecom giant, government lawyers said Judge Richard Leon of the U.S. District Court for the District of Columbia erred by rejecting “basic bargaining economics” when he ruled to allow the $85 billion deal in June.

Throughout a roughly six-week trial this spring, antitrust regulators argued that AT&T’s merger would make it harder or more expensive for rivals to stay in business, and that it could lead to higher prices for consumers. Judge Leon rebuffed the government, saying its arguments “rested on improper notions.” But federal officials now say Judge Leon failed to properly account for the role that threats can play in negotiations between programmers such as Time Warner and TV distributors such as Comcast or Cox. Time Warner controls popular channels, such as CNN and TNT, that many distributors say they need in order to serve their customers. The Justice Department also said in its court filing that Judge Leon overlooked a “basic economic axiom”: Time Warner could be motivated to behave anticompetitively, it said, if doing so would help AT&T’s own TV service, DirecTV, or if it benefited the parent company’s overall bottom line. “The district court’s disregard of economic reasoning constitutes reversible error,” the Justice Department wrote to the US Court of Appeals for the DC Circuit.