On the latest episode of Recode Decode, Makan Delrahim — the U.S. Assistant Attorney General for the Antitrust Division — sat down for a wide-ranging interview with Recode’s Kara Swisher. They discussed everything from tech regulation to biotech to the Justice Department’s attempt to halt the AT&T/Time-Warner merger.
It lost that attempt, but is appealing the ruling. Delrahim explained why he was surprised by the ruling of the district court judge, which called it “implausible” that a subsidiary of the merged corporation would change its business model to benefit the parent corporation.
“Any of those subsidiaries, every single day and three times on Wednesdays, you’d be willing to give up $1 to get $3,” he said. “Who wouldn’t? But [the judge] said, ‘No, they’ll make independent financial decisions,’ but that independence goes away when they’re owned by the same company and have one profit-and-loss balance sheet.”
He also disputed the notion that the Justice Department only sought to stop the merger because President Trump — who appointed Delrahim in 2017 — has harshly criticized Time-Warner-owned CNN.
“It makes no sense that the merger action was brought because of somehow an animus to CNN, because if you actually logically think about the case, what we were arguing was to have Time-Warner distribute Tribune, which includes CNN, as broadly as possible, because our theory is, if it’s merged then you won’t distribute broadly,” Delrahim said.
“There was a major PR effort by AT&T in this case and it was salacious enough that if people were not familiar with antitrust law and exactly what we were arguing, ‘Oh, this might be,’” he added. “But it really wasn’t and had nothing to do with it.”
You can listen to the entire conversation right now in the audio player below. If you prefer to listen on your phone, Recode Decode is available wherever you listen to podcasts — including Apple Podcasts, Spotify, Google Podcasts, Pocket Casts and Overcast.
Below, we’ve shared the full transcript of the conversation.
Kara Swisher: Makan, welcome to Recode Decode.
Makan Delrahim: Kara, thanks so much for having me.
I’m thrilled you’re here. I know there’s certain things you can’t talk about. I get that. I wanted to get people to have a ... One of the things that’s happening a lot is, nobody really is talking to each other very well and understanding what’s going on around all kinds of issues, and so what I really think is very interesting is to get people talking about where things are going and talking about the bigger ideas. I’m really pleased you’re here to do that.
Give us a little background on yourself. Whenever I talk to entrepreneurs, I want to give an idea of where people come from and how they get where they’ve gotten.
Well, it depends when in time you ask. I come from ...
Childhood, go ahead.
I was born in Iran. I was a product of the revolution, came out here in 1979 when I was about 10 years old with my family, and came to Los Angeles. I grew up in Los Angeles. Even though I probably spent more time outside of Los Angeles, I still consider that that’s where I grew up, my formative years, was there through UCLA, undergrad, came out to D.C. to become a patent attorney. And I thought, “Nowhere else better.” I studied physiology, so I really wanted to be in the biotech, and right around then, the biotech movement had broken with genetics.
When I was in undergrad and studying those issues, I loved it. I’ll explain how I demonstrate my love, because I actually did something crazy. I went and get my master’s in biotechnology after law school.
I love the sciences. I think it’s really important. It has a huge impact on every one of our lives, in medicine.
And I was just fascinated by it. In undergrad, when I was studying, the god of our world was the NIH and the scientists at the National Institutes of Health. I came out here to become a biotech patent lawyer and worked at the NIH during the day. GW back then had one of the best programs, so I came to D.C., fell in love with the area, went to school at night and started working at NIH.
This is getting the biotech after law school.
No, this is in law school.
Law school. Okay.
Law school was night for me, and I worked at the NIH.
You went to where?
I went to George Washington University.
George Washington. You worked at NIH. What was your job? What did it entail?
The NIH had this thing, probably one of the greatest industrial policies in the United States, was this thing called the Bayh-Dole Act. This is former Senator Birch Bayh and former Senator Bob Dole, since there’s both of those later on. They passed this law that said that innovations, inventions that were funded by federal government resources should be allowed under certain conditions to be commercialized and licensed out to the ...
Like the internet, perhaps.
Well, the internet. You name it. GPS technology. Almost 80 percent of our biotechnology has some sources in basic research that goes on at the NIH: The AIDS test kit, tamoxifen for breast cancer, you name it. There’s many of them.
Some of the world’s best scientists are at the NIH, and I loved that. There was this little office that was involved with patenting the technologies owned by the NIH and then also commercializing them through licensing, cooperative R&D agreements, direct commercialization, and that was the office I got a chance to get my start and work in.
Get to work in. Why didn’t you open a biotech company? I mean, you wanted to be a lawyer for this? What was the thinking?
I’ve always loved the business side of things. That’s, I think, probably why I always gravitated to both intellectual property law and antitrust law, is I was fascinated by creation, creative creation, and what the business community had done. Did I ever get a chance to open up a biotech company? You don’t just wake up and do that.
Yeah, because right here, quite a few of them were invented ... here and in Silicon Valley.
Right outside of 270 corridor, right outside.
Oh yeah, quite a few. Silicon Valley and then San Diego and Boston. I don’t think it’s by accident those were right near research universities ...
Absolutely, 100 percent.
... which benefited from the Bayh-Dole Act and another piece of law called the Stevenson-Wydler Act, which allowed those to be transferred. You now had the scientists at either Harvard or UC San Francisco or Berkeley, Stanford, and they would set up a little company on the side, little companies that became Genentech and Amgen and Regeneron and whatever they are nowadays. That’s how those little communities developed.
That’s always the best-case scenario, where the government does research, there’s a university attached to it, and there’s commercial interests. Of everything, that’s worked rather well, at least in the digital space, that’s always worked out rather well. People didn’t ever realize why AOL was here, but MAE-East was here, the original. Some of the original companies that linked up people to the internet started here after it became commercialized, which was kind of interesting.
So, you did that. And then?
I had an opportunity. I was kind of the lowest man on the totem pole at the NIH where, during the WTO negotiations — Mickey Kantor was the U.S. trade rep, mid-’90s, ’94, ’95 — to be detailed, and I got lent out by the NIH to the U.S. trade representative’s office to work on the intellectual property chapter of the WTO, which at the time was called the GATT.
It was the first time in history we had an IP chapter and standards. One issue had come up, was the issue of government subsidies. In Europe, you had Airbus.
And you still do, where the government subsidizes ...
They were. That was a big deal.
That was a big deal, and a competitive factor to Boeing being able to compete in the free market. One of the Europeans in those negotiations raised was, “Hey, look at your biotech industry. You guys got all this tech transfer” — which is what it’s called — “under the Bayh-Dole, and you guys subsidize this whole industry that you guys are a leader in.” People wanted to know, what is this tech transfer? And I got a chance to go. That was my first taste of policy. I was 23-ish or so.
And came to work on the trade reps. It was a phenomenal experience to learn at probably one of the better agencies in all the government.
Talk about that idea of tech transfer. It’s really important. I think that people forget how this happens and how ... Was it to give advice around the globe or to create a global initiative in that regard?
Well, initially, it was to understand how does this work in the U.S. government and how do you distinguish that from what foreign countries do?
Which is direct subsidies.
Exactly, which distorts the competitive process.
Or it can, or sometimes in a good way. We can talk about that later. Because of what’s going on in Korea or where else, people feel that’s a great thing for the ... or even if you go back before that, telephones, the telephone subsidies that were happening to create that, which create ... There’s different ways to do it.
Different ways, but when you do that to create national champions, to distort competition in that race that should occur, hopefully, in free competition, that was the issue. People wanted to understand —
Then when I got there, I got tasked with doing a lot of things that was at the time going on which dealt with both bilateral and multilateral, and it was the implementation of that WTO agreement. That was the first real taste I had of policy, and probably changed the direction, because otherwise I was going to do my work at NIH, finish law school, and move somewhere in the sun between Santa Barbara and San Diego.
Then just work for biotech firms.
Or practice law.
Or do something. That’s what I would’ve done.
You did practice law then.
I did. I left the trade rep’s office. I did a health fellowship working for Orrin Hatch on the Senate Judiciary Committee dealing with the export of biotech and food and drug laws. Back then, our U.S. laws were, if you had a drug or device that had been approved abroad, let’s say in Germany, but had not been approved by the FDA, you couldn’t export that. The U.S. laws got reformed. I want to say that was ’95-ish or so, ’94, ’95, later. Then I went, when I graduated, I joined a law firm, Patton Boggs, here in D.C.
Where I got to again see a different side of things. They didn’t have a patent practice, and so I was doing more — some copyright and then antitrust law.
Right, which is where you got into that.
That’s where I got more into that, and I was already fascinated by it.
Is that where you worked ... You worked for a number of ... I’ve run into a lot of tech companies who you’ve worked for.
Most recently, an executive ... I’m not going to name who it is. You started to work for tech companies in general.
I did. I did some work over there for some tech companies. I did some plain old merger work for paper companies. I did some telecom —
What’s paper, Makan?
No, I’m kidding.
Technology of corrugated paper.
Yes. It’s a good technology.
You know, that’s a huge part of our market.
Yeah, it is.
The law firm had acquired a telecom practice. At the time, you remember, it was right before the 1996 telecom act, so that was going on. Patton Boggs was heavily involved with the reform of the law, but also had a lot of clients in the regulatory side. I did some antitrust work, and then I got a chance to go work for the Senate Judiciary Committee on the Microsoft investigation. Orrin Hatch led the investigation in that after some complaints.
The Senate judiciary’s chief of staff had called me, because I had done, remember, about a five-month little fellowship on the health stuff. I’d gotten to know some of them. They contacted me, said, “Hey, would you have any interest to come work on antitrust and AP?”
Talk about that. That was the first time you got to see the power of Silicon Valley. I covered that for the Washington Post. It was a remarkably important case. I don’t think people think hard enough about what it meant, what that particular case meant. How did you look at that?
I saw, well, not only the power of Silicon Valley, but the power of technology. You saw a lot of companies who were coming together, but you saw what was the anti-competitive conduct, what was alleged, and you had many cases of folks who were saying, hey, I’m getting crushed because this company cannot ...
Right, lots and lots of them, including AOL, including Netscape.
Yeah, Netscape. That was the one where Marc Andreessen and Jim Barksdale ... You also had Scott McNealy at Sun at the time, and Larry Ellison at Oracle. I got involved with that. AOL at the time was very much ... AOL-Time Warner merger was a hearing I worked on back then. A lot of these things kind of come back.
And then copyright, as well. There was the Digital Millennium Copyright Act. I wasn’t the principal staffer on that, but I was there when that was happening. It was an interesting time, because there were a lot of provisions and laws that were made then that, to this day, has huge impact on the tech industry.
Absolutely. What did you think at the time? We want to move forward to today, but what was your inkling at the time as these were happening? The Microsoft merger, everyone thought it would take care of the situation, that it would free everybody up to compete and everything else. Then all that happened is there’s enormous powerful companies now, and now there’s lots of them.
Yeah. I think the merger probably allowed for some of those companies to flourish.
You kind of never know. That’s always the challenges in antitrust enforcement. It’s always prospective. That’s why sometimes the job is difficult. You always have to come in every day and try to get it right.
Right, because you don’t want to hinder innovation.
That’s, I think, our most important aspect of U.S. antitrust law is not hindering that and actually creating the culture for innovation, partly because ... not partly, but largely because innovation is actually what creates competition to topple incumbents.
Presumably. Yes, that’s right.
Presumably. I mean, you have a Netflix or Amazon that provide consumers what they wanted, that they could’ve probably had, had the many MVPDs allowed for that — MVPDs being the cable operators or others — but when the incentives aren’t there financially to do that, all of a sudden you have now with the advent of internet and online streaming ...
Or the thinking. It’s not just incentives. It’s the thinking of doing it.
Right. It could be the thinking, but when the incentive isn’t there, it gets killed.
It gets killed. That’s right.
That’s why you have entrepreneurs breaking off and starting these little startups.
What impact did that ... We’re going to get on to that in the next section, but before we finish this one up, what impact do you think the Microsoft trial had when you look back on it?
I think it had a number of impacts. One is, importantly, it reinforced the consensus antitrust view which was upheld by the D.C. Circuit Court of Appeals, under traditional antitrust analysis that was applied to those acts. Joel Klein and the Justice Department, who brought the case and tried that ... There was a lot of folks, naysayers. “You guys are crazy. What is happening there?” Whether it was certain editorial pages, “You’re interfering with business.”
At its core, in my view, antitrust protects that free market, and that showed that those practices were wrong and they were crushing innovation. I think it made, perhaps, Microsoft, I think, a better corporate citizen. Their business hasn’t been harmed, but other businesses were able to get off the ground.
I don’t know if Apple would be the trillion dollar company had it not been for that, partly because a new phone would’ve come on and you would’ve had to have had the Microsoft operating system rather than the Apple, which then flourished, an app store, and others. I think a lot of innovation has occurred, probably, because of that, but who knows?
What’s interesting is people don’t realize Google came after Microsoft, really. I mean, a lot of things, things that you don’t even think about, came after that trial.
Could Google have survived, had Microsoft wanted to put its own search engine as the preferred search engine in every operating system, which was 98 percent of every computer, and then every phone, and the only search engine you could’ve had, because without it, you wouldn’t have been able to have access to the operating system? Then where would that search engine have been?
You might not even have had a phone, because Microsoft had a lot of disdain for phones at the time, if you remember.
A lot of companies have a lot of disdain for new technology.
It changes things.
Let’s fast-forward to today. You have all these companies. They’ve grown up. I think the Microsoft trial was sort of the great moment for tech, when people realized the power of tech, not just in terms of money that these people had, Bill Gates being the richest man in the world at the time, I think. I’m not sure if he is now. He’s up there. He’s still up there. He remains as rich as ever. It was a moment for Silicon Valley, and when the real innovation began to start, I think most people feel, despite the fact there had been so much going on with computers before that.
You worked for a whole bunch of different companies after that in the ensuing years. How do you look at Silicon Valley right now? A lot of people in Europe and elsewhere feel like it needs to be pulled back. Well, you can’t talk specifically about your case, or maybe you can a little bit, but how do you look at it overall when you’re thinking about these powers? We’ve created ... it’s really an American-made industry right now, and of course it’s getting a lot of pressure from China and other places, largely from China. How do you look at it overall when you think about the tech industry here in this country?
I look at it with a sense of pride as an American, but also that we are able to have some of the best minds and a community that is able to try, fail, succeed, and have a very fertile ground for innovation. Innovation, in my view, is really what ultimately helps the consumer. It’s dynamic competition. When you have those new products, new services, being brought to the consumer, and we just don’t know what we don’t know. Who would’ve thunk 20 years ago we would have the technologies we have today?
That every one of these phones can be a television, which they are now? You can broadcast and have podcasts without having to go through a local broadcaster or a TV station. I think the consumers have benefited immensely. What it has allowed is it’s allowed dissemination of information to a lot more people than otherwise would be able to get.
When you look at that ... Many people, though, feel now that it’s gotten to a point that they’re too powerful. There’s obviously hearings going to happen this week. There’s all kinds of issues, and I don’t want to get into every one of them, but there’s a growing sense that these companies are too large, that they need some sort of either regulation or ...
We’re in an interesting moment, and especially an antitrust moment. How do you look at them now as they are? They have innovated a lot, but you have these big companies. You have Apple, Google, Facebook, not really Microsoft anymore, which is kind of ironic if you think about it, sort of dominating everything, especially Google and Facebook in the advertising space, almost completely. It’s not one single company; it’s like five or six of them. I liken them to a bunch of semis running down the highway with nobody able to get around them, in a lot of ways.
In some ways, I think that is true. The question is, is that momentary? Is that a reward of their superior acumen, investment, risk that they have taken? It wasn’t that long ago where Netflix, who is considered one of the FAANG companies, was under siege, and that they were nowhere. They shouldn’t have survived, but I think kudos to Reed Hastings and those folks who persevered over, I forget now the company.
All of them.
Well, there was Time-Warner.
You had folks.
I don’t know if you remember, Jeff Bewkes called them ... Lithuanians? They weren’t going to make it. He essentially insulted them onstage several times.
Mr. Bewkes has had very colorful language, and he referred to Sling, you know, during our trial in certain ways, but absolutely. These folks survived despite all odds and they create something new that people want and then that is emulated, and then folks try to kill them again because now it’s creating competition.
I think that what they do could be temporary, as long as the barriers to entry for competition are still low, somebody can enter. There was room for Snapchat to come out and compete at some level, partly because consumers preferred maybe a disappearing snap or in 24 hours. I think there’s room there for consumers to try out and for innovators.
We do not want to punish that competitor when we’ve encouraged them to compete and succeed. Once they succeed we do not want to get them out of the business. It’s really important that our policies don’t discourage that. It’s not go out, compete, be successful, but only to a limit. That’s not our economy and I don’t think that’s good for our economy. We want every one of them to become monopolists as long as they’re behaving properly.
We don’t want them to, once they are there, now try to block and create a moat around themselves in an inappropriate way. That’s the way I look at it.
Now, Europeans see it differently. They feel as if these companies have gotten untold power and are advantaging themselves. The U.S. government has been relatively hands-off on a lot of it for a long, long time, and you feel that’s the best policy still.
Well, it depends. My job isn’t really ... One of my legal heroes is former Justice and head of the antitrust division at one point, Robert Jackson, when FDR, about 80 years ago, has given some great speeches and I’ve read all of them.
Is that a legal hero? No, I’m teasing you.
Absolutely. He is an absolute legal hero.
Why is that?
Oh, he’s one of the greatest legal minds. He had a huge impact that to this day we feel it. He wrote some of the dissents in Korematsu and some of the most significant cases. He was a prosecutor in the Nuremberg trial. But in antitrust, he actually saved, I think, the direction of the country at the time when we were looking to see if we should be focused on markets and let markets decide prices and direction as opposed to the government directing.
Remember around that time after World War I and leading up to World War II, we were debating whether or not we should set prices and determine what products and outputs should be out there because of steel and other needs. That was a big debate. I think he prevailed and allowed the free market to survive.
Now, we make mistakes in enforcement and we get corrected by the courts and the Supreme Court that sets the guidelines and determines kind of the contours of antitrust over time, but I think there’s a right balance. We need to be vigilant, making sure … I think, timely and vigorous enforcement of the antitrust laws like in Microsoft or in other cases that may come up, is really important, because if you don’t do that then you do have failure in the market and that’s when there’s calls for regulation.
That’s where Congress then steps in and says, “Well, you can only have 30 percent programming,” and now you have very static government rules that might be arbitrary, but that’s what the law is. Those only come in when there’s been a failure in the marketplace. To me, a failure in the marketplace could mean failure in enforcement of the free market.
Let’s fast-forward to your recent case. I know you can’t talk about things that are currently in litigation, but you lost a case, the AT&T case, and you have all since appealed, but what can you talk about? What can you say about that case right now?
Look, it’s an important case. It’s one of the first that has been litigated, not the first challenge. There’s a lot of folks talking about vertical mergers versus horizontal-vertical.
Can you explain that for people who don’t understand?
Sure. It depends on where in that chain of supply it is. So, a vertical would be a distributor that buys an input, a product that they would sell. So, let’s say, well, a perfect example is AT&T or Comcast, they’re distributors of programming content. And Time-Warner or NBC and Universal, they’re the creators of the program. So, Time-Warner would normally be incentivized to sell to all distributors that ultimately get to the marketplace. If AT&T as a distributor owns it, those incentives change of whether or not they want to sell it to other distributors because all of a sudden they’re now the owner and also a vendor to a competitor. So, that dynamic changes.
Sometimes these concepts can be complicated, but it’s relatively simple. Do those bargaining powers change with that type of a merger? Some people — including the merging parties — criticized us that it’s the first time we’ve ever enforced. That’s not the case because if people remember, Comcast and NBC in the prior administration, it was settled. It was a case that was actually filed and simultaneously settled with a seven-year consent decree that prevented Comcast from taking certain actions in violation of the antitrust laws. So, the issue wasn’t that it wasn’t. It was just not settled, and those settlements, I’ve given speeches, I’ve written about these, I think is actually not good for the consumer.
Why is that? Your point is the government had objections to it and they settled it before it got to trial.
Which typically happens as in many ...
Which many times happens, absolutely.
So, there’s different types of settlements. In that particular one ...
This is Comcast/NBC.
Comcast/NBC. What are called behavioral, remedy, so behavioral settlement. What it means is that you, Kara, cannot do certain things for the next seven years or five years or 20 years as opposed to what we call a structural settlement, saying, “Hey, this is the problem that causes the competitive consumer harm. You’d better sell off that business.”
Right, and get rid of it.
Get rid of it and let’s create the same competitive landscape by having somebody else run it with the incentive to maximize it rather than saying, you know, you’re the tiger. You’re going to be walking down 5th Avenue in Manhattan, and we’re going to ask you to promise ...
Not to bite people.
Not to bite people. And, maybe you’ll agree for five years, but after five years you’re going to bite people. It requires the antitrust enforcer to now step into the role of a regulator of that business, which, again, I don’t think I or many people are smart enough to guess seven years from now where technology will be, what the consumer or business model will be and whether or not that will be good.
So, structural remedy was —
Structural remedy I think is the preferred one if it’s possible. I though in the AT&T/Time-Warner case ...
So, in the previous case, which was similar to the Comcast/NBC one, there was a consent decree, it’s still enforced.
For another three days.
Was it three days?
September 1 it expires.
Wow. The tiger will start eating.
The FCC one ... Well, who knows if it will. Certainly the marketplace hasn’t really changed to a certain degree. Now, there was a hope that there would be online competition by streaming and cord-cutters, and we do have that.
We do have that, right.
However, if network neutrality rules are not in place, you tell me if an incumbent has the same incentives to allow free, unfettered access to somebody who now competes with them.
We will see. We will see what they’ll do. So, in this case you decided a structural remedy was the best case, which I read your ...
Because it was available. I mean, I’d say probably 80 percent of the merger we found in our model and economic models, would be actually pro-consumer, pro-competitive. AT&T could own HBO, but that doesn’t mean another distributor could not own a Showtime. Maybe it is not as good as HBO, but they could because now they’ll have the incentive to be better. Or Starz or you name it, Netflix. So, there’s ways of doing that. The studio was fine. They could own the studio. Could they keep some of that content away? Yes, but there was a competitive studio market. You have seven other studios that create the content.
The area of sports was the area that our economists found and that’s what we did, but you know, the district court judge did not agree. The district court judge, you know, one of our issues on appeal is that there was some fundamental mistakes in logic that applied to that case. It’s laid out in our appellate brief. It’s also laid out in six amicus briefs that were filed on our side, including one from 29 very prominent scholars including Professor Hovenkamp who writes the treatise in antitrust law out of University of Pennsylvania, Professor Doug Melamed —
Give your easiest lawyer version of what you’re appealing.
Here’s the simplest one.
Before you do that, the judge ruled against you. The merger has gone forward.
The judge said that we did not meet our burden of proof, so the government has a burden of proof by preponderance of 51 percent.
That this will cause harm.
But the judge ruled almost, you know, that we didn’t make a single point in this case and that it was implausible, some of the evidence that was put forward. It was an interesting application of some of the evidence and standards, so we’ll see what the Court of Appeals will decide, later this year, hopefully. We entered into an understanding with AT&T that they would keep the Turner business separate until February 2019, pending appeal or earlier if the appeal decides that they’re fine. That allows, in the event we win, to allow for a structural remedy for them to sell that business off.
Off to one side if the merger goes forward.
To somebody else.
As the merger goes forward.
Well, the merger, yeah. They closed. We let them close. As a condition, we did not seek emergency appeal. If we’d sought emergency appeal that deal could have unraveled. And two-thirds of that deal was not problematic and as long as they kept that business separate, then we go through a regular orderly process.
In the simplest form, one of the mistakes in that ruling that we assert out in our appeal is he said that it is implausible that a subsidiary of a company, a wholly owned subsidiary, so let’s say there’s company parent that owns two subsidiaries and just for the purpose of simplicity that subsidiary A, he said it’s “implausible” that subsidiary A would ever ... Let’s just say that they get $2 of revenue a year, that they would sacrifice $1 of revenue a year in order for the parent to make an extra $3.
Which, you know, just pure economics says if — any of those subsidiaries every single day and three times on Wednesdays, you’d be willing to give up $1 to get $3.
Who wouldn’t? But he said, “No, they’ll make independent financial decisions,” but that independence goes away when they’re owned by the same company and has one profit-and-loss balance sheet. That is something that has been recognized by the Supreme Court, that has been recognized by every economist that that is one of the most fundamental parts of when you have one entity.
And then at the same time, he said that there’s benefits, there’s efficiencies, that the consumer would benefit, and we said that there could be, up to a certain amount, but that only goes if, when you combine a distributor and a content provider — a concept in economics called elimination of double marginalization — both of them will seek to get some kind of a profit to survive.
Once they’re combined, you presume, maybe, they could do away with one of those margins in order to compete with their competitors. Technically, prices could go down. We said they could, but that only happens if you believe in the same unit entity working to maximize the overall profit because you’re now competing to get market share. If it was implausible that they would ever eliminate this, so you can’t have this internal inconsistency in the opinion, which, in my view, is the 13th chime on the clock. It puts a big shadow on the question of the logic that was applied in this case.
The judge said, “Look. I can’t believe that this is the first antitrust case that I have to have a crystal ball to look ahead, prospective.” Well, that’s what antitrust merger law is. You have to look to what happens in the future and you have to nip it in the bud.
Were you surprised by the ruling?
I was surprised by the way it was written. Yeah. I was.
When you go forward with this, if it does not rule in your favor it just moves forward, correct? What are the two outcomes that could happen? The appeals court agrees with you.
If the appeals court agrees with us it could be, for example, remanded to a district court for reconsideration, according to whatever they rule or they could deny our appeal and uphold the district court and that could be the end of that, but both parties will also have a chance to either go further in appeal. Let’s say AT&T loses, presumably they could ask for either an en banc hearing or go to the Supreme Court, and we would, but that would be our choices. Whether or not this is the type of case ...
Was there a thought not to appeal, from your perspective?
Sure. You always consider whether you should or not because there’s a risk that you would then set a bad precedent now that is a larger bad precedent, but the opinions were so flawed that I thought it was really important.
In this area there isn’t guidance. To the business community, what are the contours? What should be the limits? Many people said, well, this is so fact-based that this is limited to this, but not an antitrust. There’s not that many antitrust litigations. So, these have an outsized impact on the business community and I think it’s important to have guidance and clarify the errors. Now, if the court rules that we were wronged ...
Those are the rules of the game. That will be ...
Yeah. That’s exactly right.
The last thing in this section and then I want to talk about where the future is going with all these companies.
You got dragged into a political fight. How much pressure was that on you? Because the president had said very negative things about CNN and continues to do. How did you address that? Did you ignore it or how did you feel about that?
Well, AT&T tried to make an issue of it.
Well, President Trump’s pretty loud about CNN.
Well, he did. He had made some comments before he was president during the campaign, but he wasn’t the only one. I think the other candidates, including Secretary Clinton and Senator Sanders have said that. I’ve got to think, I forget, maybe 20 senators, who wrote to me saying block this merger or do not do a behavioral remedy or something. So, this was a bipartisan criticism about this transaction and consolidation in general.
Now, it makes no sense that the merger action was brought because of somehow an animus to CNN, because if you actually logically think about the case, what we were arguing was to have Time-Warner distribute Tribune, which includes CNN, as broadly as possible because our theory is, is if it’s merged then you won’t distribute broadly in order to seek rent from DirecTV and you know, are you going to give up a couple of bucks of a license fee for a channel in order to gain a new subscriber of DirecTV that might be worth $1,500. Again, that’s the math that we were dealing with.
The logic made no sense. The judge shut that part down and they said they tried to make that, but there was a major PR effort by AT&T in this case and it was salacious enough that if people were not familiar with antitrust law and exactly what we were arguing, “oh, this might be.” But it really wasn’t and had nothing to do with it.
How did you deal with the pressure from that?
Oh, these jobs come with part of that. I’m sure you just kind of, you do what you do. Again, Justice Jackson, you know, you go back and read him. He gave a beautiful speech in the Great Hall to the second gathering of the U.S. attorneys in 1940 at Justice, where to this day I think it should be a model for every law enforcement official and federal prosecutor.
He said, we have a huge role as prosecutors. You can indict, you can prosecute, you can do a lot of things and the Constitution empowers you, but you have to do the right thing. The reason why you are in these jobs and it requires presidential appointment and Senate confirmation is that you have to win a seal of approval of your character by not only the executive branch, which is the branch that appoints you, the president, but also from the legislative branch, which is the Senate, that has to confirm you. And an important part, and says you really need to factor in and you don’t go after individuals. You go after cases.
And make your case.
You need to take a look, exactly, and make the case because, and he said back then, 80 years ago, that if you go after individuals there’s enough laws on the book, and this is back then where the federal law books were probably like this, as opposed to today, is that you’ll be able to find a violation on anybody. I think it holds even more true today.
Absolutely. So, going forward, this appeal will either happen or it won’t and people either accuse you of carrying water for the president or not. It doesn’t really matter.
But one of the interesting parts of the case besides the allegations of interference by President Trump was that AT&T and others, big telcos were talking about the idea that they were under siege by the internet companies, which to me is mind-blowing, if you think about it. And actually they are, in a lot of ways. Media companies are, telcos are. Everybody is sort of fighting for the consumer. When you think about that from an antitrust perspective, how does the landscape going forward look to you? Because I think it’s going to be very complex for the government to try to figure out how to regulate and control this.
So that is interesting. I mean, it’s always fascinating when incumbents say, “I can’t compete with these new innovators!”
“Save us! You need to approve an otherwise illegal merger so that I can compete with somebody who is killing me in competition.” I think that’s even more important ...
Allegedly illegal. Right now it is now.
Allegedly. Well, interestingly, the opinion, the judge went on and on talking about why, because of Amazon and Netflix and Facebook, they need to.
Yeah, that’s right. That’s why ...
They need to. And he said that these are vertically integrated, therefore I need to vertically integrate these companies.
Yeah, he did. That’s my point.
The fascinating part is, you tell me, and it’s not lost on most of the American public, that Netflix and Sling or Amazon or any of these other companies that need to reach any one of us as consumers, they’re not vertically integrated in what we’re talking about. Why? Because they still need to go through a cable pipe or a wireless network to be able to access, which again gets back to the network neutrality issue. They still need to get through them to get to us. That’s the difference between vertical integration there as opposed to ...
They don’t have the distributing ...
... a Comcast or an AT&T or a Verizon owning one of those companies or that content. So Netflix had to invest and create this new content area, as with Amazon, to go and produce and compete. They had to pay that producer that produces, whatever, “House of Cards” for $5 million dollars an episode, and they had to compete with HBO and NBC in order to buy that and put it on their network. They paid more. That’s all that means. But if they get throttled ... I mean, you saw the recent news this week about Verizon rolling back the firefighters. So the power is there to do so when you’re somebody who is competing with them, and the incentive will be there. And so that isn’t vertical integration. That’s another major mistake.
They’re making a promise not to.
Exactly. Of course. As long as they promise, it will be fine. So, frankly, I am very skeptical of those types of arguments. It certainly is just ludicrous to even think about it here that, hey, we can’t ... Well, there’s nothing to stop Time-Warner from going directly to consumers, the technology, be able to go directly, just like Netflix or Amazon does. You don’t need to buy a satellite dish and a wireless network and a fiber line as they did in order to get to the consumer.
You don’t need to do that. Just, you already actually have a huge studio, an incredible library, one of the most cherished content — you know, with “Batman” and “Harry Potter.”
So what they have is already ... they’re not going to die because ...
They wouldn’t die if they actually wanted to compete with those people, and same thing with the telcos. You know, go out and compete directly for that. Yes, if the consumer ...
You mean, make it on their own, make their own stuff without buying it.
Right. Well, here they could have bought even Warner Bros. Studios ...
Right, or just a single ...
... and HBO and Cinemax to be able to do that. But in our economic model, that wouldn’t have caused the same harm, because it actually would have created more competition and more choices. But what is interesting is that they could have done that. That argument was, in my view, a kind of a ...
“The scary internet people.”
Yeah, and it was one where most people would have seen right through that. The judge bought the whole thing and cited it in the opinion, which hopefully, the Court of Appeals will pay attention to it.
So if you do want to go down that road and believe that the Googles and the Facebooks and Amazons are very powerful, what can they buy? Because a lot of people feel they’re going to start doing the exact same thing. Someone just the other day said that, for example, they wouldn’t have allowed ... It was a lawyer I was talking to, and he said, “They wouldn’t have allowed WhatsApp to happen today,” Facebook buying WhatsApp, or Google buying YouTube or things like that that happened before.
Perhaps. I mean, if they were at the same place. So this was raised to me about Google and YouTube just as an example, and I’m not saying that those companies are per se legal or every activity is legal. They could very well be violating the antitrust laws down the road if they take certain actions. But just taking a look at YouTube. Back when they purchased YouTube, was it the robust content distributor that it is today, online? I don’t think so. Did it benefit from the technology and the resources that Google had in order to make it what it is? Yes, and that’s the efficiency that is positive. That’s win mergers, 95 percent of which ...
You mean like Facebook buying Instagram or ...
Facebook buying Instagram is another one. Now if Instagram was actually like it is today back when they bought it, does that raise competitive problems? Probably. But would Instagram be what it is today without Facebook? I don’t know. And those are times and snapshots that enforcers need to be really vigilant. They need to look at it. They need to look at not only the price factors, output, innovation, quality, and seeing that does this merger harm competitive process in any way? And if so they need to step in. They shouldn’t be afraid of politics or the PR that those companies can bring down. I know that Joe Klein and the Clinton administration ...
Who is now at Facebook.
Is he at Facebook? I did not know that.
No, Kaplan is. I’m sorry. Joe Kaplan.
Well, Joe Kaplan is, but Klein who was the head of the antitrust division under Clinton ...
That’s right. Under Microsoft.
They were under a huge fire by Microsoft at that time.
Yes, they were.
There were senators standing up threatening to ... In fact, not only threatening, but actually trying to defund the antitrust division at the time, defund Joe’s car access or ... you know, silly things like that, which ultimately were not successful. But those are important factors to consider, is … disregard that type of heat that will come on you, do the job that you took the oath to do.
These are inevitably going to come down the pike, these mergers, as these companies get more and more powerful. I think they are and that they will start buying up lots and lots of things you wouldn’t … You know, I’ve always thought someone will buy Disney, but maybe not now with the other merger going on, but that there is going to be massive consolidation of these companies. Do you anticipate that, or do you just wait and see what comes down the road?
Well, you have to just wait and see. You don’t know what will trigger that type of a merger or activity or why or when, if it happens. I’ve heard that there’s a lot of talk about Apple buying a content company or that they will grow it organically.
You want them to grow organically, and you want them to succeed. You want them to topple an incumbent to the extent that any of those companies can. But if they actually merge and do so and shows that it would be a ...
Buy Disney, for example.
Well, and that’s the question. Would that violate the antitrust laws? You know, these things are very fact-specific. Would that violate? And that’s where, if it does, you need to go to court and stop it.
So let me finish up by talking about the idea of where antitrust is going. When you think about things like this, does it have to change in this era when they could all argue there is a lot of them, but they don’t actually compete with each other, in a weird way. Facebook doesn’t actually compete with Google.
Exactly. Neither does ... They’re all sort of ...
And you hope they haven’t agreed to not compete.
Right. I know. They all get together and trade our private information and then move along.
They tried. Google tried many times to create Google Plus, and they try to do different things. And it just didn’t ...
Yes, they did. They were bad at it. They’re not very social. I don’t know if you know those people, but they’re not good at social things. But in terms of when you look at the future of antitrust, I’d just love to get your sort of high-level idea of where you think it’s going. And especially in light of the fact that Europe and other places are becoming more stringent on these large mega-companies.
So let me take those in two different ways, because there’s an important factor on the international side, because there’s no international code. But then there’s one about domestic, and where is the law, and where should it go? So I think the law is flexible, as it is today. I think there’s broad consensus on the left, the right, the middle, everywhere on this, that as long as you can have credible evidence ... I think you need to have the will to be aggressive in a timely fashion, before you kill off too many companies and innovators, to step in where there is the evidence, it shows that there would be anti-competitive conduct or effect. And you want to do that. I think the law is flexible enough as we have it.
Again, like the Microsoft case, we’ll always be challenged by new technology and new practices. Particularly in digital, you have what are called network effects, so it’s winner take all. That could cause issues. You have issues dealing with big data that people talk about, and you have to take a look at that and how does that really fit into, ultimately, what benefits the consumer and the free market? So I think the law is flexible. We’ll see. You know, sometimes courts could get things wrong, and then that’s really up to Congress to then change that after a debate where there has been market failure, like in telecom where there used to be or cable, with the ’92 Cable Act.
Then there is the issue of the international. Are more aggressive enforcers better? Does that mean that they’re better at antitrust or better for the marketplace? I don’t think so. I think there needs to be a ... I hope that we continue to diverge. I’m very heartened at the fact that over the years we have had more and more convergence on the principles, and we’ve got to be vigilant and make sure we don’t diverge on the fundamental basics of economics-based antitrust application. We don’t have an international agreement. We don’t have an agreement about how you view this. And one of the more dangerous things, I think, that could happen moving forward is that a country uses the antitrust laws as a weapon, as an economic weapon, against one of our companies in their country.
Mm-hmm, in our country.
In their country.
In their country to fight. Well, they do that in Europe. I mean, interesting. I interviewed President Obama. He said the Europeans were just doing it to hurt Google, and I was like, some people could feel Google is a little ...
Well, President Obama and President Trump seem to agree on that.
Yeah, I know. Yeah, yeah.
But I don’t know, and I’d like to make sure because I don’t think it would be fair for us to second guess their enforcement decisions if we don’t have the same evidence and analysis. So I think it’s really important for us to also look at that.
Yeah, because here in this country, Yelp has some opinions about that.
Yelp has and many other content companies have those views. So we have that, and there’s, I think, a couple of state ... Maybe a state attorney general in Missouri has brought a case or investigation in Google. And the Federal Trade Commission in 2013 had one.
But I think we need to make sure that that doesn’t happen, that they don’t use that, because it’s really easy to apply nebulous economic standards and say you’re charging too high of a price for your patent or your copyrighted content, and therefore it’s a violation of our antitrust law, because now you’re escaping other potential trade agreements on IP or other areas, because now it’s ... you’re doing it and enforcing antitrust. And we need to be very careful not to do that.
Not to do this.
Make sure that other countries don’t do that. A big part of my job now, which probably wasn’t 20 years ago in this job, is lots of international engagement. I have just a full-time deputy for international who focuses on it. We have announced a multilateral agreement just on basic procedures that requires a commitment from all of our trading partners to not treat a foreign national any differently than the way you would treat ... We took a number of concepts from trade and antitrust and international agreements to come up with a standard that would work for countries that have different legal and political regimes. And I’ve been very heartened by the Brazilians, Mexican, Canadian, and many other countries that have signed on to help us negotiate that.
The other Europeans, have they ...
Right. Because they’re much stricter. I mean, I’ve heard calls from them for breakups. I mean, absolutely, the other day.
But this is basic due process, is all we’re calling for. We’re not asking for an actual standard of law where it basically says you would allow for ... to look at, to have attorney client privilege, the right to counsel. Some of the most fundamental procedural norms that almost every regime recognizes, we are saying to do that.
To get on the same ... I see.
At least. It’s a good start.
But do you see ... I mean, just the other day someone from Europe was talking about breaking up Facebook, for example.
Yeah, I’ve seen a lot of those calls. You know, people get a lot of headlines and attention by calling on antitrust actions or breaking up this company or that company. It happens in the United States. We’ve heard this the last couple years. So do I think that … I think that we’ve got to do what we’ve got to do and look at cases.
They’re all coming to Washington next week to talk.
I did see that, and there’s broader policies, the issues, really important issues, on data protection. There’s really important issues of privacy, and these are important policy issues that the legislative branch and the executive branch should consider. Fortunately, it’s outside of antitrust law enforcement, so I don’t have to worry about that.
Yeah, but you’ll watch them.
Of course, we’ll watch them.
Yeah. What could one of these things do that would ... you’d go, “Wait a second.”
Well, if they coordinated with each other, entered into an agreement to do certain things or stay out of each other’s markets.
You know, they’re all at the Palo Alto Starbucks right now, planning it together. No, I’m teasing.
Well, they might be going to ... You know, what is that? In Sun Valley or something.
Oh, they’re all ... Are you kidding? They’re all plotting there. Makan, you have to go.
No, so I don’t ...
You don’t go there? They don’t let you in?
They have not let me in there. That’s a different club.
Okay. Because you’ll rifle through their hotel rooms.
But it’s an interesting one that we actually look for the evidence of the wrongdoings.
That’s, I think, an important aspect. And if there is, we’ll go after them.
Okay. And how long are you going to stay in this job, Makan?
Oh, I serve at the pleasure of other people, and as long as I have a ... You know, this is a dream job for somebody like me who ...
Are you going to get back to biotech?
You know, if the opportunity comes.
Yeah, we’ve got some stuff out in Silicon Valley you might want to check.
There’s a lot of fun ... I love what goes on, and that’s an area that continues to improve all of our lives, has a huge impact not only on healthcare costs ...
Absolutely. No, we haven’t even gotten to the beginning of it.
Oh, we’re not even there, and I’m a big believer that molecular biology is going to ultimately address issues like cancer and other diseases.
Yeah. You know, the Silicon Valley moguls don’t want to die. They’re working on that.
They’re all working towards it.
They’re working towards it.
Yeah, I have seen ...
You’re going to have to do antitrust for people who are 300 years old. Anyway, I really appreciate this. Thank you so much for doing this.
Fascinating discussion. I do want to talk more about legal issues as we go forward, especially like you were talking about around headlines, like “break them up” or whatever. I want to get into a little more sophisticated discussion about that, but I appreciate your coming to talk. And thanks for coming on the show.
Thank you for having me.
This article originally appeared on Recode.net.