The Antitrust Division Finds the Nails

– By Stephen Díaz Gavin

Just yesterday (Monday, November 20th), as Stephen Diaz-Gavin’s article “For Want of a Nail: The AT&T – Time Warner Merger” was posted on Legal Bytes, the Antitrust Division of the U.S. Department of Justice (“DOJ”) filed a lawsuit opposing the merger in the U.S. District Court for the District of Columbia, asking that the proposed merger and related transactions be permanently enjoined.  The lawsuit is a significant departure from U.S. antitrust policy in recent years, which has generally permitted vertical mergers and, as we pointed out in our original post, highlights the problems in not having availed themselves of the FCC’s  public interest review to address the concerns about the merger, publicly.  AT&T  immediately responded that it will defend the merger, but win or lose, one thing is a sure thing – approval of AT&T’s $85.4 billion entry into the content production business — is no longer a sure thing. You can read the full text of the DOJ Complaint and again, if you have any questions feel free to contact Stephen Díaz Gavin directly. Of course, you can always contact me, Joe Rosenbaum, a Partner at Rimon in New York or any of the lawyers at Rimon with whom you regularly work.

 

All Good Things Must . . . .

–          Dror Futter

So far this year, offerings of blockchain based tokens have raised over $3 billion and for a long time regulators seemed to be ignoring these Initial Coin Offerings (ICOs).  Indeed, some commentators asserted they were outside the scope of government regulation.

This past summer, the Securities and Exchange Commission (SEC) began to take aim.  While the SEC has not yet provided detailed guidance as to which tokens would be categorized as securities and which considered “utility tokens” (outside the SEC’s jurisdiction), the SEC has indicated such tokens can be securities, basing its determinations on a ‘facts and circumstances’ analysis.  Having said that, SEC Chairman Jay Clayton reportedly deviated from prepared remarks earlier this month and said: “I have yet to see an ICO that doesn’t have a sufficient number of hallmarks of a security.

Since the summer, China and South Korea have banned ICOs, while  Canada, the UK, Switzerland, Australia and most recently the EU, issued SEC-like guidance stressing that tokens may be securities and as a result, subject to the oversight of securities regulators.

In addition, the first lawsuits related to ICOs have now been filed, reminding us that regulatory action is far from the only legal risk faced by ICO sponsors of ICOs.   In one of the current lawsuits,  only one of the claims is for the sale of unregistered securities, while other claims include allegations of fraud, false advertising and unfair competition under State law. Civil suits by disappointed investors and class action lawsuits relating to large scale offerings are likely to increase in the months and years ahead.

While recent developments don’t foretell the end of ICOs, they highlight more than the typical significant legal and regulatory risks associated with early stage venture investing.  Indeed, investors may not be able to rely on the same types of legal protections they might obtain when acquiring conventional securities.  Even after the initial issuance of these ‘tokens,’ their resale could raise even more issues and compliance may affect liquidity and valuation.  In an uncertain regulatory environment, risk mitigation is an important element of counseling clients, but hardly a basis for avoiding risk altogether and clients and their lawyers have good reason to be cautious. In fact, even creating an impression that an ICO has been ‘blessed’ by lawyers may not make it clear that opinions have a significant level of assumptions, qualifications and caveats well beyond routine legal opinions.

This posting was adapted and extracted from a more detailed Client Alert written by Dror Futter, a New York-New Jersey based Partner at Rimon, P.C.  You can read the entire alert, entitled “Spoiler Alert: ICOs – The “Good Times” May Be Ending,” and if you need more information, feel free to contact Dror Futter  directly. As always, if you need any assistance you can always contact me, Joe Rosenbaum, a New York based Partner at Rimon,  or any of the lawyers at Rimon with whom you regularly work.

For Want of a Nail: The AT&T – Time Warner Merger

– By Stephen Díaz Gavin

In Poor Richard’s Almanack, Benjamin Franklin included his own version of an old proverb : “For the want of a nail the shoe was lost, For the want of a shoe the horse was lost, For the want of a horse the rider was lost, For the want of a rider the battle was lost, For the want of a battle the kingdom was lost, And all for the want of a horseshoe-nail.” In the case of AT&T’s proposed $85.4 billion purchase of Time Warner Communications, for want of the Federal Communications Commission (“FCC”), the battle might now be lost.

When the merger was announced, AT&T confidently predicted that the deal would get the regulatory “green light”, from the FCC and the Antitrust Division of the U.S. Department of Justice (“DOJ”) portraying the deal as a classic “vertical” merger that removed no competitors from any market. Mindful that AT&T was still smarting from its 2011 failure to convince the FCC to permit its acquisition of T-Mobile in a horizontal merger, AT&T wanted to avoid FCC review, if at all possible.  AT&T and Time Warner maintained this situation was different.  They pointed to the fact that both DOJ and FCC had allowed a large vertical merger to proceed in 2011 when Comcast was permitted to acquire NBC Universal from General Electric.  Just this past February, Time Warner reported to the Securities and Exchange Commission (“SEC”) that it did not plan to transfer any of its licenses to AT&T, so FCC approval would not be necessary. Curiously, few questioned AT&T’s suggestion that there was no role for the FCC because the licenses did not themselves provide service to the public, even though the Communications Act applies to all radio licenses, not just those intended to provide direct service to the public. Apparently a sure thing only weeks ago, the acquisition has  run into significant regulatory difficulties and the DOJ has now raised the prospect that AT&T will have to divest either the Turner Broadcasting unit, which includes CNN and other popular channels, or its DirecTV business.

So what is happening now and why? Consider the political landscape for one. There has been considerable bipartisan political opposition to AT&T’s acquisition of Time Warner. Both leading Republican and Democratic members of Congress have spoken skeptically of the merger. Indeed, despite some relatively benign requirements (not including any divestitures), the DOJ approved the Comcast/NBC Universal merger with no divestiture obligations on Comcast. It is no coincidence that opposition to the Comcast acquisition was largely from programmers and public interest groups, but not, as is the case here, politicians as well.

Comcast and AT&T already control 62.3% of U.S. high-speed internet broadband capacity – significant market power and the capability, as internet service providers, to engage in strategies intended to block competitors. Public interest groups and content providers have again raised the concern that like Comcast before it, AT&T will now itself be a programmer with an incentive for anti-competitive behavior. On the programming side, “competitors” like Google, Amazon.com Video, Facebook and others are dependent on ISPs like Comcast and AT&T to reach users. Some officials at DOJ are also apparently frustrated with AT&T trying to circumvent the regulatory process by creating a sense of “inevitability” around approvals and although behavioral safeguards were imposed in the Comcast/NBC approval, there has been growing concern these have not been successful in preventing abuses.

If the AT&T/Time Warner merger fails, it may well be for want of the FCC’s involvement at the very outset. For many reasons, this entire situation might well have been avoided if AT&T had bit the bullet and sought review by the FCC, along with DOJ. Not doing so, bypasses the public notice and comment procedures and disregards the “safety valve” provided by same public airing of the issues. Although impossible to know at this point, perhaps the public interest emphasis of the FCC might even had taken some pressure off the DOJ to look at more drastic alternatives, such as divestitures of key assets. Instead of the FCC that would have considered imposing “public interest” conditions on the merger, AT&T must now deal with a DOJ Antitrust Division head who believes only in structural remedies, such as divestitures.  We may never know if want of the FCC, like the want of a nail, will cause the battle to be lost, but it increasingly looks that way.

This posting was adapted and extracted from a more detailed Client Alert written by Stephen Díaz Gavin, a Partner in Rimon’s Washington, D.C. office and coordinator of Rimon’s Affiliation with Studio Legale Palmieri in Rome, Italy. You can read the entire alert, entitled “AT&T’s Multibillion Dollar Purchase of Time Warner Might Fail for Not Involving FCC,” and if you need more information, feel free to contact Stephen Díaz Gavin directly. As always, if you need any assistance you can always contact me, Joe Rosenbaum, a Partner at Rimon in New York or any of the lawyers at Rimon with whom you regularly work.

A Newfangled Potato Chip

Fredric Baur invented Pringles and the Pringles’ can and when he passed away in 2008, his ashes were buried in one. Pringles are sold in more than 140 countries around the world and were originally developed by Baur who worked as a chemist for Procter & Gamble. P&G wanted to create the perfect chip, mainly due to complaints about broken, greasy, stale chips, and the air in the bags. Baur created Pringles’ saddle shape from fried dough and the storage can to go with it, but couldn’t figure out how to make them taste good. Another P&G researcher ultimately did improve on the taste and Gene Wolfe, a mechanical engineer-author known for science fiction and fantasy novels, developed the machine that cooks them into their consistent saddle shape, which is mathematically known as a hyperbolic paraboloid. P&G started marketing them in 1967 and sold the brand to Kellogg’s in 2012.

Samuel Goldwyn

“A verbal contract isn’t worth the paper it’s written on.”

A Chip Off the Old Can

Fredric John Baur was a noted American organic chemist and food storage technician. Where was he buried?

Orange You Glad You Asked ! !

Oscar the Grouch, the beloved Sesame Street character was originally orange. At some point before the second season began, Jim Henson decided to make him green. When the second season began, Oscar told everyone he had gone on vacation to Swamp Mushy Muddy and that he turned green overnight.

President Gerald Ford

“A government big enough to give you everything you want is a government big enough to take from you everything you have.”