Category: News

The State of California et al v. Paramount Skydance Corporation et al has been reassigned to Judge Araceli Martinez-Olguin, and it appears that an initial hearing to consider a temporary restraining order on the Paramount-Warner Bros. Discovery merger is still set for this Friday.

Judge P. Casey Pitts was initially assigned the case, which was filed Monday in federal court in the Northern District of California by a dozen state attorneys general, led by California AG Rob Bonta. Paramount filed a motion earlier Wednesday seeking to have the judge recused from the case. The company’s attorneys argued that Pitts has an “appearance of bias” because of his prior legal work for the Writers Guild of America. The WGA filed a separate suit Tuesday to block the merger.

Pitts had been randomly assigned to the case Tuesday.

Paramount’s legal team had requested the AG’s case be reassigned to Judge Martínez-Olguín in Oakland County, who is overseeing a related lawsuit that was brought by a group of consumers in April. There already has been some expectation that the case would be reassigned to her, even before Paramount’s latest motion, given previous filings that the litigation is related.

Earlier today, a Paramount shareholder filed a suit in Delaware Chancery Court against the Ellisons and the board on behalf of the company.

These are critical days for proposed $110 billion deal, which Paramount has been hoping to close in the third quarter.

If you want an early indication of the strength of a dozen states’ effort to stop Paramount‘s proposed acquisition of Warner Bros Discovery, it will come soon.

That’s because California Attorney General Rob Bonta and 11 of his colleagues filed a motion for a a request for emergency relief, or a request for temporary restraining order and preliminary injunction. If it is granted, a TRO would put a halt to the $110 billion transaction for at least a couple weeks, while a preliminary injunction would go longer as the legal process plays out.

In weighing an injunction during the proceedings, a judge will weigh a number of factors – among them, whether there would be irreparable harm if the merger were to close, whether the states would be likely to succeed on the merits, and whether such an order is in the public interest. The judgment would not be a final one for the case itself – that would be left to a trial – but a preliminary injunction would give the states leverage, perhaps for a settlement.

Paramount has touted the federal Department of Justice and a number of other regulatory approvals already in place, but opponents have waged a very vocal campaign against it, with figures ranging from Jane Fonda to Sen. Elizabeth Warren (D-MA) warning of dire consequences from the transaction. There has been considerable focus on the impact of the merger on CBS News and CNN, which will be under one corporate entity. Given the changes and tumult at CBS News since Skydance took ownership last year, there is plenty of consternation over what may be in store for CNN.

Yet a number of the concerns expressed won’t be part of the next legal steps. Instead, the focus will be on antitrust law and precedent – an area that can be exceedingly wonkish. On Tuesday, the case was assigned to U.S. District Judge P. Casey Pitts, who is being asked to rule on the emergency motion before July 22. A hearing has been set for Friday. There also is a potentially related case, the Writers Guild of America’s separate legal challenge to the merger that was filed today, litigation that focuses on the impact on the labor market.

In their lawsuit, the states claim that the merger would stifle competition in areas of wide-release theatrical distribution, anticipated top-grossing blockbusters and basic cable channel licensing.

In their argument for a TRO, the states claim that the merger is “presumptively unlawful,” pointing, among other things, to market share. They argued that a Supreme Court precedent did not specify a threshold for “undue concentration”; instead, “it was satisfied that 30% sufficed.” But they also noted that courts have applied the presumption of undue concentration to figures below that.

That’s important, because some of the figures from the states are in the ballpark of 30%, but not quite at it. The states noted in their filing, “The merger would give the combined entity approximately 27% of the wide-release theatrical film distribution market – as measured by the 600+ theatre release threshold – and approximately 30% of the anticipated top-grossing theatrical film distribution market – as measured by the 3,000+ theatre release threshold.” The AGs also noted that two companies – Paramount-WBD and Disney – would together control 59% of the market for the top-grossing films. The companies, they wrote, also would control 27% of the basic cable channel market, based on affiliate fees, and 34% as measured by viewership.

Some antitrust experts see the plaintiffs facing certain challenges in the case, but by no means do they consider the litigation to be frivolous.

“The complaint of the states is good enough to give Paramount and Warner Brothers a hard time,” William Kovacic, professor of law and director of the Competition Law Center at the George Washington University, wrote via email. “The companies know that they must take this challenge seriously. That is why they have mobilized a high-powered legal team (including Paul Clement and Jeff Kessler) to fight off the lawsuit. The states also have a capable team, so both sides are well represented.”

Kovacic, former chair of the Federal Trade Commission, noted that a “protracted contest does the companies no good. This leads me to think that they will pursue a settlement that takes the spoken promises of the company executives and backs them up with a binding order, and perhaps includes other concessions designed to strengthen the position of the traditional theater distribution channel.”

The states’ lawsuit does not include a claim about the potential loss of jobs – a key concern of guilds and unions, especially given the $6 billion target for cost savings from the merger – but it does make mention of the potential adverse effects, Kovacic noted.

“This concern also could be addressed with funding commitments not to reduce the workforce for some period of time,” he wrote.

Defining The Market

A key part of antitrust cases is how a judge decides what the relevant market is. In other words, if the market is narrow, that makes it more difficult for combining firms to make the case that their transaction will not harm competition.

What quickly got a lot of attention was the states’ claim that one of the markets was that for “anticipated top grossing films,” a submarket of wide theatrical distribution that they say is the “backbone of the movie theatre business.”

Paramount contends that the state AGs’ lawsuit is a “flawed application of antitrust laws” and “is inconsistent with sound competition policy and the competitive realities of the media marketplace.”

While Paramount and other critics may characterize the market for anticipated blockbusters as a legal contrivance, it did bring to mind a claim that the Justice Department brought in its challenge to the proposed combination of Penguin Random House with Simon & Schuster. In that case, the government focused on the market for anticipated top-selling books and, more specifically, to the harm to author payments due to the reduced competition. After a trial that featured testimony from figures including Stephen King, the government prevailed, and the merger was abandoned.

“Some might also wonder (and Defendants will also argue that) ‘anticipated top-grossing’ is just a made-up qualifier to yield an artificially narrow submarket. But there’s good, recent support for that in the case law,” John Mark Newman, law professor at the University of Memphis, wrote on X as he singled out the Penguin-Simon & Schuster case.

Diana Moss, vice president and director of competition policy at the Progressive Policy Institute, wrote via email that she “would expect controversy over the definition of the wide-release and top-grossing film distribution markets.”

She added, “Streaming has expanded dramatically in the last several years. A judge will need to decide if film distribution should be defined narrowly around theaters only, or more broadly around theaters and streaming. If a judge is convinced of a larger market, then the state claim might be in jeopardy, so the AGs should be prepared to vigorously defend their argument.”

Battling Big Tech

Paramount has leaned heavily into the argument that the merger would be “pro-competitive,” a common talking point in any major transaction. In this case, though, the company points to the dominance of Netflix and the need for a robust rival in the streaming space.

Today on CNBC, Jeffrey Kessler, who is helping to lead its defense, said, “The company believes strongly in this, and they would take this up to the Supreme Court if they had to.”

RELATED: Paramount Lawyer Expects The Company To Close WBD Merger On Time Despite Lawsuits; Supreme Court Appeal In Play

He said, “This is an antitrust case. To stop a merger, the merger has to be anti-competitive. This merger is pro-competitive. Anybody who knows the entertainment industry knows it is in deep trouble.”

A recent report from Stephen Moore, economic adviser to Donald Trump, and Robert Wolf, economic adviser to Barack Obama, made the case that the rapidly changing nature of the business cannot be ignored. “The available evidence, including the breadth of entertainment choices, the scale of larger technology-backed rivals, and Paramount’s commitments to increase theatrical output – suggests consumers would not be harmed by the merger,” they wrote.

The look-to-the-future arguments were part of AT&T’s case as it faced a DOJ challenge to its acquisition of Time Warner in 2018. A judge ruled for AT&T-Time Warner, and the company also won an appeal.

Moss wrote, “Even though that was a vertical merger and this is a horizontal one, if a judge gives credence to these arguments (as in AT&T-Time Warner), the states might have a uphill battle defending the claim that the merger is presumptively anticompetitive and, therefore, illegal. Of course, the unwinding of AT&T-Time Warner three years after the merger was consummated indicates that there were no efficiencies at all! The states should use examples like this to defend their case.”

The state AGs also cite the impact of other recent mergers, including Disney’s acquisition of Fox assets in 2018, claiming it more than halved theatrical output, with thousands of jobs lost. Paramount has argued that the numbers were impacted by the Covid pandemic and the pending launch of Disney+, a contrast to its strategy of getting more films into wider distribution.

Then, as now, the influence of Trump hung over the legal proceedings. The judge in the AT&T case declined to go down that route, and the Paramount-WBD case likewise focuses on the legal arguments, not politics. But in his Monday press conference announcing the case, California Attorney General Rob Bonta accused the White House of influence over the Justice Department’s sign-off on the merger. Oregon Attorney General Dan Rayfield told reporters that he still may seek Paramount records of its lobbying campaign to win favor for the transaction.

In the immediate term, though, all eyes will be on Pitts. His decision on the states’ TRO and injunction requests could set the stage for a lengthy legal battle, or a small blip on the way to one of the largest media mergers in history.

UPDATE: Writer E. Jean Carroll has been paid a damages amount of $5.63 million as part of her successful lawsuit against Donald Trump, after the president exhausted his appeals.

According to an entry in the docket of federal court in New York, the funds were transmitted to the law firm representing Carroll on Monday.

“The Eagle Has Landed,” Carroll wrote on her Substack page on Tuesday.

A jury awarded Carroll $5 million after ruling that Trump was liable for sexual abuse and defamation. It stemmed from a 1996 incident at a Manhattan department store, where Carroll claimed that Trump sexually abused her. Trump has denied the allegations, but Carroll also sued for defamation after his claim that she was spreading falsehoods.

Trump appealed, but the Supreme Court declined to take up the case last month. That left in place the verdict, and a judge ordered the funds released from a court escrow account. The figure paid includes interest, although it is slightly less than some earlier estimates.

Trump is also appealing a verdict in a separate proceeding, in which a jury awarded Carroll $83.3 million after finding him liable for defamation.

PREVIOUSLY: A federal judge ordered the release of around $5.8 million held in an escrow account to writer E. Jean Carroll after the Supreme Court declined to take Donald Trump’s appeal of a jury’s judgment that he was liable for sexually abusing and defaming her.

U.S. District Judge Lewis Kaplan issued the order on Wednesday, despite efforts by Trump’s attorneys to hold off on the disbursement as they pursue a rehearing before the Supreme Court, which declined their petition last month. Those rehearings, though, are very rare.

The funds represent a jury’s $5 million judgment, plus interest, after a 2023 trial. The funds were held in an account controlled by the court for more than three years.

After Kaplan’s most recent order, Trump’s legal team filed an appeal.

The jury found Trump liable for sexually abusing Carroll in a Manhattan department store in 1996, and later claiming that her allegations were false.

In a separate proceeding, a Manhattan jury awarded Carroll $83.3 million in damages after finding Trump liable for defamation. Trump’s legal team is appealing that verdict to the Supreme Court as well.

Kaplan wrote, “In the last analysis, defendant has been stalling this case for years. A jury unanimously concluded that he sexually abused and defamed plaintiff and awarded her damages accordingly. The judgment on that verdict has been upheld on appeal. En banc rehearing has been denied. The Supreme Court has denied certiorari without dissent. It is time for him to ‘do equity’ and pay the judgment.”

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