Merger freeze could get expensive

Paramount Skydance Corp. is in for a tough battle to complete its acquisition of Warner Bros. Discovery Inc. in a $110 billion entertainment industry merger, a fight that legal experts do not expect will be resolved before the company must start paying big fees at the end of September.

U.S. District Judge Araceli Martínez-Olguín's Monday order granting the states' motion for temporary restraining order under the Clayton Act blocking the merger lasts for up to four weeks while she considers the states' motion for a preliminary injunction on Aug. 3. State of California et al. v. Paramount Skydance Corp. et al., 26-cv-07116 (N.D. Cal., filed July 13, 2026).

Her reliance on a 1963 U.S. Supreme Court antitrust decision and an April preliminary injunction by Chief Judge Troy L. Nunley of the Eastern District of California halting a merger by Nexstar Media Group Inc. with Tegna Inc., which followed a TRO by a few weeks, bodes well by California Attorney General Rob Bonta and 11 other states trying to stop the Paramount Skydance acquisition.

"Where plaintiffs demonstrate a presumption of illegality by way of undue market concentration, they need not offer 'elaborate proof of market structure, market behavior, or probable anticompetitive effects,'" Martinez-Olguin wrote in her TRO order, quoting the Supreme Court decision. U.S. v. Philadelphia National Bank, 374 U.S. 321, 363 (1963).

James H. Weingarten, a partner with Milbank LLP who represents California and 11 other states, told the judge during a hearing last Friday said they provided declarations not just from their own expert witness but from theater owners in the relevant markets.

"We have brought forward more than enough evidence to meet the standard that we are likely to succeed to the merits," he said. "There are serious questions, and that -- combined with the tipping of the equities in our favor -- is more than enough to establish a TRO and, respectively, a preliminary injunction."

Promising signs for the states

The good news for Weingarten is that Martinez-Olguin adopted his arguments in her TRO order, not only by citing Philadelphia National Bank and Nexstar Media Group but also by rejecting an argument by Jeffrey L. Kessler, a partner with Winston Taylor LLP, asking the judge to adopt a 1974 Supreme Court ruling relying on market share concentration, U.S. v. General Dynamics Corp., 415 U.S. 486 (1974).

"Defendants' proof, contrary to ... General Dynamics, on which they rely so heavily, does not establish that the merger would not substantially lessen competition," Martinez-Olguin wrote.

Kessler spent time during Friday's TRO hearing emphasizing what he said were the merger's pro-competitive benefits on streaming, which he accused the states of ignoring.

"The streaming combination [of Warner Bros.' HBO Max and Paramount Skydance's Paramount+) compels the increase in production for theatrical [releases]," he said. "It's the only way the streaming can succeed," adding that is why Paramount Skydance can commit to making 30 films each year.

Martinez-Olguin, an appointee of President Joe Biden, dismissed Kessler's streaming argument in a footnote.

"The Court notes separately that it cannot accept Defendants' argument that the Transaction will produce efficiencies in the streaming market," she wrote. "Courts have expressly and repeatedly rejected the defense that a challenged merger will result in economic efficiencies ancillary to competition in the relevant market."

While the standard for a TRO is less stringent than a preliminary injunction, antitrust lawyers and law professors said the language of Martinez-Olguin's order appeared to bode well for the state's chances.

"I think she thinks there's enough evidence to issue a preliminary injunction," said Abiel Garcia, a partner with Kesselman Brantly Stockinger LLP who previously worked for the California attorney general's office as well as Gibson, Dunn & Crutcher LLP. "It's a very similar standard as a TRO."

Thomas A. Lambert, a professor at University of Missouri School of Law, agreed that Martinez-Olguin appeared to take a dim view of Kessler's argument.

"It seems the judge is very skeptical of this merger," he said.

Even Martinez-Olguin's good news for Paramount Skydance, an early schedule for a hearing of the states' motion for a preliminary injunction, isn't necessarily a positive for the company.

"As a practical matter, what are [the companies] going to be able to do between now and Aug. 3?" Lambert asked, noting that their opposition is due Monday.

A straightforward case

One of the strengths of the states' Clayton Act lawsuit, Lambert said, is that it is "a very standard, bread-and-butter complaint" that defines the market and does not rely on what he said was former FTC Chair Lina Khan's "more adventurous antitrust theories." (Khan served during the Biden administration.)

"The adverse effects are very well understood. There's nothing in there that's really novel," he said. "I don't think this is a case where the states are pushing the boundaries of antitrust."

Kessler said the main issue in the case will be the market definition, the Philadelphia National Bank [PNB] threshold of 30% and the Herfindahl-Hirschman Index [HHI] threshold, a way to calculate the increase in market share after a merger. The HHI threshold is a major problem for the merger, he said.

"This merger is pretty comfortably in the dangerous zone that would put the burden on [Paramount Skydance] to rebut a presumption of anticompetitive effect," Kessler said.

One of Paramount Skydance's reasons for urgency is that the company will start having to pay $7 million a day in "ticking fees" to Warner Bros. Discovery if the acquisition is not completed by Oct. 1.

John M. Newman, former deputy director of the Federal Trade Commission's Bureau of Competiton under Khan, said he did not think the judge would be persuaded by that factor.

"I don't think this judge will be swayed much by the merging companies' arguments about ticking fees, the costs of delay, and the like," he said.

Garcia agreed that the Paramount Skydance's financial concerns would not be sufficient to qualify for an expedited appeal to the 9th U.S. Circuit Court of Appeals. The appellate court also is considering Nexstar's appeal of Nunley preliminary injunction in that case. DirecTV LLC et al. v. Nexstar Media Group Inc. et al., 26-2490 (9th Circ., filed April 22, 2026).

"I don't think that's enough of an emergency," Garcia said. "I cannot think of the reason an expedited appeal has been granted has been there's a deal closing. I have never seen that before."

Newman was skeptical that the U.S. Supreme Court would take up the preliminary injunction on its emergency docket, despite the support the acquisition - which would bring both CBS and CNN under control of the Ellison family, allies of President Donald Trump -- has from the president and his Justice Department, which already approved the deal.

"I just can't imagine this Supreme Court is going to use this case to alter Philadelphia National Bank," he said. "That would be the only reason to take the case. There's nothing interesting about it otherwise."

Market definition question

Legal analysts said Paramount Skydance's strongest argument is to persuade the courts - whether Martinez-Olguin or, more likely, appellate judges - that the states are defining the market for theatrical releases, "blockbuster" films or cable TV channels too narrowly.

During Friday's argument, Kessler portrayed an industry that is constantly evolving, with studios having the ability to produce more films and TV shows. He noted that Amazon Prime, owned by Amazon.com Inc., increased its output from one or two movies to 15 films this year.

"In this industry, talent is completely mobile, so actors, writers and directors can go from studio to studio," he said. "That factor is a rebuttal to the theatrical market."

Kessler also pointed to some major hits not produced by the five major studios, including "Michael," a biopic about singer Michael Jackson, "Obsession," a horror film produced independently, as well as "F1," produced by Apple Inc. -- though distributed by Warner Bros. Discovery.

Weingarten downplayed the prospect of new entrants, arguing that the five major studios have maintained their market share even as other studios occasionally score a few big hits.

"The shares of the five majors in the theatrical distribution market have been constant for 10-15 years at least," he told Martinez-Olguin. "That constancy of market share shows that their market concentration is durable and the statistics are valid."