Although intellectual property law exists to encourage innovation and invention, patents have become the one legal way private companies can exercise a monopoly over the market. Oversized patent portfolios and prolonged patent lawsuits translate into less consumer choice and higher prices. Effectively, patents become the end in and of themselves, and no longer a means for supporting innovation.

These lawsuits have caused real concern at the Department of Justice’s antitrust division, where the patent wars have raised the prospect of anti-competitive activities. The DOJ is charged with viewing the market as a whole. For that reason, the Department of Justice has invoked a little-known form of consumer protection in ensuring the Patent Wars don’t put new technologies out of the consumer’s reach.

It has been well publicized that the battles between tech powerhouses like Google, Apple and Microsoft go far beyond the features of their latest devices. As many of these companies continue to focus large amounts of time and treasure in the courtroom, there is a concern that innovation will take a backseat to genuine competition on tech. Since Google’s acquisition of Motorola Mobility last year, things have especially heated up among the three major players — a situation that can only worsen with Microsoft’s acquisition of AOL’s patent portfolio, which is a symptom of a patent “arms race.”

No longer obtained to protect a new technology or a particular state of art, patents are now used in the smartphone arena to block other players from entrance into the arena, or to stop one company from achieving a dominant position.

A patent-centric strategy works extremely well in the software industry because sets of international standards allow our mass communications devices to work together seamlessly. If a company obtains a patent governing one of these standards, or for technology that is widely relied upon (even if not directed to a specific standard), that company can put a chokehold on the market.

Specifically, rival companies have attempted to block Google’s Android operating system and handsets, which Google licenses to other companies for free, while Apple and Samsung have been engaged in a number of lawsuits over handset technology. One such lawsuit resulted in a suspension of iPad and iPhone sales in Germany.

In fact, when so many patents protect vital, standardized technologies with such broad language, lawsuits are certain to follow. And a glut of patent lawsuits can mean licensing deals, which in turn mean higher prices as the costs of production come to include those licensing deals. In a worst case scenario, a licensing deal can’t be reached and the technology is unavailable to the consumer.

And while the lawsuits have played out largely amid corporate attorneys and IP specialists, the consumer isn’t without an advocate as the patent wars rage. As leverage to avoid antitrust lawsuits, the Department of Justice has emphasized a little-known tool to regulate the cost of patent licenses. It can exert pressure to require that crucial patents be licensed under a set of terms known as FRAND (Fair, Reasonable and Non-Discriminatory) terms.

These terms set strict guidelines regarding the costs of licensing and prevent companies holding vital patents from setting exorbitant, unfair prices. For example, the DOJ recently pressured a consortium led by Apple to commit to FRAND licensing when it bought various Nortel and Novell patents. The government tacitly hinted that it would block the acquisition if the consortium didn’t agree to FRAND terms. If the DOJ hadn’t stepped in, the consortium would have been able to exert enormous leverage on the consumer electronics market.

Google is being required to maintain FRAND terms with the patents that it received upon purchasing Motorola Mobility. Google also bought patents from IBM under those terms.

In fact, companies holding patents which are considered to be crucial to a particular standard may be required to license those patents by the relevant governing standards body under FRAND terms.

Some companies do choose to license their patents widely, even without explicit FRAND requirements. Microsoft, for example, has chosen to license its patents widely, having reached licensing agreements with makers of more than 70 percent of the Android-based smartphones sold in the U.S. On the other hand, Steve Jobs famously threatened to do whatever was necessary to force Google to significantly change Android to remove features that Jobs felt were proprietary to Apple, refusing to even consider payment from Google to license Apple’s patents.

It’s likely the smartphone war will end in a variety of licensing agreements and cross-licensing agreements. Whether those agreements result in competitive prices for the consumer depends on how effectively the DOJ wields its “FRAND” sword.

D’vorah Graeser, Ph.D., is the founder and CEO of Graeser Associates International (GAI), an international intellectual property firm specializing in the preparation, filing and prosecution of medical device, biotechnology, pharmaceutical, bioinformatics and software patents. Dr. Graeser is a U.S. Patent Agent and is not an attorney at law; none of the above should be construed as legal advice.

Under the deal being discussed, PokerStars would acquire the assets of its smaller rival, according to the person. The deal would be part of a broader settlement of a civil case brought by the DOJ against the two companies, the person said. The DOJ shut down the U.S. web sites of Full Tilt Poker and PokerStars last year as part of a crackdown of online poker sites.

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A letter sent to shareholders today by founder and CEO Jeff Bezos, titled “The Power of Invention,” tackles the publishing industry head-on by explaining how both authors and customers are benefiting from its Kindle publishing business.

While Bezos fails to address the DOJ lawsuit, which accused Apple and five major book publishers of conspiring to raise e-book prices, he provides a glimpse at how he’s changing the economics of the business on a small scale.

Bezos says Amazon’s Kindle Direct Publishing division has already produced more than a thousand authors who are selling more than a thousand copies a month. Some have reached hundreds of thousands of sales, and two have joined the Kindle Million Club.

Authors who use KDP get to keep their copyrights, keep their derivative rights, get to publish on their schedule – a typical delay in traditional publishing can be a year or more from the time the book is finished – and … saving the best for last … KDP authors can get paid royalties of 70%. The largest traditional publishers pay royalties of only 17.5% on ebooks (they pay 25% of 70% of the selling price which works out to be 17.5% of the selling price). The KDP royalty structure is completely transformative for authors. A typical selling price for a KDP book is a reader-friendly $2.99 – authors get approximately $2 of that! With the legacy royalty of 17.5%, the selling price would have to be $11.43 to yield the same $2 per unit royalty. I assure you that authors sell many, many more copies at $2.99 than they would at $11.43.”

If you can’t take Bezos at his own word, the letter includes eight quotes from customers and authors who have benefited from Amazon’s services, including its publishing, fulfillment and Web services.

“These innovative, large-scale platforms are not zero-sum — they create win-win situations and create significant value for developers, entrepreneurs, customers, authors, and readers,” he wrote.

The company’s stock was trading down 1.81 percent, or $3.46 a share today, to $187.23. In recent months, the stock has slipped from its 52-week high of $246.71 a share.

The gist of the Department of Justice’s lawsuit against Apple and five major book publishers: The publishers, assisted by Apple, conspired to fight back against Amazon’s pricing power in the growing e-book market.

The Wall Street Journal, which has been on the story for some time, has plenty of background here. And there’s some great, baroque detail in the DOJ’s complaint, which you can read over here. (New York venues of choice for alleged antitrust meetings: The “Chef’s Wine Cellar” at Picholene, and Alto, a now-defunct Italian restaurant.)

But there’s also this odd, scintillating, throwaway line in the middle of the complaint, where the DOJ casually mentions that before Apple thought about fighting with Amazon, it thought about a different strategy: Ruling the world in concert.

From the complaint:

In addition to considering competitive entry at that time, though, Apple also contemplated illegally dividing the digital content world with Amazon, allowing each to “own the category” of its choice — audio/video to Apple and e-books to Amazon.

Really? So how would that work? And why didn’t Steve Jobs and Jeff Bezos end up conspiring to work together? The DOJ doesn’t explain any of this — it simply moves on to the rest of its argument.

And here’s where we need to point out that it’s not uncommon for lawsuit complaints to contain big helpings of theatrics, with accusations and context that won’t end up having any bearing in court, if it gets that far.

Indeed, several of the publishers that the DOJ is suing this morning are expected to settle with the government this afternoon — can’t get more theatrical than that. (Actually, they’ve already settled, says Bloomberg.)

Still, that’s an especially juicy bit of red meat to dangle in front of the public, so if the DOJ has more to say about the alleged would-be conspiracy, we’d love to hear about it. Apple declined to comment, but I’ll update if that changes.

(Image courtesy of Shutterstock/Everett Collection)

The lawsuit, filed in Manhattan federal court by the U.S. Department of Justice’s Antitrust Division, alleges Apple and the publishers reached an agreement where retail price competition would cease, retail e-books prices would increase significantly and Apple would be guarantee a 30% “commission” on each e-book sold.

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Increasingly, that phrase can be applied not only to Las Vegas casinos, but also to Facebook, which takes a 30 percent cut of game developers’ revenues for the right to be on the social network.

“Facebook is almost the same business [as casinos],” said Chris Satchell, CTO and EVP of research and development at International Game Technology, which makes both traditional casino games and social games. “Facebook has real estate and customers, just like the casinos.”

Since 1981, IGT has been developing and manufacturing slot and video poker machines for casinos. Some of its games include recognizable brand names such as Wheel of Fortune, Big Buck Hunter, The Hangover and Sex and the City. Now, the casino game-maker is trying its hand at social games.

To make the leap, in January IGT acquired Seattle-based Double Down Interactive for $500 million. This week, the company launched their latest social game, called American Idol Slot, within Double Down’s casino on Facebook, which ranks in the top 25 by drawing 5.4 million gamers a month.

The American Idol game lets people spin the wheels featuring the faces of Season 11 contestants with host Ryan Seacrest looking over their shoulder. The free-to-play game allows you to win additional chips. Those who aren’t as lucky can buy 75,000 for $1.

The company says the game was in development prior to the acquisition, but says it is an example of how the two companies make a great fit.

Satchell said the idea is to enable cross-platform gaming experiences, so that players can connect to games before, during and after visits to casinos. Obviously, using big names helps.

But he also sees Facebook as a way to introduce casino games to a younger crowd, who are more likely to go clubbing at a casino than play highly profitable slot games.

“If we could just get them to understand that it’s fun. Social gaming is a good way to do that, and it’s a good business in its own right,” he said.

It’s a good business now, but it may be an even better business in the future when online gambling is legalized.

Late last year, the Department of Justice issued a new interpretation of the Wire Act of 1961. Under the new ruling, it interprets the Act as only outlawing bets on sporting events — not all events and contests. With that clarification in place, it will now be up to each state to pass legislation outlining operating procedures.

Some states have already passed laws, encouraging several companies, including IGT, Zynga and Caesars Interactive, to place their bets.

Regulators warned Google that their approval of the $12.5-billion acquisition does not preclude continued monitoring of the company’s use of MoMo’s arsenal of 17,000 patents — particularly those deemed standards essential (SEP). Both agencies are clearly very wary of the possibility for their misuse, given Google’s recent endorsement of the not-really-fair-and-reasonable-at-all licensing terms Motorola Mobility has been trying to squeeze out of Apple and others — 2.25 percent of the net selling price in which its patented technology is used. And their dueling statements announcing the approval of the merger reflect this.

Here’s the DOJ:

“In light of the importance of this industry to consumers and the complex issues raised by the intersection of the intellectual property rights and antitrust law at issue here, as well as uncertainty as to the exercise of the acquired rights, the division continues to monitor the use of SEPs in the wireless device industry, particularly in the smartphone and computer tablet markets. The division will not hesitate to take appropriate enforcement action to stop any anticompetitive use of SEP rights.”

And the EC:

“Today’s decision does not mean that the merger clearance blesses all actions by Motorola in the past or all future action by Google with regard to the use of these standard essential patents. Our decision today is without prejudice to the legality under EU antitrust law of Motorola’s past and Google’s future actions. However, the question whether Motorola’s or Google’s conduct is compliant with EU antitrust law cannot be dealt with in the context of the merger procedure.”

In other words, neither agency feels that the SEP and FRAND licensing issues surrounding this acquisition have been properly dealt with. But they will be, if the need arises. And Google best tread carefully.

In its roadshow presentation released online today, the Vegas-based company, which manages 42,000 hotel rooms, said one of the biggest opportunities it had going forward was on the Internet, including social games and real-money gaming.

Mitch Garber, the CEO of the company’s interactive division, said it recently launched Caesars Casino in beta on Facebook, making it the first time that a brand name was used to compete in the casino genre.

Garber believes that the game, which includes video slots, blackjack and roulette, will displace Double Down Casino as one of the category leaders. The developer of Double Down Casino, Double Down Interactive, was recently acquired by video poker giant International Game Technology for $500 million.

Garber said over the past 13 months, so much of the business has changed.

With the sale of Double Down, and the visibility into social games leader Zynga, which went public in December, and the release of more information this week by Facebook in its public filing, there are lots of verifiable signs that this is a big business.

For instance, on Wednesday, Facebook revealed that Zynga made up 12 percent of its overall revenues. Zynga’s Poker game is the leading casino-based game on Facebook, and more recently, it launched Bingo as part of a casino series.

Over the past two days, Zynga’s stock price has soared based on the Facebook news, rising 8.11 percent today alone to close at $13.39 a share.

Caesars said yesterday it was applying to be listed on the Nasdaq market under the symbol “CZR,” and that it was planning to sell 1.8 million shares between $8 and $10 apiece.

Caesars Chairman, CEO and President Gary Loveman was positive about a number of aspects of the business, as he should be in a presentation to potential investors, but one of the highlights was online gaming.

“This is a big deal for us,” he said, calling out the opportunity for gambling online, across both mobile and social networks and across multiple languages.

In addition to launching Caesars Casino on Facebook, the company has been building up its online gaming chops for some time.

Garber said this past year the company purchased Israel-based Playtika, which operates Slotomania, a very popular slots game on Facebook, iPhone and iPad. It also has two software partners that will enable it to expand into online gambling in the U.S. as soon as it becomes legal.

“We aren’t aware of any other bricks and mortar company that has the online experience that is preparing themselves as we are,” he said.

However, Zynga told All Things D it was currently seeking partnerships to pursue real-money gaming, and MGM Resorts also recently unveiled a plan to partner with online poker company Bwin.Party Digital Entertainment.

Of course, the big driver for everyone is that the laws are changing in the U.S., which makes it nearly a foregone conclusion that online gambling — at least some games — will become legal over the next year.

Late last year, the Department of Justice issued a new interpretation of the Wire Act of 1961. Under the new ruling, it interprets the act as only outlawing bets on sporting events — not all events and contests.

With that clarification in place, it will now be up to every state to pass legislation outlining operating procedures.

“We see the odds being close to 100 percent,” Garber said. “It’s just a matter of whether it will be federally regulated or state by state. The states are already doing it, but the federal government is getting their act together, too.”

The company has confirmed to All Things D that it is actively investigating several opportunities, and is in talks with several partners about gambling on the Internet.

A Zynga spokesperson provided this statement to AllThingsD:

“We build games and experiences that our players want and love. Zynga Poker is the world’s largest online poker game with more than 7 million people playing every day and over 30 million each month. We know from listening to our players that there’s an interest in the real money gambling market. We’re in active conversations with potential partners to better understand and explore this new opportunity.”

As with any new entrant in the space, Zynga will have to fulfill several requirements, meaning any major rollout is still months away.

The San Francisco-based social games maker will have to wade through a maze of state, national and international regulations. It will have to secure the correct licenses, and it also needs the right technology to make betting over the Internet secure.

For either of these last two requirements, a partnership or acquisition of an online gambling organization or other technology would make the most sense, instead of starting from scratch.

However, the effort could easily pay off.

Zynga was one of the first online gaming companies on Facebook, and continues to dominate the platform today. If it is able to get its toe in the door, just as the laws change in the U.S., it could be a leader yet again.

Back in October, Zynga first started showing broad interest in the casino category.

Zynga founder and CEO Mark Pincus announced at a press event that the company was going to launch Zynga Casino, which would serve as a single destination on Facebook to build off its strong brand in poker.

Its first new game, which has not launched yet, will be bingo.

Until now, the company’s efforts have been limited to building social and mobile games that are given away for free and monetized through the sale of virtual goods.

Getting users to make bets and part with real money could prove difficult, even for a company that has so many dedicated fans.

One thing Zynga has going for it is that social games are frequently compared to gambling because of their addictive nature — both lure consumers into spending a few more dollars to continue playing.

The casino genre has also been quietly racking up big numbers on Facebook.

Besides Zynga Poker, which is the most popular poker game on Facebook, and one of the company’s longest standing titles, there are many other sleeping giants. Sean Ryan, Facebook’s director of game partnerships, has even called them “unbelievable monsters.”

Said Ryan: “It turns out that people are completely okay winning virtual currency that they can never cash out.”

If players actually have the chance to win money, who knows the size of the opportunity?

A Facebook spokesperson said the company does not necessarily see a future for gambling on the social network. “We don’t have any plans to get into real-money gambling,” she said.

It’s unclear if that eliminates others from experimenting. In the meantime, it hasn’t stopped game makers from exploring the category or the concept.

Last week, Seattle-based Double Down Interactive, which was named by Facebook as one of the most popular game makers of 2011, was acquired by video poker giant International Game Technology for $500 million. It has 4.7 million monthly active users playing a variety of games, including blackjack, slots, video poker and roulette.

The deal closely followed Caesars Entertainment’s purchase of Playtika, an Israeli game company known for its Facebook title Slotomania. Caesars bought the company in two stages, the first of which was rumored to be purchased for up to $90 million.

Caesars, which filed to go public in November, declined to comment because it is currently in its quiet period.

However, some of its plans were revealed in a document filed with the Securities & Exchange Commission. It said its Caesars and World Series of Poker brands are dedicated to online gaming, and will take advantage of real-money gaming as it becomes legalized. Right now, Caesars Entertainment offers games “for fun” in jurisdictions where online gambling is not yet legal, but has identified the legalization of online poker in the U.S. as “the largest opportunity in online gaming in the near term.”

Still, the biggest hurdle is the law.

Internationally, several countries have permitted gambling for some time, and those areas represent the most immediate opportunities.

But there are signs of the U.S. beginning to open up, too. On the day before Christmas, the Department of Justice gave the online gambling community an early present, according to a blog post written by Nelson Rose, a professor and lawyer.

“President Barack Obama’s administration has just declared, perhaps unintentionally, that almost every form of intra-state Internet gambling is legal under federal law, and so may be games played interstate and even internationally,” Rose wrote.

Essentially, what the Justice Department did was to issue a new interpretation of the Wire Act of 1961. Under the new ruling, it interprets the act as only outlawing bets on sporting events — not all events and contests, according to an article in the San Francisco Chronicle.

With that clarification in place, it will now be up to every state to pass legislation outlining operating procedures. So far, Nevada and the District of Columbia have moved quickly to enact laws. To get other state laws passed could be a lengthy process, especially during an election year.

In the meantime, launching games only in Nevada and D.C. doesn’t represent the big opportunity everyone was hoping for.

To be competitive against Caesars and IGT, Zynga may have to partner or acquire companies that already have the licenses in place or the necessary expertise.

Some of the more obvious candidates include Bwin, which operates PartyGaming.com and is traded on the London Stock Exchange; Betfair, and other operators, like Bodog, Bet365 and 888.com. Many are based in the U.K. and handle a variety of casino games and sporting contests there.

The entrance into a new market, such as gambling, would take substantial resources, and Zynga has them thanks to its public offering. In December, it raised $1 billion, making it the largest Internet IPO since Google.

So, will Zynga be the next “unbelievable monster?” Clearly, it is willing to try.

With the Federal Communications Commission threatening to block the deal, and the Justice Department already suing to do the same, AT&T last month pulled its application before the FCC, in hopes that a court would take its side in the DOJ case. The company said it would deal with the FCC once a court heard its case with the Justice Department.

However, the DOJ one-upped the telecom giant on Friday, arguing that the court case should be put on hold, now that AT&T has yanked its application to the FCC to acquire T-Mobile’s licenses.

Check.

Your move, AT&T.

Update: For its part, AT&T general counsel Wayne Watts says the company is “anxious to bring to the American consumer the benefits of increased wireless network capacity and efficiencies that can only arise from combining the resources of AT&T and T-Mobile USA,” and is “eager” to present its case in court.

Industry sources expect the Department of Justice, who had been reviewing the $400 million transaction for antitrust violations, to approve the deal in the next couple weeks, perhaps as early as this Friday.

It’s unclear whether the DOJ will impose any restrictions on the deal. But Web ad players, reading tea leaves and DOJ body language, are betting the sale goes through unhindered. No comment from Google; I’ve yet to hear back from a Department of Justice rep. UPDATE: “Our investigation is ongoing,” a DOJ spokeswoman emails.

Admeld helps publishers sell their ads by negotiating bids from multiple buyers, and is a big player in the complicated and fractured display advertising business. Google, which has long been dominant in search advertising, has been steadily increasing its presence in display ads via acquisitions like DoubleClick and Invite Media.

So it was easy to see why regulators might give another big deal some scrutiny. In fact, at this point, every big deal Google makes will get a hard look from Washington, which is already pursuing a broad antitrust investigation. But so far regulators have yet to stop a deal, including Google’s $750 million acquisition of AdMob and its more recent deal for ITA. Next up: The $12.5 billion Googorola deal.

The DOJ first began looking at Google-Admeld six months ago, and in late July extended their review. At the time, Google published a blog post explaining why the company couldn’t dominate display ads, even while its executives told Wall Street it had big ambitions in display.

More recently, Google has gotten help making its case from competitors. Facebook, for instance, is already ahead of Google in the display ad market, at least by the estimation of some analysts.

And Yahoo, which still competes fiercely with Google for display ad dollars, has put together a battle plan designed specifically to take on Google: It has lined up a coalition of big Web players with AOL and Microsoft, and it has begun pulling back its inventory from third-party ad buyers, including Google’s Invite Media.

(Image credit: iStockphoto/alexsl)

The Department of Justice has already filed suit seeking to block the deal, which requires approval from both agencies.

FCC Chairman Julius Genachowski has circulated a draft opinion that would seek to have a hearing before an administrative law judge, though the commission is likely to hold that hearing only after the DOJ suit is decided. If the Justice Department is successful in its effort, the FCC move would be moot. However, AT&T now needs to go 2-for-2 if it hopes to complete the deal.

The decision is not shocking, given that the FCC had indicated it shared some of the Justice Department’s concerns.

However, what is noteworthy is just how strong the agency’s concerns are.

FCC officials said on Tuesday that the agency found in its review not only that the deal would hurt competition, but also that it represents an unprecedented reduction in competition. In every market except Omaha (where T-Mobile does not offer service), the agency found that the merger would reduce competition to a meaningful degree.

The agency staff also rejected AT&T’s claims that the deal would lead to a faster or more complete rollout of 4G. And, rather than create jobs, the FCC staff believes approval of the deal would actually lead to fewer U.S. jobs.

AT&T, naturally, said it was not thrilled with the decision.

“The FCC’s action today is disappointing,” said Larry Solomon, SVP of corporate communications. “It is yet another example
of a government agency acting to prevent billions in new investment and the creation of many thousands of new jobs at a time when the U.S. economy desperately needs both. At this time, we are reviewing all options.”

In addition to setting up a possible second court battle, the FCC findings also mean that any proposed settlement would have to satisfy two agencies, both of whom seem to see little merit — and lots of harm — in the deal. Oh yeah, Sprint and C-Spire Wireless have also filed suits of their own.

In a regulatory filing, Motorola Mobility said: “On September 28, 2011, Motorola Mobility Holdings, Inc. and Google Inc. each received a Request for Additional Information and Documentary Material from the Antitrust Division of U.S. Department of Justice (DOJ) regarding the proposed merger between the companies. The companies intend to cooperate fully and respond expeditiously to the DOJ. The transaction is currently expected to close by the end of 2011 or in early 2012.”

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The department filed an amended legal complaint in a Washington D.C. federal court to indicate that state attorneys general from New York, Washington, California, Illinois, Massachusetts, Ohio and Pennsylvania have joined the case.

“We are pleased that these states have joined the department in its lawsuit,” the department said in a written statement. “Together, we will seek to protect consumers from the anticompetitive harm that would result from this proposed transaction.”

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Sprint has already voiced its objections to the deal, and last week the Department of Justice filed its own suit seeking to block the deal. In a statement, Sprint said its suit is being filed as a related suit to the DOJ case.

In announcing the suit, Sprint reiterated its standard arguments against the deal, saying it would both hurt competition and harm consumers.

“Sprint opposes AT&T’s proposed takeover of T-Mobile,” Sprint litigation VP Susan Z. Haller said in a statement. “With today’s legal action, we are continuing that advocacy on behalf of consumers and competition, and expect to contribute our expertise and resources in proving that the proposed transaction is illegal.”

An AT&T representative was not immediately available for comment.

In the wake of last week’s move by the Justice Department, both AT&T and T-Mobile parent Deutsche Telekom vowed to fight on. In addition to needing to prevail in court in the Department of Justice suit, the companies also need approval from the Federal Communications Commission, which said last week that it too has serious concerns about the deal.

Update: In a statement, AT&T criticized Sprint’s suit and reiterated its case for the merger.

“This simply demonstrates what we’ve said all along – Sprint is more interested in protecting itself than it is in promoting competition that benefits consumers,” AT&T said. “We of course will vigorously contest this matter in court as AT&T’s merger with T-Mobile USA will: help solve our nation’s spectrum exhaust situation and improve wireless service for millions; allow AT&T to expand 4G LTE mobile broadband to another 55 million Americans, or 97% of the population; and result in billions of additional investment and tens of thousands of jobs, at a time when our nation needs them most.”

Also, here’s a copy of the suit:

Sprint Suit to Block AT&T – T-Mobile

In a surprisingly early and decisive move, the Department of Justice on Wednesday filed suit to block AT&T’s planned $39 billion purchase of T-Mobile USA. Justice Department attorneys said that they are concerned the deal will lessen competition, ultimately leading to higher prices for consumers.

Experts say the broad worry about the reduction in competition makes it tough to imagine what sort of sweeteners the companies could create to make the deal easier to swallow.

“Given the nature of the specific concerns articulated by the DOJ, those types of concerns are hard to address through concessions,” said Maury Mechanick, a telecommunications attorney with White & Case.

As a result, it would appear that AT&T and T-Mobile will have to weigh whether they are willing endure an all-out court fight to try to preserve the deal.

And oh, what a fight it would be. In order for the deal to go forward, AT&T would have to convince a federal court to see things its way as well as prevail on any appeals, a process that is uncertain, not to mention costly and time-consuming. Even if they ultimately prevail in court, the companies still need the approval of the Federal Communications Commission.

Both FCC Chairman Julius Genachowski and Commissioner Michael Copps issued statements on Wednesday saying that they, too, have concerns about the deal. While the FCC review is separate from the one being done by the Justice Department, the statements indicate the two agencies seem to be on the same page when it comes to the deal.

One FCC insider noted that the agency has never approved a deal that the Justice Department sued to block.

For now, both AT&T and T-Mobile parent Deutsche Telekom say they are willing to fight for the deal. AT&T has asked for an expedited hearing on the matter.

As reported in March around the time the merger was first proposed, T-Mobile, a division of Deutsche Telekom, stands to gain about $3 billion in break-up fees should the deal fail to close. AT&T would also give T-Mobile certain wireless spectrum that’s not needed for the rollout of its next-generation wireless network.

While AT&T has said it plans to fight the action in court, the sudden move by the Justice Department and the fact that the Federal Communications Commission — which would also have to sign off on the deal — has yet to weigh in on it, make it extremely unlikely that the merger will ever be consummated, says James Ratcliffe, a telecom analyst with Barclays Capital in a note to clients today. He points out that, historically, when they challenge mergers in court, the agencies tend to win about 60 percent of the time.

“We believe that the deal is by no means dead, as the DOJ has stated that the ‘door is open’ for AT&T to propose remedies, but the fact that the DOJ took this strong step this early in the process makes the probability of completion much lower,” he wrote. “We now view the probability of success at 35-40%, down from our previous 75% view.”

One of the primary arguments in the complaint (the original filing is embedded below via Scribd) focuses on government and enterprise customers. Where critics of the deal would charge that the only notable competitors to AT&T and T-Mobile are Sprint and Verizon Wireless, AT&T management would rebut that Leap and MetroPCS are also players. The DOJ complaint discounts that argument, especially with regard to business and government customers. Leap and MetroPCS are really regional players, the DOJ says, and so corporations and government agencies with many offices around the country can only realistically consider national carriers, the number of which would be reduced to three were the deal approved.

“T-Mobile makes its presence felt competing head to head with AT&T and other carriers for a number of accounts, winning business in some cases and often pushing prices lower when it does not,” the DOJ’s complaint reads. “The merger’s elimination of T-Mobile as an aggressive competitor would likely result in fewer choices and higher prices for enterprise and government customers.”

And while the DOJ has drawn its legal line in the sand, it’s not the only agency yet to be heard from. The Federal Communications Commission would also have to sign off on the deal for it to be approved. Its chairman, Julius Genachowski, issued a carefully worded statement that gives a strong hint that it will ultimately oppose the merger. “Competition is an essential component of the FCC’s statutory public interest analysis, and although our process is not complete, the record before this agency also raises serious concerns about the impact of the proposed transaction on competition,” Genachowski said.

In a conference call with reporters today, Harold Feld, the legal director of PublicKnowledge, a telecom advocacy group that has opposed the merger, speculated that the FCC will likely send the matter to an administrative law hearing, which he called “the kiss of death” for mergers. “By the time that procedure would be finished, T-Mobile would have taken its breakup fee and gone and built an entirely new network,” he said.

So on what legal basis might AT&T and T-Mobile fight the case? The DOJ is using some new market analysis techniques that haven’t been used in antitrust cases before, says Barclays’s Ratcliffe. “Traditionally, the DOJ has used regional impact analysis to study the impact of wireless mergers, and it does so here again,” he writes. “In addition, however, the DOJ is also viewing the market as being national, a comparatively new approach, which might be more open to challenge in the courts.”

AT&T CEO Randall Stephenson has promised to fight it, and continued to argue that the deal will bring real benefits to spectrum management nationwide, and create jobs. Deutsche Telekom said it will join the fight, too.

Justice-ATT-TMobile-Complaint

In television ads, the No. 4 U.S. carrier crafted an image of itself as an attractive woman in a pink dress, only too happy to aid customers with faster service and cheaper prices. AT&T and other rivals were portrayed as stuffy men in suits, literally looking to grab every nickel and dime from consumers. The ads were so popular that merger opponents even seized on the metaphor.

When it came time to argue in favor of the acquisition, AT&T painted a different picture, arguing T-Mobile was actually a weak player, lacking the needed resources and spectrum to compete. AT&T aimed to paint T-Mobile as just one of many competitors in a field that included a range of regional players such as Metro PCS and Cricket.

“Sprint, MetroPCS, and Leap are rapidly gaining customers while T-Mobile USA is losing customers, especially contract customers,” AT&T maintained in a June filing with the Federal Communications Commission. “Those providers — along with U.S. Cellular, Cellular South, and a host of others — can rapidly fill any competitive gap T-Mobile USA leaves upon the completion of this transaction.”

By bringing a suit to stop the deal on Wednesday, government regulators made clear how they saw things. Wednesday’s legal filing borrows much from T-Mobile’s positioning of itself as the scrappy carrier ensuring competition.

“T-Mobile has been an important source of competition among the national carriers, including through innovation and quality enhancements such as the roll-out of the first nationwide high-speed data network,” Acting Assistant Attorney General Sharis A. Pozen said in a statement announcing the DOJ suit to block the deal. “Unless this merger is blocked, competition and innovation will be reduced, and consumers will suffer.”

To be sure, federal regulators had plenty of more substantive arguments against the deal, including filings from Sprint and a number of consumer groups. But much of the decision essentially boils down to whether T-Mobile is a significant fourth competitor, as its ad campaign had argued, or if, as AT&T was arguing, T-Mobile was a weak player whose acquisition would not substantially harm competition.

And, when forced to make that decision, regulators were clear. They went with the lady in the pink dress over the guy in the suit.

In a letter to the Federal Communications Commission and attorney general Tuesday, Franken said the deal would lead to “an effective duopoly” in the national wireless market and inevitably lead to both higher prices and job losses.

“My examination of this transaction has led me to conclude that AT&T’s acquisition of T-Mobile would substantially lessen competition in the already highly concentrated wireless communications market,” Franken said in the filing. “In addition to my antitrust concerns, I am convinced that this type of horizontal consolidation does not serve the public interest.”

Franken’s objections follow that of Wisconsin Democrat Herb Kohl, who went public with his opposition to the deal last week.

The deal needs the blessing of both the FCC and the Department of Justice. Sprint has vocally opposed the deal, along with a handful of public interest groups and smaller carriers, while AT&T has won backing from a number of high-tech firms, labor groups and others. AT&T said in its earnings call last week that it remains confident it will win approval for the deal.

After an antitrust review, the Justice Department concluded that Google’s potential ownership of the patents wouldn’t raise any major competitive concerns, these people said. The clearance could give Google’s bid a leg-up against rivals, part of its effort to acquire an arsenal of patents that could help it ward off lawsuits by rivals.

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AT&T is hoping Silicon Valley will come out in support of the deal—or at least not strenuously oppose it—as the Department of Justice and Federal Communications Commission get deeper into their review of the transaction.

Regulators likely will be interested in hearing how the acquisition could impact the Valley, a key source of innovation that has a lot at stake in the deal. Many large technology companies and start-ups alike are betting their futures on wireless technology.

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The Internet company disclosed in a cryptic regulatory filing earlier this week that it was setting aside $500 million to potentially resolve a case with the Justice Department. A payment of that size would rank high among the criminal or civil penalties paid by companies in disputes with the U.S. government.

Google gave virtually no details in its filing about the probe, saying only that it involved “the use of Google advertising by certain advertisers.”

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