Episode Transcript
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Speaker 1 (00:15):
Hello, and welcome to the Votes and Verdicts podcast, hosted
by the Litigation and Policy team at Bloomberg Intelligence, the
investment research platform of Bloomberg LP on the Bloomberg Terminal.
Bloomberg Intelligence has five hundred analysts and strategists working across
the globe and focused on all major markets. Our coverage
includes over two thousand equities and credits, and we have
(00:36):
outlooks on more than ninety industries and one hundred market industries,
currencies and commodities. This podcast series examines the intersection of
business policy and law, and today we're doing our mid
year outlook on the litigation and policy catalysts that we're
watching in the second half of twenty twenty five and
that we think will impact companies across a number of
(00:58):
different sectors. My name is Elliott Stein. I'm an analyst
with Bloomberg Intelligence covering litigation in the financials sector, and
I'm delighted as always today to be joined by several
of my BI colleagues. As always, you can find all
of our research on the Bloomberg terminal at BI go,
and you can find the majority of our litigation and
(01:19):
policy research on our dashboard at BI laws go. We're
recording this over two days July ninth and tenth, which
we always we always like to timestamp these episodes because
things move quickly and sometimes some of the things we
say maybe out of date by the time the episode
(01:40):
is published. But with that, let's get started with the content.
Let's bring in Nathan Dean, who covers financials policy and
also some other policy issues across other sectors down in DC. Nathan,
I feel like the first half of the year was
focused on tariffs and the One Big Beautiful Bill. The
(02:02):
One Big Beautiful Bill, of course, is pretty much is
done at this point. Tariffs is sort of still an
evolving story. But the second half of the year looks
like it's going to be largely focused on deregulation for
big banks, at least in your coverage area. And I
know you've written a lot about that. So what specifically
are you watching for.
Speaker 2 (02:23):
Yeah, you know, you hit it right on the head
with you know when you said deregulation, Because if you
go back to Treasury Secretary Scott Besson's three pillars for
economic growth, the first one was taxes, Well, the One
Big Beautiful Bill is complete. The second is tariffs and
that's ongoing in the thirties deregulation. Now, we've always said
the President Trump just doesn't have a magic one where
he can wave and say go forth and deregulate. There's
(02:45):
a process and that process takes time. Now, you needed
agency leaders to come into place, and that largely happened
in the first half of this year. So now if
you look at like agency leaders like FED Vice Chair
Michelle Bowman or you know, Jonathan gold Over the contro
the currency was just confirmed about thirty minutes ago here
on July tenth. You know, those agency leaders are now
(03:06):
in place, and so they are going to move forward
with proposals to deregulate these sectors. Now, let's talk about
financials in particular. You know, there's about three areas of
focus that the financial industry is going to see in
two age. Most of the benefiting the jesips, so like
the Bank of Americas, the JP, Morgan's City Groups, Goldman, Sachs,
(03:28):
et cetera. A little bit more less of an impact
on the regionals. But some of the proposals that you're
going to see, well, one is one call that's impacting
the supplemental leverage ratio. This is also the Enhanced Supplemental
Leverage Ratio also known as the ESLR for a reserve
release to proposal last week essentially taking the ratio from
(03:48):
five percent down to three percent plus a fifty percent
JESIP surcharge. So for the big banks you're looking at
somewhere around three and a half to four and a
half percent, depending on the bank, so there's definitely leverage relief.
You're also going to potentially see a new Buzzle three
endgame proposal. We think this is going to come out
after around September October timeframe. You know when it was
proposed under the Biden administration to increase capital requirements in
(04:11):
nineteen percent. We think this is most likely at a
starting point, going to be capital neutral. And then third,
you've got proposals altering the stress testing process. There was
one from April that already came out. It's not that
big of a deal. It just really is more of
a technical proposal. But a more substantial proposal is going
to come out probably by September that will make it
a little bit more transparent for these banks to go
(04:33):
through the stress testing process and make it easier for
these banks to go through the process. So a lot
of this work is going to kick off in two
h It's going to be proposal work. You're not going
to see finalizations until twenty twenty six. But keep that
in mind that these process is going to take place
and there's not much here the Democrats could do to
block it.
Speaker 3 (04:52):
The regulators should just move ahead, gotcha.
Speaker 1 (04:55):
So we'll be talking about this again for our twenty
twenty six outlook then, and hopefully by then you'll have
the rule the proposals at least, and you can talk
about you know what the timing is for finalization. Okay,
what about crypto? I know you've also written a bunch
about crypto. I feel like here it's sort of like
the inverse of deregulation because there's actually legislation and potentially,
(05:20):
you know, more clarity around laws.
Speaker 2 (05:24):
Yeah, so let's move away from regulation to move to legislation.
And there's two bills that are worth talking about. The
first is called the Genius Act. Now, this is a
stable cooin bill, and as a reminder, recording this on
July tenth, and the reason why I bring that up
is this bill has already passed the Senate sixty eight
to thirty and could pass the House of Representatives as
soon as Tuesday of next week, so so the week
(05:46):
of July fourteenth is when this bill will most likely
become law. Now, this bill would require stable coin issuers
like Circle to be backed up by one hundred percent
high quality liquid assets, and would also allow bank issuers
a way to register with the Futteral Reserve and non
bank issuers a way to register with the Office of
the Control or the Currency. And if you're a smaller
(06:06):
issuer and you have less than a ten billion dollar
market cap, you have to issue with your state regulator. Now,
obviously this is going to increase compliance costs. You know,
you're going to need compliance spend, technology spend and so forth.
But the amount of regulatory clarity you get with this,
you can now move forward with a new regulatory framework
and there's not gonna be much of the way of
(06:27):
enforcement risk for these stablequin issuers. So for somebody like Circle, yeah,
you're gonna have to pony up more, but they'll gladly
do it to get that clarity that they need. But
then for the rest of the crypto industry, it's a
little bit more murkier because there is a bill called
the Clarity Act, and this act would define what is
a security, what is a commodity. It just gives it
the CFTC authority over spot markets. This bill, you know,
(06:53):
the House is trying to pass it as well the
week of July fourteenth, and they may, but there's gonna
be a little bit more difficulty getting some of these
Democratic senators on board like they did the Stable Cooin Bill,
because even though it passed sixty eight to thirty, I'm
nowhere anywhere close to getting the sixty votes in my
vote counts right now, just because of our additional concerns
with the crypto industry at a large or broader perspective. Now,
(07:18):
we know that the Senate does not want to take
up this bill until September at the earliest. They're going
to wait until after the August recess, so we have time.
But I'm telling my clients, and I may be a
little bit out of consensus here, but I'm telling my clients,
I think this can get done in the first half
of next year.
Speaker 1 (07:32):
How do you, I mean, what are sort of the
some of the issues that are giving Democrats.
Speaker 4 (07:37):
Pause, but that they'll be able to come around on
to get to the sixty vote threshold.
Speaker 2 (07:42):
Well, a lot of it is on bank secrecy and
anti money laundering and risk perspective, and for you know,
just taking a very simplistic view on it, anything like that,
I think you get negotiated. I mean, it's not usually
something that really derails these bills. And it's the same
thing we saw in the Stable Cooin Bill. There was
a hiccups over Stable Secrecy Act to AML. They work
through it, they got it done. You know, some of
(08:04):
the Democratic senators are going to be an absolute no.
They still believe that nineteen thirty zero securities law should
still apply and that a lot of these tokens should
be you know, adhering to that type of securities law.
There shouldn't be a specific carve out. But I go
back to the idea that Chairman Gary Gensler tried this
under the Biden administration and the courts overwhelmingly, as you've
(08:25):
written many times, Elliott, the Court's overwhelmingly ruled against the
administration on this and as a result, it was courts,
not Congress that was dictating what crypto policy looked like.
And if I'm a Democratic Senator, do I I do
nothing and allow the crypto industry to continue to operate
for four to five years with piecemeal regulations, or do
(08:45):
I try and get myself involved to actually take control
of the narrative. And I think that's what's significant. Number
of Democrats are at least enough number of Democrats. So
think of Senators like Mark Warner, Reuben Gallaghos from Arizona.
They voted for these stable coin bills to probably vote
for the crypto bill. Senator Christin Jillobrand as well from
New York. They're there, it's just they need a little
bit more time and a little bit work to get through.
Speaker 1 (09:07):
Yeah, And I mean, one of the ironies I feel
like with this law is that you're potentially giving the
CFTC in particular much more authority than it has now,
which is sort of ironic to see that happen in
a Republican Congress, but you know, pretty unique to see
Congress getting much done at all. So it's always always
(09:28):
interesting to see what gets past and what doesn't. All. Right,
good stuff, Thanks Nathan. We are going to stick with
financials the financial sector here. I'm going to just talk
about three cases I'm watching. This is a little more
company specific and actually involves mostly non US banks. The
first involves French bank BNP Pariba, which is scheduled to
(09:50):
go to trial September eighth in the class action case
by suiting these refugees, accusing the bank of aiding and
abetting genocide and Sudan. We expect the bank to settle
ahead of the trial, and that's based on a June
thirtieth letter from the parties asking the court to push
the September eighth trial date back a month to give
(10:10):
the parties more time to formalize basically a process for
resolving the case through mediation. The court denied the request
to push back trial date, so for now trial is
on for September eighth, unless the parties reach a settlement
or at least some sort of settlement than principle. But
we expect them to be able to do that because
I don't think either side really wants to go through
(10:31):
with the trial and the risks that come with it.
As far as how much a settlement might be, our
best comparable is probably one point twenty five billion dollar
Holocaust settlement by two Swiss banks in nineteen ninety eight.
That implies roughly a sixty five million dollar cord here
based on the number of plaintiffs, but you know, we
(10:52):
really can't rule out a settlement for more, potentially several
hundred million dollars, So that's one thing we're watching. The
second case we're watching in the second half of this year.
This involves Swedish bank sweat Bank, which has been investigated
for several years now by US authorities over possible money
laundering violations. Again, we expect these probes to also wrap
(11:14):
up by year end, given how long they've been going on,
which is roughly about five years, and we think the
fines in this case could be about approaching four hundred
million dollars, which is close to the three hundred and
eighty six million dollars a sweat Bank paid to Swedish
authorities in twenty twenty. But again we can't rule out
(11:35):
a higher amount, maybe even one approaching a billion dollars
if it's structured similarly to penalties that Danish bank Donska
Bank paid in twenty twenty two. And just lastly, the
third case I want to talk about involves Turkish bank Hawkbank,
which is fighting a Justice Department lawsuit, a criminal lawsuit
(11:55):
accusing the bank of violating US sanctions on Iran. Hawk
Banks principal defense so far is that it should be
immune from prosecution in the US because the bank is
owned primarily by the Turkish government, and the bank therefore
argues that it should enjoy sovereign immunity in the US.
So far, courts have rejected that defense. Indeed, even the
(12:19):
US Supreme Court has rejected that defense at least based
on the Foreign Sovereign Immunity Act Statute. But when the
case went to the Supreme Court, the Supreme Court in
twenty twenty three allowed the bank to pursue a related
sovereign immunity defense, not based under statute, but based under
the common law. So that's where we are now. The
(12:43):
bank is trying to argue that it still has sovereign
immunity under the common law, but again lower courts have
rejected that defense so far, and now Hawkbank is back
at the Supreme Court asking the High Court to review
those decisions. I think we'll get a decision in October
from the Supreme Court just on the petition the cert petition,
(13:04):
meaning we'll know in October whether or not the Supreme
Court will take up Hawkbank's case. We give the bank
a sixty percent chance of actually getting their cert petition
granted and getting Supreme Court to review the case. But
at the end of the day, we think the Supreme
Court will again rule against the bank on the merits
like it did the first time, and we think the
(13:27):
High Court will take up the case, but only to
clarify sort of what the relevant immunity standard is under
the common law. But ultimately it'll rule against the bank
and say that the bank is not immune from prosecution,
and that'll probably put the bank on a path to settlement.
We've said all along that we think settlement could be
about one billion to two billion dollars just based on
(13:48):
the amount of money that allegedly went through the US
financial system. But we think the bank and the Turkish
government may be able to convince the Trump administration to
sort of go a little soft in terms of a settlement,
but that's still a ways away. For now, we're just
waiting to see if the Supreme Court will take up
Hawkbank's most recent cearch petition, So that's what I'm watching.
(14:10):
Let's move on to tariffs, which we touched on just
briefly earlier, but let's bring in Holly from who's been
covering the many different lawsuits challenging the Trump administration's tariffs.
We got some very big rulings at the end of
May from the Court of International Trade. Those are on
(14:30):
appeal now. I know, Holly, you're watching these intently. Why
don't you come in and tell us exactly what you're
watching for in the second half.
Speaker 5 (14:38):
Yeah, thanks, Elliott. So, yeah, we're watching the lawsuits that
challenged reciprocal terraffts and so called ventanyl trafficking terrafts. Those
reciprocal terroifs were announced in April. They were supposed to
be imposed April ninth. That was subsequently extended to July nine,
with a baseline tearff of ten percent imposed in their place.
The July ninth deadline was just extended to August first,
(15:01):
But in any event, the US International Trade Court, as
you mentioned, held them unlawful in May. The court found
that if the president is going to address trade deficits
using tariffs, which the reciprocal tariffs are supposed to do,
he must do that through Section one twenty two or
the Trade Act. He cannot use the emergency statute called
AIPA that he used. And another District Court in Washington,
(15:23):
d C. Held that they were unlawful for different reasons.
That court basically said APA doesn't allow tariffs at all.
Both of those rulings are on appeal. The International Trade
Court's ruling is on appeal to the Fed Circuit and
the Washington d C. District Court's ruling is on appeal
to the DC Circuit. And with regard to the Fed
Circuit appeal, opening briefs have been filed, opposition briefs have
(15:46):
been filed, and there was a hearing before the Fed
Circuit on July thirty first. The full panel of the
court will be hearing that appeal, so we should get
a better idea of the course leadings after oral argument
on July thirty first, and we think that decision could
come retively quickly, perhaps in August. The DC Circuit hasn't
scheduled a hearing yet, but we think that court will
(16:06):
also rule relatively quickly, and whoever loses that appeal will
probably appeal to the Supreme Court. And we think that
the Supreme Court will take the case and it could
rule as early as four Q on the merits. What
we've said is we think reciprocal terroriffs will be deemed
unlawful because the trade deficit cited as the basis is
(16:27):
not an emergency that poses an unusual and extraordinary threat
as required by a EPA. But fentanyl trafficking tariffs maybe
deemed lawful because we think that the Supreme Court will
disagree with the lower court that leverage on countries, which
is what the terrorists are supposed to create, cannot address
the emergency sited. And in other lawsuits that may inform
(16:48):
the issue, there's a hearing on appeal a lower court
order out of California dismissing a challenge to the tariffs.
That court, it was a district court in California, said
that it lacked jurisdiction. That's on appeal and there's a
hearing on that appeal on September seventeenth. And in addition
to that, today on July tenth, there is a hearing
(17:11):
on a lawsuit challenging elimination of the dominimus exemption. And
what that exemption is is it says that goods that
are eight hundred dollars or less are exempt from tariffs.
The Trump administration eliminated that exemption with regard to goods
from China. So a lawsuit challenging that says Trump didn't
have the power to do that under the statute. He
(17:32):
used that there's a hearing on that. There's a most
preliminary injunction trying to enjoin the administration's elimination of the exemption,
and there is a hearing on that motion today July tenth,
and I think that the court will again rule relatively quickly,
possibly next month. And I think what we said about
(17:54):
that is we think that the elimination of the dominimous
exemption is probably on stronger footing than fentanyl trafficking tariffs
because the court, the the International Trade Court found that
the pentonal trafficking tariffs didn't deal with the emergency because
it was a terriff. Tariffs on every good doesn't deal
(18:15):
with the emergency, and UH leverage on countries created through
the use of tariffs doesn't deal with the emergency. But
here what the government has said is that shippers have
been using deceptive means such as the diminishment mis exemption
to import fentanyl. So I think there's a stronger connection
to the emergence to the fentanyl crisis. So that that's
(18:35):
why we think that these are on stronger legal uh footing,
and but we expect a ruling probably in August.
Speaker 1 (18:43):
So the the elimination of the dominimus exemption that was
also done under AEPA correct. So is there is there
a chance that all these issues go up to the
Supreme Court together, the deminimous the elimination of the dominimous
execs I'm sharing, the reciprocal terriffs, and the and the.
Speaker 4 (19:04):
Trafficking the fentanyl trafficking teriffs.
Speaker 5 (19:07):
It's possible to the extent that it's it's the same
basis for you know, finding them unlawful. Yes, but I
think that there are other grounds to find the diministnce
exemption lawful. So I don't think they necessarily have to
be decided together. There are there is some overlap with
regard to whether he has a power to impose terras
at all through AIPA, and that's you know that that's
(19:29):
a question that would probably be answered by the Supreme Court.
But even if he answered they answered that question, there
would still be a question of whether he can do
what he did. Uh with regard to the elimination of
the the minimus exemption, because it's a different statute that
governs that so I don't think they necessarily have to
be decided together, but they can be.
Speaker 4 (19:55):
Got it.
Speaker 1 (19:56):
I thought it was interesting that the extension of a
lot of the reciprocal terraffs was pushed August first, which
is the day after the FED Circuit hearing.
Speaker 4 (20:05):
But that may have just been a coincidence. I don't know.
Speaker 1 (20:09):
All Right, great, thanks, olly good stuff. All right, Tamlin's
let's bring in Tamlin Basin to talk about copyright and
artificial intelligence. I think it's one of the most interesting
legal issues playing out right now. So, Tamlin, you've been
following cases against companies like Anthropic and Meta alleging that,
(20:32):
you know, the training of their large language models on
copyright copyrighted content constitutes copyright infringement. What I know, you're
tracking a bunch of these cases. What are you watching
for in two h and in the cases that you're following?
Speaker 6 (20:46):
Yeah, surely there are lots of these cases. There's I
think last count, close to fifty of these lawsuits in
the US alone, and these have been brought by all
manner of content owners, from sort of the print news
media companies like The New York Times, through music publishers
have filed a number of suits. Image creators Getty Images
(21:09):
has filed suits and sort of one of the most
recent ones, we saw Disney and Comcast team up to
file play lawsuit, as well as a bunch of authors
of both fiction and non fiction works. We have been
tracking a lot of them and in late June, we
actually had had two decisions and these are the decisions
(21:29):
on fair use at the summary judgment stage. So essentially,
the developers of large language models are arguing is is
fair use under the Copyright Act for them to use
this copyrighted content in order to train their large language models.
These decisions came in cases they were asserted against Anthropic
(21:52):
and in another case where the allegations were asserted against Meta.
The plaintiffs in both of these cases were book authors,
so and nonfiction. In both of those decisions, the judges
and these are two separate judges sitting and both sitting
in the Northern District of California, they did find in
favor of the large language models on fair use. However,
(22:15):
they took fairly divergent views. Starting first with the Anthropic judge,
he looked at their use and fair use is sort
of this fact sensitive four factor test which judges have
to weigh up and decide whether or not the equities
favor allowing what has happened with this copyrighted work, whether
(22:35):
that was fair or whether that was infringement. The judge
in the first case in Anthropic said pretty clearly that
it was highly transformative what Anthropic did, and he didn't
spend a whole lot of time really drilling into the
other three facts factors, So transformative use is sort of
the first factor in that fair use test. Now, just
a few days later, his colleague in the metacase he
(22:59):
also said that, yes, what Meta has done is transformative,
but he spent a lot of time looking at this
fourth factor, which looks at whether or not there was
a potential market impact from the large language models using
this work on the original copyrighted content. He said he
didn't necessarily find that here, partly because he sort of
(23:23):
took issue with how the plantiffs prosecuted this case. He
said they didn't sort of put enough evidence forward that
there might be dilution in the market for the artists,
sort of for the author's work based on the output
of these large language models. But the thing I want
to know is that both these cases only concerned inputs, which,
(23:43):
as we said, it's just the data that went into
training the large language model, so that's input infringement. Neither
of them had allegations of output infringement. And I think
that's important because in both decisions, the judges made very
clear that their decision more than likely would have gone
the other way if they was output infringement. Output infringement
is a much less strong fair use defense in this case.
(24:07):
It's not going to be transformative, and this is the
reason it's going to be much less strong in this case. Now,
what we see in the second half of twenty twenty
five is we're going to have some decisions. So we
think we're going to potentially start going against the large
language models, partially because we're going to see some cases
that also have some output allegations output infringement allegations. Now,
(24:30):
the first one is in another case against Anthropic and
this was brought by a group of music publishers so
in Concord Music Group UMGCMG, and they are alleging both
input and output infringement input because song lyrics were used
to train these anthropicsge language model called quad as well
as output infringement, and the users were able to say,
(24:51):
what are the lyrics to, say, a Beatle song, and
the model was generating that back. And that's a pretty
clear situation of potential output infringement when you do that
on the Internet and you get the lyrics to a song,
those are mostly coming from licensed parties who are paid
for the privilege of posting those lyrics. So I think
summer in judgment hearing is scheduled for November. In that case,
(25:15):
we may get a decision just just at the tail
end of this year, if not in early twenty twenty six,
I think that's going to be a much closer call
on fair use. And then heading into twenty twenty six,
I think we're going to have some more ones where
fair use is going to be much more tricky for
the large language.
Speaker 1 (25:29):
And these will be some of the first decisions of
pining on the output issue.
Speaker 6 (25:34):
Yeah, they should be. Yeah, So this case has it,
and there are a few others where there's really some
strong allegations of output and that simply weren't at issue.
Speaker 1 (25:44):
The reason the first cases didn't include out put claims.
Speaker 6 (25:50):
Well, I think one there wasn't as much evidence for so,
in theory, it should be easy or possible for large
language model to tweak their software in a way that
you're not necessarily going to get output infringement, especially on
things like song lyrics. You can basically tell your model
(26:10):
do not if a user asked for this, tell them
it's against the realasy, don't essentially don't give it to them.
And and Anthropic during the pendency of this litigation brought
on the music publishers has tweaked its algorithm to make
that much more difficult to get. Whether or not it
was entirely efficient is another question. I think it's a
(26:32):
little bit different with with the authors. We have a
large work of fiction. I think what the judges said
was nobody is necessarily going to chat GPT or Anthropic
or Meta and saying, you know, give me the entire
book of J. J. R. Tolkien or something. So so
there there's less less likely given the works that issue,
(26:56):
that you're going to have output in. Also, these were
spiled to you know, a a little while ago, and
I think from now on, especially based on so the
reasoning and medicase, a lot more plaintiffs that are going
to you know, try to include out infringement and definitely
try to show sort of potential market harm. Looking at
that fourth very.
Speaker 1 (27:13):
Status, so you're looking for a summary judgment. Hearing in
November is right in the anthropic case, hearing in November.
Speaker 6 (27:19):
Possibly we get a decision in sort of December before
the holidays, but also it could move to early twenty twenty.
Speaker 2 (27:27):
Second.
Speaker 1 (27:28):
Okay, great, all right, thanks a lot, Danln, I think
we'll leave that part there, all right. Sticking with TMT,
let's bring in Matt Shettenhelm to talk about some broadcast
and media ownership limits. Matt covers TMT litigation and policy
for US out of Washington, d C. Matt, why don't
you come in and tell us what you're looking at
in the second half of twenty twenty five.
Speaker 7 (27:48):
Yeah, it's sort of picking up on the deregulation team
that Nathan touched on earlier. Similarly to his agencies, the
FCC now has the person that in place to really
start the deregulation that I think can happen over starting
in the second half of the year. And I think
(28:10):
the most significant place where investors should watch is the
broadcast industry because a couple of the other industries that
the FCC regulator are largely deregulated. Already. Broadcast industry is
aggressively regulated by rules that have been on the books
since the nineteen seventies or sometimes earlier than that, and
(28:32):
there's been a big desire from Republicans to ease these
rules for a long time. I think we're finally going
to see it happen, and it's going to start to
happen in the second half of this year. So what
are we talking about here? Where the broadcasters that are
most significant here are companies like Nextstar, Sinclair Tegna, who
(28:53):
own TV stations or sometimes radio stations across the United States,
and the FCC rules generally limit both how many stations
they can own in any an individual market. You know,
a big market like New York or Chicago, limit how
many TV stations you can own there, as well as nationwide.
(29:17):
The FCC has a rule that says no company subject
to a discount can can own more than can reach
more than thirty nine percent of the country. And just
to take that as an example, the FCC could potentially
use this rulemaking to scrap that rule entirely. So a
company like Nextstar, which currently can only reach a fraction
(29:41):
of the United States with its its broadcast stations, could
could go ahead and buy stations across the entire country.
Instead of reaching thirty nine percent, can reach one hundred
percent via this rule change. And so a real opportunity
for for M and a for for acquisitions, and the
ECONO means of scale are significant from from owning most
(30:05):
all those stations.
Speaker 1 (30:06):
So thirty percent seems like sort of random to me.
Was there any logic behind that number? And then my
other question is are they just going to scrap the
limit entirely or are they going.
Speaker 4 (30:16):
To just raise it to a different number.
Speaker 7 (30:17):
Yeah, both good questions. You know, so you can trace
the history of this back to you know, as I said,
it goes into the seventies. Initially Congress picked some number
I think it was in the twenties, and then it
was adjusted by Congress again in about two thousand and two,
where for a while we were at thirty five, and
(30:38):
then it was adjusted again to thirty nine. Do I
think Congress did any math to justify this? No, I
think these were these were political deals that and they
they just ended up at a certain point and and
so that's the that's but your question is important in
part because Congress hold the FCC to make the limit
(31:02):
thirty nine percent, and so one of the tricky legal
issues is whether Congress is the only one who can
fix this, and so that's going to be the legal
fight after the FCC acts. I think there's a pretty
decent argument that Congress didn't tie the FCC's hands and
prevent it from adjusting its rule going forward. But there's
(31:24):
going to be a big fight over that. And it
also goes to your other question about adjusting, whether it's
total repeal or an adjustment. When when a g PI
was the chairman in Trump's first term, when he was
trying to push this ahead, he was looking at, I
think a doubling of it. So keep a cap in place,
(31:45):
but make it go to seventy eight percent or something
like that. Some cap, but adjust it based on the record. Now,
i think the consensus among the broadcasters at least who
are pushing the FCC to do this, and I'm talking
about the National Association of Broadcasters, which is the lead
lobbying group, it's now moved to say, look, none of
it makes sense. We you know, let's let's repeal the
(32:08):
whole thing, and you as an agency. You don't need
to set a new limit. You can you can look
at the record and say, look, it's not needed right now.
And so the current push from broadcasters is to entirely
eliminate the role.
Speaker 1 (32:21):
Interesting All right, good stuff. Yeah, okay, let's move on
to anti trust and bring in our anti trust duo
of Jen Ree and Justin Taresi. Jen, let's start with you.
During President Biden's term, the approach of his anti trust
officials to merger control seemed to be pretty aggressive and
more interventionists than in the past, and that seemingly made
(32:43):
it tough for deals to get cleared to close. Now
that President Trump's appointees are in place, are you seeing
more of the same. Are you seeing sort of a
full scale return to the pre Biden approacher or something
more in between.
Speaker 4 (32:57):
Thanks Ellie.
Speaker 8 (32:58):
You know, I definitely think what we're seeing so a
is something that's more in between. And I say that
because I do think there's an intention by Trump's anti
trust enforcers to stay pretty tough on deals. You know,
as you mentioned, anti trust enforcement in the merger control
area was really really enlarged and increased and made more
(33:18):
aggressive during the Biden administration, and because of that, a
lot of deals were abandoned and a lot just weren't
signed in the first place, given the hurdles that deal
makers would have to get through to get their deals cleared.
And I think things are changing now, and the reason
is because what we're seeing in the first few months
here is that this administration is willing once again to
(33:38):
accept settlements for otherwise problematic deals. What that means, very generally,
is that if two companies have an overlap in a
line of products or services and it creates too much
concentration in the market for that service or that product,
the companies can sell that line to another competitor and
then close the rest of the deal. And that's a
pretty big deal, right because it gives these transactions a
(33:58):
pathway to get closed that wasn't available really for the
last four years.
Speaker 2 (34:03):
Now.
Speaker 8 (34:03):
I don't think it means that every single deal is
going to get cleared with some kind of remedy or
with no remedy at all. I still think we're going
to see some tough scrutiny. There will be deals that
raise anti trust concerns that can't be resolved with a
remedy or for which no appropriate remedy will be found,
and that deal will probably either get abandoned or go
to trial. But nonetheless, we still see that more deals
(34:26):
have a pathway to get cleared and closed going forward
for the next few years than they did previously. I
don't see this as a complete return to what we
think of as the pre Biden era of anti trust enforcement,
which many thought was way too less, a fair too relaxed,
allowing for too much concentration in too many industries. I
don't think we're going to step back to that, but
I do think hurdles have eased.
Speaker 1 (34:49):
Got it, And what are some of the major deals
that you're watching in the second half, So I don't.
Speaker 8 (34:56):
Think we're going to see a lot of decisions for
big deals, really big ones the second half. And the
reason is because the decision timing would be in the
second half for deals that were really signed about last year,
in the middle of the year or maybe in the
third quarter, and that was when we really saw deals
everybody holding off fun making deals because there was a
lot of uncertainty. You had the full force of the
(35:16):
Biden administration in there, blocking deals or trying to block
deals right and left. And then you had the uncertainty
of the election, and nobody really knew what was going
to happen, and so deal makers just held off to
wait to see what would happen. So we don't have
a whole lot going on. We do have some big
pending deals that I think we'll get some decisions, maybe
in the first half of next year. But there are
two deals that were recently cleared by the USFTC that
(35:38):
are still waiting for clearance from other jurisdictions, and I'm
watching those. One of them is Synopsis Ansis and the
other one is mars Kelenova. The FTC cleared both Synopsis
Ansis with a remedy there was a divesteture and mars
Kelenova with no remedy, but we still have the Chinese
Merger control authorities investigating the Synopsis deal and the European
Commission investigating mars Helenova. I think that both deals will
(36:02):
ultimately get cleared, and I think probably in the second
half and be able.
Speaker 4 (36:06):
To get closed. Got it.
Speaker 1 (36:08):
And then on the monopolization side of things, I know
you've been You've tracked the Justice Department's case against Google
oversearch very closely for several years now. There was a
liability decision last year which went against Google, and so
we're in the remedies phase now. I know there was
a remedies hearing not too long ago. So are you
(36:31):
still waiting for the remedy remedies decision and what's the
timing on it.
Speaker 8 (36:35):
Yeah, so we expect a remedy's decision in August. They're
hearing on remedies was conducted in two q and I
think we'll we'll get this decision in August. This judge
has been really organized and he has thus far kind
of stuck to the schedule that he has promised, So
I don't think it's going to slip very much. Google
had been found guilty, as you mentioned in this liability
(36:56):
decision last year, which was last August.
Speaker 6 (36:59):
Of.
Speaker 8 (37:01):
Illegally maintaining a monopoly in search and search techt ads.
So here, because of the changeover and administrations, we have
seen some continuity for this case between the Biden enforcers
and the trump enforcers because it was Biden's DOJ that
first put in the remedy request to the judge that
was tried back in the second quarter, and they had
(37:21):
asked for a really long list of pretty drastic remedies,
including an order that Google divest Chrome. After the Trump
DOJ folks came in, the judge allowed for an amended
or revised request, and they put in a revised request
that did tweak what Biden's administration had asked for, but
only slightly, but kept the really more drastic remedies, which
(37:43):
included a request for Google to sell Chrome. So we
see some continuity there between the two agencies, and we
don't really know yet if it's going to be fully
within the monopolization space or just because this is about
a big tech platform and we know that by the
Trump administration, Andy's enforcers are no great friends to big
tech platforms. But I think what we're going to see
(38:03):
here is something short from the judge of a decision
that forces Google to sell Chrome. Now, even if we
get that by the way in August, Google will appeal
and probably get it stayed. So no matter what the
judge does in August, I don't think Google's going to
have to implement those remedies right away. But elliott I
think it's going to be pretty harsh, even if it
doesn't include an order to sell Chrome. I think that
(38:24):
Google is going to have to stop paying other companies
to set Google Search as the default. For instance, they
were paying Apple about twenty billion a year to set
Google Search automatically as the default search engine behind Safari
and other Apple Search Internet access points. Because Apple doesn't
have like some of the other browsers have their own
search engine. Apple does not, so it made sense for
(38:44):
them to have this deal with Google Search. I think
it's going to have to stop paying companies for that
default position. I think it's probably going to have to
add choice screens for Chrome and for new Android users
that right off when they open up their new Android
device allows them to choose what they want to set
is their default search engine. And I do think they're
going to have to share some search data. Through all
(39:05):
the billions and billions of searches that have been done
on Google Search over the years, they've gathered really valuable
data that helps them get better. And one of the
allegations here was that the others liked being couldn't get
better because they didn't have that scale, they didn't have
enough searches. So I think the judge will force them
to share a lot of that data and probably even
their search index, which is like a huge index of
the Internet, and it's bigger than what everybody else has
(39:28):
to allow some of these rivals to try to use
that to try to improve got it.
Speaker 1 (39:32):
And so you said a decision in August. Do you
have any sense when in August it might come.
Speaker 8 (39:38):
I think that it's likely it's going to be early August.
And that's because the judge mentioned, hey, it would be
great to have it out a year after the liability decision.
I mean, he likes I guess you know that kind
of a timeframe, and his liability decision was it was
August fourth or fifth, I don't remember, but at least
it was the first week of August last year. So
I think we're going to see it early in the month.
Speaker 1 (39:58):
An interesting way to mark an anniversary the Ruined by
dropping another Rulin. All right, great stuff, Jenna is always
all right. Justin three see, let's bring you in. We'll
continue the antitrust conversation, and we'll continue with the monopolization
cases that you guys are watching. You've been tracking FTC
versus Meta as well as the Google ad Tech case.
(40:19):
I don't know which one you want to start with,
but I'll kick it over to you to talk about
what you're watching in two.
Speaker 3 (40:23):
H Yeah, you've got it. I think that the theme
of continuity here really is continuing between the Biden DOJ
and the Trump DJ and FTUC. That's what we're seeing
here is we head into the second half, right there
are these two main trial catalysts that we're really watching
out for in second half this year. The first is
the metatrial, which we've talked about before, where the FTC
(40:45):
suit Meta seeking a divestiture of Instagram and WhatsApp, alleging
that they purchases of those two apps made by Meta
over a decade ago. We're anti competitive in nature. We
still favor Meta with regard to a winning this case.
It's seventy percent chance that we think Matt is going
to walk away from this unscathed at the moment, and
there's a timeframe for that. Parties are filing their post
(41:05):
trial briefing between now and just after Labor Day here
in the US, so we're expecting the judge to really
dig in and start evaluating the claims that were made
by a trial and probably expecting a ruling in the
matter sometime before the end of the year. I think
it's highly likely the judges looking to get this office plate.
Speaker 1 (41:21):
This is Judge.
Speaker 3 (41:22):
Boseburg and DC's but really involved with so much regarding
the Trump administration in addition to just the medic case,
so really busy to get there. But I think, you know,
just looking back at the evidence that it was really
shown during that trial, we're still concerned that the relevant
market put forth by the FDC doesn't really match the
realities of how social networking exists today. And also, you know,
(41:43):
there really are these questions about whether or not these purchases,
if they were actually anti competitive, were all the pro
competitive justifications involved with Instagram and WhatsApp since they were bought, really,
you know, do they do they really justify? They do
they outweigh the anti competitive concerns? And we think the
answer is probably yeah. So the judge self really said, look,
Instagram itself probably wouldn't have developed and grown to the
(42:05):
level that it did, but for Meta really stepping in,
I'm buying the app and developing it after it did,
so that that's really what we're looking for there in
the FTC versus metacase and then not the DOJ versus
Google this time regarding ad tech as opposed to search
that Jen just spoke about. Look, there was a liability
finding made earlier this year in May by Judge Breakaman
(42:26):
in the Eastern District of Virginia, similar to the to
the to the Meda case. DJ here is looking for
divestitures of of both the buyside and the cell side
of of Google's platforms, as well as the at Exchange
in the middle.
Speaker 4 (42:42):
The buy side was determined.
Speaker 3 (42:44):
Not to have an anti competitive issue with it, so
that's off the table here. But no surprise, DJ is
still pushing for a divestiture of addicts that at exchange
and the DFP, which is the cell side of their
ad stack platforms. So here we still think a breakup
is unlikely, it's possible. I think the court's comments really
seemed to zero wins on that exchange in the middle
(43:06):
ad acts as being the potential issue for the court here,
really seeing tying issues from from an anti trust perspective
being the problem here in the case. I think the
court views addicts as that tie. So if it's going
to invest anything it's or ordered divestiture of anything, it's
probably going to be Addicts. But again, you know the
relevant markets in this case, they were really limited, right,
(43:26):
So dog didn't didn't bring a case about the entirety
of Google's ad tech stack. It was really about these
display ads only that you see kind of served up
on desktop websites. Right, So mobiles not included, video ads
aren't included, all these other things that Google's ads tech
transacts business. And so that being the case, probably going
to be the Google's defense here moving into the remedies
trial that look, you know, we didn't cover all of
(43:49):
these other aspects of the business. Therefore it's really unfair
for you to force a divestiture of any of it, right,
And that trial, the remedies trial is downset for September
twenty second, probably lasts a week, maybe a little bit
more or but look, you know Judge Brinkhamash who took
longer than folks thought she would in issuing her liability ruling.
But you know, again it has moved really fast compared
to other aspects, other aspects of ad tech litigation, if
(44:12):
you will. So we are expecting a ruling from her
either by the end of this year, perhaps sometimes in
one que next year, but again relatively fast I think
coming from her and just to point out too, it's
not just her case right there. There is a case
by Texas Attorney General Ken Paxton and a series of
red states, if you will, that.
Speaker 2 (44:30):
Is pan.
Speaker 3 (44:32):
Yeah, yeah, right right. You never know what I'll do next,
but you know, uh, you know that this other case
by by Texas in a series of what i'll i'll
term you know, red states. It's pending in the Texas
Federal Corp that's set for trials still on August eleventh,
coming up really fast. There's a motion to continue the
trial date, waiting for the ruling out of the Eastern
(44:53):
each Eastern District of Virginia because it really involves a
lot of the same factual predicates here in the set case.
Congress and it's you know, wisdom passed the Venue Act
relatively recently the past couple of years. That's allowed these
cases to proceed in different forums and substantially the same
claims outside of an MDL process. So this is where
we're kind of left here, left with here is this
(45:16):
soup of who goes first? And how does how does
plain preclusion apply? How does one case affect the other?
In other ways? All this is kind of a mess,
But we think at least some aspects of that Texas
case are probably going to be delayed while we await
the ruling from Virginia. It's possible the court will move
forward with the liability phase of that case, which will
be in front of a jury, but then delay the
(45:36):
remedies phase until a little bit later after we know
whether or not some of those claims have kind of
been mooted by what comes out of Virginia. So that's
where we're watching with regard to Google ad Tech, and
and we'll just briefly mention that, you know, even though
the FTC case against pharmacy benefit managers has been stayed
until at least February twenty twenty six, I think we're
probably in for a whole lot more activity with regard
to those folks as well on the second half of
(45:57):
twenty twenty five.
Speaker 1 (46:00):
Great stuff, Thanks Justin. I think we're going to leave
it there. We'll wrap up this episode of Votes and
verdicts a lot of interesting catalysts across the different sectors
that we're all watching for in two h as always,
thank you for listening. If you have any questions about
any of the matter. As we discussed on this episode.
Please don't hesitate to reach out to us at your
convenience with questions. As a reminder, you can find all
(46:23):
of our research on the Bloomberg terminal at BI go
or on our litigation and policy dashboard at BI laws go.
And with that, thank you for listening and have a
great day.