1
00:00:03,200 --> 00:00:08,400
Speaker 1: This is Bloomberg Law with June Brusso from Bloomberg Radio.

2
00:00:08,680 --> 00:00:12,720
Speaker 1: All right, everyone, big news today, we are launching Threads,

3
00:00:12,880 --> 00:00:19,320
Speaker 1: an open and friendly public space for conversations. But friendly

4
00:00:19,440 --> 00:00:23,759
Speaker 1: conversation wasn't exactly what Twitter had in mind. It took

5
00:00:23,880 --> 00:00:27,000
Speaker 1: just hours after the launch of Threads for Twitter to

6
00:00:27,080 --> 00:00:31,720
Speaker 1: threaten to sue Meta over its quote copycat, app raising

7
00:00:31,760 --> 00:00:35,800
Speaker 1: the specter of costly trade secrets litigation in a sometimes

8
00:00:35,960 --> 00:00:39,040
Speaker 1: nebulous area of the law. Twitter sent a letter to

9
00:00:39,120 --> 00:00:43,120
Speaker 1: Meta CEO Mark Zuckerberg accusing the company of hiring former

10
00:00:43,159 --> 00:00:46,920
Speaker 1: Twitter employees to use trade secrets to speed up the

11
00:00:46,960 --> 00:00:51,400
Speaker 1: development of Threads. Joining me is IP litigator Fabio Marino,

12
00:00:51,720 --> 00:00:55,520
Speaker 1: a partner at Womble Bond Dickinson who has litigated Silicon

13
00:00:55,640 --> 00:00:59,960
Speaker 1: Valley software trade secrets disputes. Tell us how common is

14
00:01:00,640 --> 00:01:02,200
Speaker 1: trade secret litigation?

15
00:01:02,800 --> 00:01:07,160
Speaker 2: It's actually pretty common, particularly in Silicon Valley, particularly between

16
00:01:07,200 --> 00:01:11,080
Speaker 2: I tech companies, and specifically when there is a group

17
00:01:11,280 --> 00:01:14,559
Speaker 2: of engineers that move from one company to the other.

18
00:01:15,240 --> 00:01:19,600
Speaker 1: How would you define what exactly constitutes a trade secret?

19
00:01:20,040 --> 00:01:23,360
Speaker 2: Trade secret at least under California law, and it's similarly

20
00:01:23,400 --> 00:01:29,240
Speaker 2: defined under federal law. Is any information that has value

21
00:01:29,400 --> 00:01:32,000
Speaker 2: because it's kept secret, kept confidential.

22
00:01:32,360 --> 00:01:34,240
Speaker 1: That's pretty broad, it is.

23
00:01:34,800 --> 00:01:38,120
Speaker 2: And you know, usually when we teach this in law school,

24
00:01:38,280 --> 00:01:41,840
Speaker 2: we give an example such as the formula for coke.

25
00:01:42,600 --> 00:01:47,280
Speaker 2: Now that's probably an outdated example because nowadays you can't

26
00:01:47,560 --> 00:01:51,240
Speaker 2: do chemical analysis and reverse engineers a formula for coke.

27
00:01:51,800 --> 00:01:55,560
Speaker 2: But it's basically what most people would describe as the

28
00:01:55,640 --> 00:01:59,400
Speaker 2: secret sauce behind the product, and it's not really apparent

29
00:01:59,480 --> 00:02:01,920
Speaker 2: from the out outside, but it actually makes it work.

30
00:02:02,000 --> 00:02:07,560
Speaker 1: Well, tell me about this letter from Twitter to Meta.

31
00:02:07,720 --> 00:02:10,800
Speaker 1: Is this a typical demand letter or something else?

32
00:02:11,320 --> 00:02:13,799
Speaker 2: So I wouldn't call it a demand letter. This is

33
00:02:13,840 --> 00:02:17,760
Speaker 2: probably more what we would call it notice letter, and

34
00:02:17,800 --> 00:02:22,280
Speaker 2: it's very common. So when a company begins to investigate

35
00:02:22,440 --> 00:02:28,440
Speaker 2: or suspect that some trade secret misappropriation might have taken place,

36
00:02:28,919 --> 00:02:32,000
Speaker 2: they will typically send a letter such as this to

37
00:02:32,160 --> 00:02:35,960
Speaker 2: the new employer to put them on notice that there

38
00:02:36,000 --> 00:02:40,760
Speaker 2: is a potential trade secret misappropriation and they should investigate.

39
00:02:41,720 --> 00:02:45,320
Speaker 1: And what can you tell about the information that Twitter

40
00:02:45,400 --> 00:02:48,840
Speaker 1: already has from this letter? I mean, what can you

41
00:02:48,919 --> 00:02:50,000
Speaker 1: read into this letter?

42
00:02:50,560 --> 00:02:55,000
Speaker 2: The letter is fairly dad. It's obviously triggered by the

43
00:02:55,120 --> 00:02:59,360
Speaker 2: launch of Threads from the Meta platform, which is somewhat

44
00:02:59,520 --> 00:03:05,120
Speaker 2: similar to Twitter. It doesn't specify any number of employees

45
00:03:05,320 --> 00:03:09,639
Speaker 2: that have transitioned from Twitter to Meta, and if they

46
00:03:09,840 --> 00:03:16,000
Speaker 2: had specific information about specific employees, I would have expected

47
00:03:16,040 --> 00:03:19,040
Speaker 2: them to be named in the letter, and you would

48
00:03:19,040 --> 00:03:22,799
Speaker 2: actually typically send a letter to that employee specifically reminding

49
00:03:22,960 --> 00:03:28,320
Speaker 2: them of their confidentiality obligation that extends beyond their termination

50
00:03:28,600 --> 00:03:29,760
Speaker 2: from the prior employer.

51
00:03:30,080 --> 00:03:32,960
Speaker 1: So this could just be Twitter trying to flex its

52
00:03:33,080 --> 00:03:36,560
Speaker 1: muscles and saying your product is so similar there must

53
00:03:36,600 --> 00:03:38,840
Speaker 1: be some kind of a trade secret violation.

54
00:03:39,520 --> 00:03:43,480
Speaker 2: That's not an unreasonable interpretation. Fact, it was my gap

55
00:03:43,600 --> 00:03:45,040
Speaker 2: reaction when I read it.

56
00:03:45,800 --> 00:03:51,520
Speaker 1: In response to this, a metaspokesperson, Andy Stone posted quote

57
00:03:51,560 --> 00:03:54,800
Speaker 1: to be clear, no one on the Threads engineering team

58
00:03:54,960 --> 00:03:58,760
Speaker 1: is a former Twitter employee. That's just not a thing.

59
00:03:59,600 --> 00:04:03,720
Speaker 1: If that is true, would that be enough to stop

60
00:04:03,760 --> 00:04:08,440
Speaker 1: the litigation or at least make any litigation more difficult.

61
00:04:09,040 --> 00:04:13,240
Speaker 2: Certainly it would make a claim of trade secret misappropriation

62
00:04:13,520 --> 00:04:19,400
Speaker 2: based on hiring former employees difficult. As you said, if

63
00:04:19,440 --> 00:04:22,640
Speaker 2: it's in fact true, I suspect it's true in the

64
00:04:22,720 --> 00:04:27,120
Speaker 2: sense that no Matter is a sophisticated company and so

65
00:04:27,200 --> 00:04:31,400
Speaker 2: they have probably already taken steps to verify if in

66
00:04:31,520 --> 00:04:33,960
Speaker 2: fact they have anybody on the team that is a

67
00:04:34,000 --> 00:04:36,880
Speaker 2: former Twitter employee, and the fact that they put out

68
00:04:36,920 --> 00:04:41,440
Speaker 2: a statement quickly to that effect suggests that they've done

69
00:04:41,480 --> 00:04:42,719
Speaker 2: something in that sense.

70
00:04:43,000 --> 00:04:46,520
Speaker 1: Well, let's say Twitter does bring a trade secrets case

71
00:04:46,560 --> 00:04:48,800
Speaker 1: against Meta. What would it have to show.

72
00:04:49,560 --> 00:04:53,960
Speaker 2: I would have to show that Meta actually acquired trade

73
00:04:54,000 --> 00:04:59,560
Speaker 2: secrets from Twitter, either through hiring former employees or some

74
00:04:59,640 --> 00:05:03,880
Speaker 2: other kind of appropriation of the trade secret. The one

75
00:05:04,080 --> 00:05:09,400
Speaker 2: important safeguard, at least in California, is that if they

76
00:05:09,400 --> 00:05:13,120
Speaker 2: file laws, Twitter is going to have to identify the

77
00:05:13,240 --> 00:05:18,600
Speaker 2: trade secrets before it can obtain discovery from Meta. So

78
00:05:18,720 --> 00:05:22,320
Speaker 2: that's important because you cannot just sue somebody ask them

79
00:05:22,360 --> 00:05:25,800
Speaker 2: to turn over their confidential information say oh, that's my

80
00:05:26,279 --> 00:05:30,320
Speaker 2: So the policy, there's a statute that regulates in California,

81
00:05:30,440 --> 00:05:34,680
Speaker 2: requires the sewing party to actually identify the trade secrets

82
00:05:34,720 --> 00:05:37,200
Speaker 2: before obtaining information from the defendant.

83
00:05:38,000 --> 00:05:41,360
Speaker 1: So suppose the two products are just very similar.

84
00:05:41,839 --> 00:05:45,520
Speaker 2: Yeah, that's not a trade secret misappropriation in and of itself.

85
00:05:45,720 --> 00:05:51,400
Speaker 2: Now I saw some reference to data scraping, so it

86
00:05:51,560 --> 00:05:55,520
Speaker 2: sounds like at least Twitter believes there might be something

87
00:05:55,760 --> 00:05:57,880
Speaker 2: related to data scraping.

88
00:05:58,360 --> 00:06:02,080
Speaker 1: And it's a letter said that Meta isn't allowed to

89
00:06:02,240 --> 00:06:04,880
Speaker 1: crawl or scrape Twitter's data.

90
00:06:05,000 --> 00:06:10,360
Speaker 2: So data scraping means collecting information of somebody else's website.

91
00:06:10,760 --> 00:06:14,080
Speaker 2: So there's some data that is obvious to everybody. Right,

92
00:06:14,080 --> 00:06:16,920
Speaker 2: if you're reading Twitter a set of tweets, you know

93
00:06:16,960 --> 00:06:20,400
Speaker 2: there's data in the twitts themselves, but there is additional data,

94
00:06:20,880 --> 00:06:24,880
Speaker 2: often referred to as metadata. Metadata simply means data about

95
00:06:24,920 --> 00:06:30,160
Speaker 2: other data that somebody familiar with the Twitter algorithms, for example,

96
00:06:30,880 --> 00:06:35,440
Speaker 2: would be able to collect, taking advantage of inside knowledge

97
00:06:35,839 --> 00:06:39,800
Speaker 2: about that metadata is organized on a Twitter service. So

98
00:06:40,080 --> 00:06:44,200
Speaker 2: the implication here is that if there are former employees

99
00:06:44,560 --> 00:06:47,200
Speaker 2: of Twitter and Meta, they might have viewed some of

100
00:06:47,240 --> 00:06:52,080
Speaker 2: that knowledge to enable Meta to scrape data from Twitter

101
00:06:52,160 --> 00:06:55,839
Speaker 2: that others that lacks that knowledge would be able to extract.

102
00:06:56,560 --> 00:06:59,359
Speaker 1: In a case like this, do you almost need a

103
00:06:59,440 --> 00:07:04,480
Speaker 1: smoking gone like evidence that code was copied or documents

104
00:07:04,520 --> 00:07:05,320
Speaker 1: were stolen?

105
00:07:06,000 --> 00:07:09,640
Speaker 2: Certainly helps a lot, but we typically first as smoking gun.

106
00:07:09,720 --> 00:07:12,559
Speaker 2: You know, I do these types of investigations all the time.

107
00:07:13,000 --> 00:07:17,280
Speaker 2: When I find evidence like that, now I know whatever real, Okay, Obviously,

108
00:07:17,280 --> 00:07:20,160
Speaker 2: You don't have to have a smoking gun before you

109
00:07:20,240 --> 00:07:25,120
Speaker 2: file stood. You need to conduct a diligent investigation. You

110
00:07:25,200 --> 00:07:28,920
Speaker 2: have to obtain information that leads you to form a

111
00:07:28,960 --> 00:07:34,160
Speaker 2: reasonable belief that a trade secret misappropriation has occurred. The

112
00:07:34,320 --> 00:07:37,760
Speaker 2: fact that there is an allegation some employees might have

113
00:07:37,840 --> 00:07:40,680
Speaker 2: transferred over it by itself is probably in opposition. So

114
00:07:40,680 --> 00:07:43,400
Speaker 2: they need to find something, but it doesn't have to

115
00:07:43,560 --> 00:07:45,120
Speaker 2: rise to the level of smoking gun.

116
00:07:45,160 --> 00:07:47,080
Speaker 1: As you said, Let's say it does go to trial.

117
00:07:47,160 --> 00:07:49,800
Speaker 1: Could it end up that it comes down to experts

118
00:07:49,920 --> 00:07:53,960
Speaker 1: testifying about what they see in the code or the algorithm.

119
00:07:54,280 --> 00:07:56,760
Speaker 2: If she went to trial, obviously a lot of the

120
00:07:56,920 --> 00:08:01,800
Speaker 2: technical evidence would come in in the form of expert testimony.

121
00:08:02,280 --> 00:08:05,280
Speaker 2: I will say, though, that one unique feature of trade

122
00:08:05,320 --> 00:08:10,320
Speaker 2: secret cases, particularly between you know, close competitors in the marketplace,

123
00:08:11,000 --> 00:08:13,680
Speaker 2: is that a lot of bad evidence gets presented a

124
00:08:13,880 --> 00:08:16,560
Speaker 2: very early in the case in the form of a

125
00:08:16,680 --> 00:08:19,080
Speaker 2: tro or a primer injunction motion.

126
00:08:19,640 --> 00:08:22,680
Speaker 1: It sounds like these cases are tough. What would Twitter

127
00:08:22,760 --> 00:08:26,520
Speaker 1: have to show to get by a motion to dismiss.

128
00:08:26,080 --> 00:08:30,840
Speaker 2: So they show some evidence that some level of misappropriations

129
00:08:30,880 --> 00:08:35,000
Speaker 2: taken play. But typically what happens in these cases very

130
00:08:35,000 --> 00:08:38,000
Speaker 2: early on, and I would suspect that's happening right now

131
00:08:38,040 --> 00:08:41,400
Speaker 2: as we speak. You know, Twitter is going through all

132
00:08:41,440 --> 00:08:44,520
Speaker 2: of the electronic evidence they have or the departed employees

133
00:08:44,600 --> 00:08:48,520
Speaker 2: that they believe went to Mata to find any indication

134
00:08:48,760 --> 00:08:51,720
Speaker 2: that they were in communications with Meta before they left.

135
00:08:51,840 --> 00:08:57,080
Speaker 2: For example, they might be looking at social media postings

136
00:08:57,120 --> 00:09:01,080
Speaker 2: by former Twitter employees to see if they find any

137
00:09:01,120 --> 00:09:04,240
Speaker 2: evidence that anybody was communicating with Matter. They need to

138
00:09:04,240 --> 00:09:08,920
Speaker 2: find something, even if it's not direct evidence, but indirect evidence,

139
00:09:09,280 --> 00:09:14,040
Speaker 2: circumstantial evidence as we often say, to suggest that there's

140
00:09:14,080 --> 00:09:17,240
Speaker 2: been some misappropriation. Without that, it's going to be hard

141
00:09:17,280 --> 00:09:19,720
Speaker 2: for them to push forward on a case.

142
00:09:20,000 --> 00:09:22,079
Speaker 1: Does Twitter have to move fast here?

143
00:09:22,800 --> 00:09:27,280
Speaker 2: Yes? So there's two major reasons. One is obviously every

144
00:09:27,360 --> 00:09:30,800
Speaker 2: day that goes by, so that becomes more successful in

145
00:09:30,840 --> 00:09:35,319
Speaker 2: the marketplace. And two, one of the important characteristics and

146
00:09:35,720 --> 00:09:38,760
Speaker 2: secrets is the strade secret loses value the moment it's

147
00:09:38,800 --> 00:09:41,920
Speaker 2: just closed, right, so you have to act quickly to

148
00:09:42,040 --> 00:09:44,679
Speaker 2: protect the secrets of the trade secret to the extent

149
00:09:45,080 --> 00:09:46,920
Speaker 2: you can demonstrate that one exists.

150
00:09:47,760 --> 00:09:51,280
Speaker 1: As far as an incentive to settle, is there more

151
00:09:51,320 --> 00:09:55,840
Speaker 1: incentive to settle cases like these? Where trade secrets.

152
00:09:55,400 --> 00:09:59,319
Speaker 2: Are involved, there is an incentive, you know, to litigate

153
00:09:59,400 --> 00:10:02,600
Speaker 2: the case just quickly. As I said, you're the one.

154
00:10:02,760 --> 00:10:05,960
Speaker 2: Majority of trade secret cases are in cases that are

155
00:10:06,000 --> 00:10:09,280
Speaker 2: going to go to trials or monetary damagers. They usually

156
00:10:09,360 --> 00:10:14,880
Speaker 2: get resolved at a preliminary injunctive relief stage. So the

157
00:10:14,960 --> 00:10:18,720
Speaker 2: incentive here is for Twitter to find out what it

158
00:10:18,800 --> 00:10:21,760
Speaker 2: can if it hasn't us, and they will move for

159
00:10:21,800 --> 00:10:24,360
Speaker 2: a premiery in junction and through that they'll be able

160
00:10:24,400 --> 00:10:28,400
Speaker 2: to get some level of expedita discovery from Meta from

161
00:10:28,440 --> 00:10:31,760
Speaker 2: which they can sustain whether there is enough evidence to

162
00:10:31,760 --> 00:10:35,719
Speaker 2: go forward or not. Settlement, of course, is always possible.

163
00:10:36,160 --> 00:10:38,360
Speaker 2: One of the reasons to send an notice letter is

164
00:10:38,400 --> 00:10:42,200
Speaker 2: to force the other side to do an investigation and

165
00:10:42,600 --> 00:10:45,000
Speaker 2: if they find something, they may come back to you

166
00:10:45,080 --> 00:10:47,040
Speaker 2: and make it an offward to make it go away.

167
00:10:47,520 --> 00:10:51,120
Speaker 2: That actually happens more often than you would think. Here.

168
00:10:51,240 --> 00:10:54,800
Speaker 2: I'm not sure because obviously there is a public rivalry

169
00:10:54,920 --> 00:10:57,640
Speaker 2: between the two CEOs. They might be playing into this,

170
00:10:58,360 --> 00:11:01,320
Speaker 2: and so maybe in a settlement is not the direction

171
00:11:02,040 --> 00:11:04,320
Speaker 2: at least the top level of both companies want to

172
00:11:04,360 --> 00:11:07,000
Speaker 2: go into. Certainly for Matta, you know, get making it

173
00:11:07,080 --> 00:11:08,240
Speaker 2: go away is a good thing.

174
00:11:08,600 --> 00:11:11,680
Speaker 1: Thanks for being on the show. Fabio. That's Fabio Marino,

175
00:11:11,880 --> 00:11:26,680
Speaker 1: a partner at Womble Bond Dickinson, Candy Crush, Call of Duty,

176
00:11:26,760 --> 00:11:30,440
Speaker 1: and World of Warcraft are now one step closer to

177
00:11:30,520 --> 00:11:34,920
Speaker 1: becoming Microsoft properties. A federal judge has denied the Federal

178
00:11:34,960 --> 00:11:39,720
Speaker 1: Trade Commission's requests for a preliminary injunction to stop Microsoft's

179
00:11:39,760 --> 00:11:44,080
Speaker 1: sixty nine billion dollar acquisition of video game company Activision.

180
00:11:44,080 --> 00:11:47,719
Speaker 1: Blizzard regulators sought to ax the deal, saying it will

181
00:11:47,800 --> 00:11:51,360
Speaker 1: hurt competition. The merger could be the largest in the

182
00:11:51,440 --> 00:11:55,160
Speaker 1: history of the tech industry, but Federal Judge Jacqueline Scott

183
00:11:55,240 --> 00:12:00,640
Speaker 1: Corley said the FDC hasn't raised serious questions regarding whether

184
00:12:00,679 --> 00:12:05,199
Speaker 1: the proposed merger is likely to substantially lessen competition between

185
00:12:05,320 --> 00:12:08,720
Speaker 1: video game consoles or in the growing markets for monthly

186
00:12:08,760 --> 00:12:12,680
Speaker 1: game subscriptions or cloud based gaming. Joining me is Bloomberg

187
00:12:12,760 --> 00:12:18,320
Speaker 1: Intelligence Senior litigation analyst Jenniferree. How big a defeat is

188
00:12:18,360 --> 00:12:21,079
Speaker 1: this for the FTC, Not only as far as this

189
00:12:21,200 --> 00:12:26,280
Speaker 1: deal is concerned, but as far as the FTC's aggressive

190
00:12:26,400 --> 00:12:28,040
Speaker 1: moves to police mergers.

191
00:12:28,440 --> 00:12:30,920
Speaker 3: You know, I think it's fairly big now. I'll start

192
00:12:30,920 --> 00:12:34,319
Speaker 3: by saying, these things move slowly, right, Challenging mergers is

193
00:12:34,360 --> 00:12:36,720
Speaker 3: its low process, and I think it's still sort of

194
00:12:36,760 --> 00:12:39,319
Speaker 3: too early to say whether the FTC really is in

195
00:12:39,440 --> 00:12:42,400
Speaker 3: kind of a failing streak. But this was pretty big

196
00:12:42,520 --> 00:12:45,960
Speaker 3: because they really really wanted to challenge a vertical deal,

197
00:12:46,000 --> 00:12:48,680
Speaker 3: a deal in which there was vertical integration by virtue

198
00:12:48,720 --> 00:12:51,160
Speaker 3: of the merger, and they thought this would be a

199
00:12:51,200 --> 00:12:54,000
Speaker 3: good one to do so, especially because it involves Microsoft,

200
00:12:54,040 --> 00:12:56,920
Speaker 3: their large, large, powerful company, and so I think that

201
00:12:56,960 --> 00:13:00,240
Speaker 3: it was a real disappointment for them, and obviously it

202
00:13:00,440 --> 00:13:02,320
Speaker 3: paved the way for the deal to close, and they

203
00:13:02,400 --> 00:13:05,040
Speaker 3: don't think the deal should close. So this was a

204
00:13:05,040 --> 00:13:05,480
Speaker 3: big deal.

205
00:13:06,600 --> 00:13:09,800
Speaker 1: Tell us about why the judge found that this deal

206
00:13:10,080 --> 00:13:13,000
Speaker 1: you didn't have antitrust problems and could go forward.

207
00:13:13,320 --> 00:13:16,360
Speaker 3: Well's technically what she found is that if there was

208
00:13:16,400 --> 00:13:18,520
Speaker 3: a full blown trial on the merits. This was sort

209
00:13:18,559 --> 00:13:22,000
Speaker 3: of a short abbreviated trial right just to determine whether

210
00:13:22,040 --> 00:13:23,920
Speaker 3: there should be a short term block. But what she

211
00:13:24,040 --> 00:13:26,040
Speaker 3: found is that if there were a full blown trial

212
00:13:26,040 --> 00:13:28,800
Speaker 3: on the merits, fleshing out all the evidence, that it

213
00:13:28,880 --> 00:13:32,280
Speaker 3: was unlikely that the FDC would succeed. This is what

214
00:13:32,360 --> 00:13:34,760
Speaker 3: the FTC had to show a likelihood of success on

215
00:13:34,800 --> 00:13:37,439
Speaker 3: the merits. The merits would have been fleshed out in

216
00:13:37,520 --> 00:13:41,320
Speaker 3: an internal FTC trial before an administrative law judge. And

217
00:13:41,400 --> 00:13:43,760
Speaker 3: so what this judge looked at is whether there was

218
00:13:43,840 --> 00:13:47,880
Speaker 3: evidence that supported Microsoft having the ability and the incentive

219
00:13:48,320 --> 00:13:52,280
Speaker 3: to foreclose activision games from its rivals in a way

220
00:13:52,280 --> 00:13:55,720
Speaker 3: that would lessen competition and harm consumers. And at least

221
00:13:55,760 --> 00:13:57,720
Speaker 3: on the very first piece, do they have the ability

222
00:13:57,760 --> 00:14:00,319
Speaker 3: to foreclose? The judge said, well, yes they do, they

223
00:14:00,320 --> 00:14:03,080
Speaker 3: have it. But what she found is that the FTC's

224
00:14:03,120 --> 00:14:06,160
Speaker 3: evidence didn't support the idea that they had an incentive

225
00:14:06,600 --> 00:14:11,000
Speaker 3: to keep these activision games, particularly Call of Duty, exclusive

226
00:14:11,120 --> 00:14:13,560
Speaker 3: and not allow access to the games to their rivals.

227
00:14:13,840 --> 00:14:15,760
Speaker 3: The evidence just simply didn't support that.

228
00:14:16,000 --> 00:14:17,880
Speaker 1: Tell me if you agree with this. Robert Land, who

229
00:14:17,960 --> 00:14:20,560
Speaker 1: was a professor of the University of Baltimore Law School,

230
00:14:20,640 --> 00:14:24,200
Speaker 1: said the judge relied on an erroneous legal standard. She

231
00:14:24,360 --> 00:14:28,000
Speaker 1: was too strict, and that the law only requires the

232
00:14:28,040 --> 00:14:32,720
Speaker 1: agency show a deal may substantially lessen competition, not that

233
00:14:32,840 --> 00:14:35,040
Speaker 1: it will or as likely to. I mean, do you

234
00:14:35,080 --> 00:14:35,720
Speaker 1: agree with him?

235
00:14:36,000 --> 00:14:38,640
Speaker 3: You know, I actually do agree with that. But given

236
00:14:38,680 --> 00:14:41,920
Speaker 3: this judge's opinion, I don't really think that slight lessening

237
00:14:41,960 --> 00:14:44,160
Speaker 3: of the standard would make much of a difference. She

238
00:14:44,280 --> 00:14:46,840
Speaker 3: said there was not one single document out of the

239
00:14:47,040 --> 00:14:50,080
Speaker 3: millions of documents that the FTC had obtained through their

240
00:14:50,120 --> 00:14:54,040
Speaker 3: long investigation and discovery that showed that Microsoft had this

241
00:14:54,320 --> 00:14:57,160
Speaker 3: plan or this incentive. And also she didn't buy the

242
00:14:57,200 --> 00:15:02,280
Speaker 3: economics experts evaluation of Microsoft's incentive. She just basically said

243
00:15:02,280 --> 00:15:04,240
Speaker 3: that the model was faulty. And these are the two

244
00:15:04,280 --> 00:15:06,600
Speaker 3: things they have. They have documents, they have testimony, and

245
00:15:06,640 --> 00:15:08,760
Speaker 3: they have the economists, and she said none of these

246
00:15:08,800 --> 00:15:11,600
Speaker 3: supported it. So even if you sort of corrected that

247
00:15:11,640 --> 00:15:14,160
Speaker 3: little error in the law and the standard were lessened,

248
00:15:14,200 --> 00:15:15,920
Speaker 3: I think the judge would have still come out the

249
00:15:15,920 --> 00:15:16,440
Speaker 3: same way.

250
00:15:16,840 --> 00:15:21,400
Speaker 1: According to Bloomberg's sources, the FTC is leaning toward appealing

251
00:15:21,560 --> 00:15:24,360
Speaker 1: the judges ruling. What do you think their chances are

252
00:15:24,360 --> 00:15:27,240
Speaker 1: and appeal and you know what about the timing.

253
00:15:27,440 --> 00:15:30,880
Speaker 3: So on timing. If they appeal, the only way they

254
00:15:30,920 --> 00:15:33,360
Speaker 3: can stop this deal from closing. Now, putting aside that

255
00:15:33,400 --> 00:15:35,480
Speaker 3: there's still issues in the UK the companies have to

256
00:15:35,480 --> 00:15:37,960
Speaker 3: deal with. But let's say they resolve those and they close.

257
00:15:38,400 --> 00:15:41,440
Speaker 3: The only way the FTC can keep them from closing

258
00:15:41,880 --> 00:15:44,080
Speaker 3: during the pendency of an appeal would be right now

259
00:15:44,080 --> 00:15:46,640
Speaker 3: to get an emergency order. They'd seek it first from

260
00:15:46,640 --> 00:15:49,400
Speaker 3: the District Court, which would probably deny it given her opinion,

261
00:15:49,440 --> 00:15:51,840
Speaker 3: and then they go to the Ninth Circuit. As of late,

262
00:15:51,920 --> 00:15:54,640
Speaker 3: those emergency order requests haven't worked, so I don't think

263
00:15:54,640 --> 00:15:57,080
Speaker 3: that would work. Now. They can still appeal, they can

264
00:15:57,120 --> 00:16:00,400
Speaker 3: still go after a closed deal. It would probably about

265
00:16:00,440 --> 00:16:03,120
Speaker 3: another six months, and I'll be perfectly honest, I just

266
00:16:03,160 --> 00:16:06,560
Speaker 3: don't see a likelihood of success there because even if

267
00:16:06,560 --> 00:16:10,040
Speaker 3: an appellate court agreed with what Robert Land said and said, well,

268
00:16:10,040 --> 00:16:12,880
Speaker 3: the interpretation of the law was incorrect, what they would

269
00:16:12,920 --> 00:16:14,800
Speaker 3: do is send it back to the district Court. And

270
00:16:14,840 --> 00:16:17,160
Speaker 3: I think what would happen is exactly what I said,

271
00:16:17,200 --> 00:16:19,560
Speaker 3: that the district court would say, okay, even if it's

272
00:16:19,560 --> 00:16:22,280
Speaker 3: a lesser standard, based on the evidence that was presented

273
00:16:22,320 --> 00:16:24,840
Speaker 3: to me, I still don't think they meet that standard.

274
00:16:24,880 --> 00:16:27,120
Speaker 3: So I see it as being a real uphill climb

275
00:16:27,160 --> 00:16:29,640
Speaker 3: to try to win that, and I really doubt that

276
00:16:29,640 --> 00:16:31,600
Speaker 3: they'd be able to get the emergency order to keep

277
00:16:31,640 --> 00:16:34,160
Speaker 3: them from closing. It doesn't mean they can't go after

278
00:16:34,200 --> 00:16:36,240
Speaker 3: the deal after it's closed. They can do that.

279
00:16:36,960 --> 00:16:39,640
Speaker 1: If they did that, would they do it in house

280
00:16:39,720 --> 00:16:42,120
Speaker 1: or would they have to go back to federal court.

281
00:16:43,040 --> 00:16:45,120
Speaker 3: They can do both, or they can do either. So

282
00:16:45,240 --> 00:16:47,600
Speaker 3: they can bring this appeal to the Ninth Circuit and

283
00:16:47,640 --> 00:16:50,360
Speaker 3: they can go through the appeal. They can continue the

284
00:16:50,360 --> 00:16:53,480
Speaker 3: internal litigation it's called a Part three before their owned

285
00:16:53,480 --> 00:16:57,440
Speaker 3: administrative law judge. It was up until now, scheduled to

286
00:16:57,480 --> 00:17:00,240
Speaker 3: start Trialogust two. I don't know if that'll get push

287
00:17:00,320 --> 00:17:02,640
Speaker 3: back or if that'll get stayed. At this point, they

288
00:17:02,640 --> 00:17:05,320
Speaker 3: can continue that, and like I said, they can continue

289
00:17:05,359 --> 00:17:07,919
Speaker 3: that even if the deal's closed. It's just that what

290
00:17:08,000 --> 00:17:10,240
Speaker 3: they have to seek then is an unwinding of the deal.

291
00:17:10,520 --> 00:17:14,359
Speaker 1: So now you refer to this, this deal still has

292
00:17:14,480 --> 00:17:20,160
Speaker 1: to get approval from European Markets Authority and they're tougher, right.

293
00:17:20,640 --> 00:17:24,119
Speaker 3: Well, they're definitely tougher at this point because of the

294
00:17:24,160 --> 00:17:28,720
Speaker 3: forty plus global antitrust authorities that needed to approve this deal.

295
00:17:28,840 --> 00:17:33,199
Speaker 3: Everyone at this point has except the UK. Now, FTC

296
00:17:33,320 --> 00:17:34,840
Speaker 3: and the US didn't approve it, but at least the

297
00:17:34,840 --> 00:17:37,199
Speaker 3: court did, right, So there is clearance everywhere except the

298
00:17:37,280 --> 00:17:41,080
Speaker 3: UK so they're a lonely standout right now, and so

299
00:17:41,880 --> 00:17:44,040
Speaker 3: Microsoft has to sort of figure that out. I think

300
00:17:44,040 --> 00:17:46,400
Speaker 3: there are some options. I mean news is reporting that

301
00:17:46,440 --> 00:17:49,280
Speaker 3: they're negotiating a new settlement. They had offered up a

302
00:17:49,320 --> 00:17:52,640
Speaker 3: settlement that was originally rejected by the CMA, the Competition

303
00:17:52,720 --> 00:17:55,680
Speaker 3: Markets Authority, and that they're negotiating something new. So that's

304
00:17:55,680 --> 00:17:58,720
Speaker 3: one possibility. They have appealed and they are set to

305
00:17:58,760 --> 00:18:02,000
Speaker 3: have an appellate hearing on July twenty eighth, So another

306
00:18:02,080 --> 00:18:04,760
Speaker 3: thing they could try is to negotiate with the CMA

307
00:18:04,800 --> 00:18:07,479
Speaker 3: to allow them to close the deal pending that appeal,

308
00:18:07,480 --> 00:18:10,879
Speaker 3: but hold separate, so in other words, hold activision completely separate,

309
00:18:10,960 --> 00:18:13,879
Speaker 3: no integration, no changes, just let them continue to operate

310
00:18:13,920 --> 00:18:15,920
Speaker 3: the way they are, but let us close the deal.

311
00:18:16,200 --> 00:18:18,800
Speaker 3: So that's one other option, and then they could pursue

312
00:18:18,840 --> 00:18:21,159
Speaker 3: their appeal. And then the third option would be to

313
00:18:21,200 --> 00:18:24,800
Speaker 3: close over UK objections, and that's really really risky. You know,

314
00:18:24,840 --> 00:18:26,600
Speaker 3: they have to win or they could face a lot

315
00:18:26,680 --> 00:18:28,920
Speaker 3: of fines and a lot of consequences down the road.

316
00:18:29,040 --> 00:18:30,800
Speaker 3: But it's another option a.

317
00:18:30,760 --> 00:18:34,320
Speaker 1: Lot of legal analysts are calling is yet another legal

318
00:18:34,359 --> 00:18:40,480
Speaker 1: defeat for the FTC and is Lenikon's strategy of aggressively

319
00:18:40,640 --> 00:18:46,160
Speaker 1: fighting mergers backfiring and actually encouraging more deal making from

320
00:18:46,240 --> 00:18:48,879
Speaker 1: companies that are willing to sort of roll the dice

321
00:18:49,000 --> 00:18:50,240
Speaker 1: and go to court.

322
00:18:51,040 --> 00:18:54,159
Speaker 3: You know, I tend to think yes. And the reason

323
00:18:54,240 --> 00:18:57,160
Speaker 3: is because between both the DOJ and the FTC, we're

324
00:18:57,160 --> 00:18:59,479
Speaker 3: seeing a little bit of a pattern in court. And

325
00:18:59,560 --> 00:19:02,360
Speaker 3: what we're seeing is that companies that have a deal

326
00:19:02,400 --> 00:19:05,119
Speaker 3: that has some problems are offering up a remedy and

327
00:19:05,160 --> 00:19:08,840
Speaker 3: the remedies getting rejected by either the DOJ or the FTC.

328
00:19:09,000 --> 00:19:11,760
Speaker 3: That's what happened with Microsoft Activision. But when they go

329
00:19:11,840 --> 00:19:13,920
Speaker 3: to court and they present that remedy to the judge,

330
00:19:13,960 --> 00:19:15,919
Speaker 3: the judges are open to it, and so they end

331
00:19:16,000 --> 00:19:19,880
Speaker 3: up winning and companies have learned that they figured it out.

332
00:19:19,960 --> 00:19:22,240
Speaker 3: That's the route. It might take us a little longer.

333
00:19:22,480 --> 00:19:24,920
Speaker 3: It might be more expensive for us because it takes

334
00:19:24,960 --> 00:19:27,240
Speaker 3: longer and costs more money to actually have to litigate

335
00:19:27,240 --> 00:19:29,919
Speaker 3: a deal. But if we have a very reasonable fix,

336
00:19:30,040 --> 00:19:31,560
Speaker 3: and we go to the judge and say, look, we

337
00:19:31,600 --> 00:19:34,160
Speaker 3: have this reasonable fix and it resolves all the issues

338
00:19:34,160 --> 00:19:36,800
Speaker 3: that the FTC or dojsay they have, you should let

339
00:19:36,880 --> 00:19:38,919
Speaker 3: us close, and the judges are doing that, and so

340
00:19:39,000 --> 00:19:41,720
Speaker 3: they have a strategy, a new strategy, and I think

341
00:19:42,320 --> 00:19:44,800
Speaker 3: are more confident about going forward with that.

342
00:19:45,240 --> 00:19:49,960
Speaker 1: Are these losses also, are they strengthening the boundaries of

343
00:19:50,040 --> 00:19:55,520
Speaker 1: existing antitrust law rather than perhaps expanding as Lena Khan

344
00:19:55,640 --> 00:19:56,160
Speaker 1: might want.

345
00:19:56,840 --> 00:19:59,320
Speaker 3: I wouldn't say they're strengthening. I think in my mind

346
00:19:59,320 --> 00:20:02,919
Speaker 3: it's just kind of status quo. They're certainly not expanding

347
00:20:02,960 --> 00:20:05,400
Speaker 3: out the bounds of antitrust law the way Lena Khan

348
00:20:05,480 --> 00:20:09,040
Speaker 3: would like. There arguably the decision by the judge and

349
00:20:09,080 --> 00:20:12,760
Speaker 3: the challenge to metas acquisition within a small virtual reality

350
00:20:12,800 --> 00:20:15,840
Speaker 3: app that the FDC lost, there was some language in

351
00:20:15,920 --> 00:20:18,840
Speaker 3: that decision that was somewhat helpful to the Federal Trade

352
00:20:18,880 --> 00:20:21,560
Speaker 3: Commission in terms of going after what we call a

353
00:20:21,680 --> 00:20:25,320
Speaker 3: nascent competitor, a company that buys another company that doesn't

354
00:20:25,320 --> 00:20:27,560
Speaker 3: compete with today but could compete within the future. So

355
00:20:27,680 --> 00:20:30,400
Speaker 3: maybe just a little incremental inch and a little move

356
00:20:30,520 --> 00:20:33,080
Speaker 3: toward toward the direction Lenacon would like to go. But

357
00:20:33,160 --> 00:20:35,080
Speaker 3: for the most part, what I see so far with

358
00:20:35,119 --> 00:20:36,960
Speaker 3: the judge's decisions is status quo.

359
00:20:37,359 --> 00:20:39,680
Speaker 1: Thanks so much, Jen for being on the show. That's

360
00:20:39,720 --> 00:20:43,760
Speaker 1: Bloomberg Intelligence see your litigation analyst, Jenniferree. For more of

361
00:20:43,800 --> 00:20:47,040
Speaker 1: Jen's analysis, you can go to Bigo on the Bloomberg terminal.

362
00:20:47,640 --> 00:20:49,960
Speaker 1: And that's it for this edition of The Bloomberg Law Show.

363
00:20:50,280 --> 00:20:52,639
Speaker 1: Remember you can always get the latest legal news on

364
00:20:52,680 --> 00:20:56,959
Speaker 1: our Bloomberg Law Podcast. You can find them on Apple Podcasts, Spotify,

365
00:20:57,160 --> 00:21:02,200
Speaker 1: and at www dot bloomberg dot com slash podcast Slash Law,

366
00:21:02,600 --> 00:21:05,200
Speaker 1: and remember to tune into The Bloomberg Law Show every

367
00:21:05,240 --> 00:21:09,160
Speaker 1: weeknight at ten pm Wall Street Time. I'm June Grosso

368
00:21:09,280 --> 00:21:10,879
Speaker 1: and you're listening to Bloomberg