WEBVTT - The Government's Monopoly Case Against Google 0:00:03.200 --> 0:00:08.000 This is Bloomberg Law with June Brusso from Bloomberg Radio. 0:00:09.160 --> 0:00:13.400 The evidence is in in the US government's landmark antitrust 0:00:13.480 --> 0:00:17.279 case against Google. During a ten week trial, DC Federal 0:00:17.360 --> 0:00:21.560 Judge Amitt Meta heard from more than fifty witnesses, including 0:00:21.640 --> 0:00:26.279 Google's CEO, Microsoft's CEO, and Apple executives. But the most 0:00:26.440 --> 0:00:30.760 damning evidence may be the internal documents. The Justice Department 0:00:30.880 --> 0:00:35.040 introduced the email slides and other records to show how 0:00:35.080 --> 0:00:39.760 Google's lavish payments to other companies ensured its search engine 0:00:39.800 --> 0:00:44.440 became the pre selected option almost everywhere that people access 0:00:44.520 --> 0:00:48.800 the Internet. Joining me is Bloomberg Intelligence Senior litigation analyst 0:00:48.960 --> 0:00:54.000 Jennifer ree Jen. Were the documents more convincing than the testimony? 0:00:54.440 --> 0:00:56.240 You know, I think so, And I actually tend to 0:00:56.240 --> 0:00:58.240 agree that that is the case most of the time 0:00:58.280 --> 0:01:01.280 in the anti trust trials, because the testimony as to 0:01:01.720 --> 0:01:04.840 whether something causes harm or whether a business strategy is 0:01:04.840 --> 0:01:07.679 pro competitive and legitimate. You know, the testimony will be 0:01:07.920 --> 0:01:09.959 whatever it will be, and it's as good as the 0:01:09.959 --> 0:01:12.880 trustworthiness of the witness. But the documents tell the truth. 0:01:13.000 --> 0:01:16.000 I mean, the documents show what the business was thinking about, 0:01:16.040 --> 0:01:18.440 what was presented to the board, how it was viewed, 0:01:18.480 --> 0:01:21.000 how competition was viewed, and what the intention of certain 0:01:21.000 --> 0:01:23.720 strategies are. And those speak the truth because they're made 0:01:23.760 --> 0:01:26.400 in the ordinary course, they're not made with litigation in mind. 0:01:26.680 --> 0:01:29.600 So I do think, particularly in this case, these documents 0:01:29.600 --> 0:01:30.400 are very important. 0:01:30.600 --> 0:01:33.360 This got so much attention that Google spends twenty six 0:01:33.560 --> 0:01:39.039 billion dollars to be the default. So what documentary evidence 0:01:39.080 --> 0:01:40.039 are we talking about there? 0:01:40.480 --> 0:01:43.360 Well, I mean this is just their profit law statements. 0:01:43.400 --> 0:01:45.200 I mean it was a document that showed what they 0:01:45.240 --> 0:01:47.600 call their traffic acquisition costs, and this is sort of 0:01:47.600 --> 0:01:50.120 translates into you know, what they have to pay to 0:01:50.160 --> 0:01:52.720 be the default search engine in many different places where 0:01:52.760 --> 0:01:55.320 somebody might go to search like Safari, let's say, or 0:01:55.320 --> 0:01:57.680 you're going to Chrome and you're searching something on the Internet, 0:01:57.840 --> 0:02:01.160 the default that's set is basically Google Search. So the 0:02:01.200 --> 0:02:04.160 twenty six billion was this cost, and what that is 0:02:04.200 --> 0:02:06.200 are payments that are made in order to have that 0:02:06.280 --> 0:02:09.360 default position. One to Apple, there are payments made to 0:02:09.400 --> 0:02:12.280 the phone makers like Samsung that make the Android mobile devices, 0:02:12.280 --> 0:02:14.440 and I should say mobile devices because it's not just phones, 0:02:14.680 --> 0:02:17.640 it's tablets and computers as well, so there was a 0:02:17.680 --> 0:02:20.120 document that showed this number, and Google was actually trying 0:02:20.120 --> 0:02:22.639 to keep this hidden in trial, but the judge decided, no, 0:02:22.720 --> 0:02:24.720 We're going to make it public. And I think it 0:02:24.760 --> 0:02:26.600 was a bit of a shock because there were some 0:02:26.800 --> 0:02:28.960 estimates of what this number might be and people were 0:02:28.960 --> 0:02:32.400 talking about eighteen billion, maybe ten billion paid to Apple, 0:02:32.560 --> 0:02:35.120 maybe another eight So this was a surprise when we 0:02:35.160 --> 0:02:36.240 got to that twenty six. 0:02:36.520 --> 0:02:37.600 It's a very high number. 0:02:38.400 --> 0:02:41.400 We all know about search ads because they're annoying, and 0:02:41.440 --> 0:02:44.720 there were notes prepared for a speech by a Google 0:02:44.800 --> 0:02:49.640 finance executive in twenty seventeen talking about just how lucrative 0:02:49.800 --> 0:02:50.880 search ads are. 0:02:51.680 --> 0:02:54.680 They are annoying and in fact getting more and more 0:02:54.720 --> 0:02:56.840 prevalent June, and this is one of the things that 0:02:56.919 --> 0:02:59.880 DJ is saying, Look, Google, you have this monopoly on 0:03:00.120 --> 0:03:03.000 general search. And because of the monopoly on general search, 0:03:03.520 --> 0:03:07.760 that means that advertisers feel they must advertise via your 0:03:07.800 --> 0:03:09.880 search results. And I don't know if you've noticed most 0:03:09.880 --> 0:03:13.320 people have, but sometimes the top results that come up 0:03:13.320 --> 0:03:15.560 when you do a search, they look like their search results, 0:03:15.560 --> 0:03:18.000 but they are actually sponsored ads. And so this is 0:03:18.040 --> 0:03:20.480 part of what the DJ says is degradation of quality. 0:03:20.520 --> 0:03:23.040 And I think that we saw in the Google documents. 0:03:23.240 --> 0:03:25.800 You know that they make this huge profit and what 0:03:25.840 --> 0:03:28.480 they charge for advertising, and there were also some documents 0:03:28.480 --> 0:03:31.160 that supported the idea that they could kind of raise 0:03:31.200 --> 0:03:33.640 the prices to advertisers as they saw fit and not 0:03:33.680 --> 0:03:35.840 really suffer from it. I mean, one of the ways 0:03:36.040 --> 0:03:38.440 that you can understand that a company has a monopoly 0:03:38.680 --> 0:03:41.000 is that it can raise its prices and not see 0:03:41.000 --> 0:03:43.520 demand go down, but demand stays the same. When the 0:03:43.560 --> 0:03:46.240 prices are raised, it means, you know, the advertisers don't 0:03:46.240 --> 0:03:48.960 go somewhere else they need to advertise there. So there 0:03:48.960 --> 0:03:51.800 were documents that bore that out. They bore the enormous 0:03:51.840 --> 0:03:54.200 amount of profit they make from advertising, but they also 0:03:54.280 --> 0:03:56.760 showed that when they needed to show a little bit 0:03:56.760 --> 0:03:58.520 of a better margin, at one point, they were able 0:03:58.520 --> 0:04:00.800 to just raise advertising prices and it didn't hurt them. 0:04:01.080 --> 0:04:05.120 Google's most important default deal was with Apple, and there 0:04:05.200 --> 0:04:09.280 was a provision negotiated in twenty sixteen that the two 0:04:09.320 --> 0:04:14.880 would support and defend their packed against antitrust scrutiny. Yeah. 0:04:14.920 --> 0:04:16.800 I mean that showed up in the documents too, and 0:04:16.839 --> 0:04:19.599 that's why those documents are so important because I'm not 0:04:19.640 --> 0:04:21.680 so sure that that's something that would have been elicited 0:04:21.680 --> 0:04:25.000 through testimony. There was an agreement that if there was 0:04:25.040 --> 0:04:29.520 some antitrust challenge to the default agreement that was struck 0:04:29.560 --> 0:04:32.200 between Google and Apple, that they would both defend it 0:04:32.279 --> 0:04:34.880 in cord or defend it as needed. Now, let me 0:04:34.880 --> 0:04:37.840 say one thing about that, because it sounds really bad, right, Yeah, 0:04:37.880 --> 0:04:39.839 it sounds bad. But at the end of the day, 0:04:40.080 --> 0:04:44.080 antitrust monopolistic conduct is adjudged by a reasonableness standard. 0:04:44.080 --> 0:04:46.400 I know that sounds kind of strange, but it's very 0:04:46.520 --> 0:04:48.080 very much of a gray area. 0:04:48.160 --> 0:04:51.279 So companies are often asking lawyers, well, we would like 0:04:51.360 --> 0:04:53.800 to do X, we want this new strategy. Is this 0:04:53.839 --> 0:04:55.760 going to violate the anti trust laws? And a lot 0:04:55.800 --> 0:04:57.760 of times the answer is, well, maybe and maybe not. 0:04:58.160 --> 0:05:00.880 You might get challenged. We think this is OA, We 0:05:00.960 --> 0:05:03.400 think that the benefits of this outweigh the harms that 0:05:03.400 --> 0:05:05.480 could come from this. But it doesn't mean you won't 0:05:05.520 --> 0:05:09.040 be challenged. So just the fact that they've decided they 0:05:09.080 --> 0:05:11.880 had this side agreement where they will both defend this 0:05:12.000 --> 0:05:16.359 agreement if they are challenged doesn't necessarily mean that it's illegal. 0:05:16.640 --> 0:05:19.479 I know, we talked about being the default before and 0:05:19.880 --> 0:05:22.479 whether it matters. I think it matters to most people. 0:05:22.520 --> 0:05:25.480 But what kind of testimony or documentary evidence was there 0:05:25.520 --> 0:05:25.960 about that? 0:05:26.680 --> 0:05:29.440 You know, first of all, I think that the fact 0:05:29.480 --> 0:05:32.480 that Google's paying twenty six billion dollars a year in 0:05:32.560 --> 0:05:35.600 order to have that position suggests there's some serious value 0:05:35.640 --> 0:05:38.520 to being there. And if people willing nearly were changing 0:05:38.520 --> 0:05:40.640 their default search engine to Being or DUC dot Go, 0:05:40.720 --> 0:05:43.560 which are the two main competitors to Google Search, I 0:05:43.560 --> 0:05:45.919 don't think they'd be paying that kind of money. So 0:05:46.400 --> 0:05:49.120 that's one thing that speaks for itself. But the other thing, 0:05:49.200 --> 0:05:52.000 I thought there was really compelling evidence from a Department 0:05:52.000 --> 0:05:56.080 of Justice expert who was an expert in behavioral economics, 0:05:56.200 --> 0:05:58.840 and he has spent his time studying how people behave 0:05:58.880 --> 0:06:01.479 when they're confronted with the default, not just in the 0:06:01.520 --> 0:06:04.560 digital world, but in many types of different examples. 0:06:04.680 --> 0:06:06.160 He was even looking at organ. 0:06:05.960 --> 0:06:10.200 Donation right, And I thought his testimony was really compelling 0:06:10.279 --> 0:06:12.960 because my personal position going into this was. 0:06:12.920 --> 0:06:15.160 Well, I changed the defaults. I think it's easy to do. 0:06:15.279 --> 0:06:16.039 I think it's quick. 0:06:16.279 --> 0:06:18.839 I use Microsoft and I change from Being which is 0:06:18.880 --> 0:06:21.680 set to Google because I like it better people can 0:06:21.760 --> 0:06:23.839 just do this and there's nothing exclusive about it. But 0:06:23.880 --> 0:06:26.120 you know, he kind of changed my mind on it 0:06:26.320 --> 0:06:30.680 because he showed how people simply don't change defaults. That 0:06:31.120 --> 0:06:33.520 a very small percentage, I think, I don't remember the 0:06:33.520 --> 0:06:36.520 exact numbers, but it's low people who know and actually 0:06:36.640 --> 0:06:40.240 would change the default. And he had studies that showed 0:06:40.240 --> 0:06:42.800 even if somebody knows they can change the default, if 0:06:42.800 --> 0:06:44.919 they're going to have to do something to figure out. 0:06:44.720 --> 0:06:46.080 How to do it, they don't do it. 0:06:46.920 --> 0:06:50.040 So sadly, I think the upshot of his testimony was 0:06:50.080 --> 0:06:52.599 that people tend to be uninformed and a little lazy. 0:06:52.920 --> 0:06:55.640 But that was his testimony and it was pretty compelling. 0:06:57.000 --> 0:07:00.280 There's an argument that the more and more people are 0:07:00.320 --> 0:07:04.800 on Google and inputting information, the better and better Google 0:07:04.880 --> 0:07:08.919 gets and that's an advantage over other search engines. Was 0:07:08.920 --> 0:07:09.880 that part of the trial. 0:07:10.360 --> 0:07:12.160 Oh yeah, that is a big part of the trial 0:07:12.280 --> 0:07:15.200 because that is one of the issues that the reason 0:07:15.280 --> 0:07:18.240 that Google wanted to hold down, let's say, wanted to 0:07:18.360 --> 0:07:20.920 have these default positions and sort of not provide a 0:07:20.920 --> 0:07:23.640 place in the marketplace for being or for ductut go 0:07:23.760 --> 0:07:25.840 to have a lot of search activity is because they're 0:07:25.880 --> 0:07:29.280 aware of this wheel right where the more searches you have, 0:07:29.360 --> 0:07:30.920 the better you get, and it was a way for 0:07:30.960 --> 0:07:33.600 them to keep the quality of those two rivals down 0:07:34.200 --> 0:07:36.200 and improve its own quality at the same time. And 0:07:36.280 --> 0:07:39.600 absolutely the Department of Justice has made that allegation. Google 0:07:39.680 --> 0:07:41.480 has said we are the best and we are better, 0:07:41.520 --> 0:07:43.480 and they have also said, oh, by the way, it's 0:07:43.520 --> 0:07:45.760 not just about the data, it's about the algorithm. 0:07:45.760 --> 0:07:48.400 We have a great algorithm. We put in loads of resources. 0:07:48.440 --> 0:07:51.120 We've spent billions of dollars over the years with R 0:07:51.160 --> 0:07:54.000 and D, we hire great people, we put loads of 0:07:54.040 --> 0:07:56.280 resources towards this, and that's why we're great. And you 0:07:56.360 --> 0:07:59.000 know what, Microsoft hasn't put those same kind of resources 0:07:59.000 --> 0:08:01.400 toward it. But on the other side, the Department of 0:08:01.560 --> 0:08:04.320 Justice would argue, well, Microsoft wouldn't put the resources when 0:08:04.320 --> 0:08:06.000 there's no place for them to get out there and 0:08:06.160 --> 0:08:08.280 get people to use being other than maybe on some 0:08:08.400 --> 0:08:09.720 Microsoft computers. 0:08:10.280 --> 0:08:13.920 But there was a presentation by a Google engineer called 0:08:14.320 --> 0:08:15.640 Google is Magical. 0:08:16.200 --> 0:08:18.600 Well, I will say that from the testimony, many who 0:08:18.640 --> 0:08:20.720 work for Google and have worked on the search engine 0:08:20.720 --> 0:08:23.120 are very proud of what they've done. And no one 0:08:23.200 --> 0:08:25.200 is saying that they shouldn't be, and no one was 0:08:25.200 --> 0:08:28.720 saying that it wasn't completely innovated. Google's very innovative and 0:08:28.800 --> 0:08:31.840 that you know, years ago when it first introduced a 0:08:31.840 --> 0:08:34.959 search engine, that it wasn't innovative. It's just a fantastic, 0:08:35.200 --> 0:08:37.040 useful product for consumers. 0:08:37.600 --> 0:08:39.680 But what the DJ has alleged is that. 0:08:39.600 --> 0:08:43.199 At some point in time, along the road of developing 0:08:43.240 --> 0:08:46.800 and becoming this massively popular search engine, I mean a verb, 0:08:47.000 --> 0:08:50.840 you know, that along the time they decided, not only 0:08:50.880 --> 0:08:53.400 have we developed this great search engine and we're fantastic 0:08:53.880 --> 0:08:56.760 and we're innovative, but now we're going to stop any threats. 0:08:56.840 --> 0:08:58.880 We want to stay where we are and we want 0:08:58.920 --> 0:09:01.240 to block any threats. That's really what they're claiming, not 0:09:01.320 --> 0:09:03.640 that it's not a great search engine and not an 0:09:03.640 --> 0:09:04.520 innovative company. 0:09:04.920 --> 0:09:07.800 I'm sure we've spoken before about things being put in 0:09:07.800 --> 0:09:11.360 writing that shouldn't be put in writing, and I always 0:09:11.480 --> 0:09:14.840 wonder why in companies they put things in writing. So 0:09:15.120 --> 0:09:19.679 Google actually told its employees what not to say, and 0:09:19.720 --> 0:09:24.000 the Jaluas department has quote Google's five rules of Thumb 0:09:24.080 --> 0:09:26.680 for written communications. 0:09:26.040 --> 0:09:29.320 To prove it that's exactly right. But let me say 0:09:29.320 --> 0:09:30.440 this that looks awful. 0:09:30.440 --> 0:09:32.720 But as an ex anti trust lawyer, I'll make one 0:09:32.760 --> 0:09:35.520 comment about this, or maybe many comments about this, But 0:09:35.800 --> 0:09:39.160 this is one of the jobs of outside council two big, 0:09:39.400 --> 0:09:42.760 huge companies. They do what's called anti trust compliance training, 0:09:43.120 --> 0:09:47.120 and many companies are actually advised and in writing exactly 0:09:47.559 --> 0:09:51.320 as Alphabet employees were advised. You shouldn't talk about dominance, 0:09:51.360 --> 0:09:54.800 you shouldn't talk about your market power, you shouldn't say, hey, 0:09:54.840 --> 0:09:58.400 you're number one in the market. It's actually pretty commonplace. 0:09:58.800 --> 0:10:01.960 So that kind of advice that came from I'm guessing 0:10:01.960 --> 0:10:05.880 the Anti Trust Council for Alphabet, I think for very 0:10:05.960 --> 0:10:08.160 very big companies is fairly common. 0:10:08.800 --> 0:10:09.480 But don't use the. 0:10:09.520 --> 0:10:13.440 Terms like crush, kill, hurt, or block when talking about rival. 0:10:13.520 --> 0:10:17.440 That's I myself have written compliance manuals that said almost 0:10:17.520 --> 0:10:21.400 that exact same thing. They're even online and maybe some 0:10:21.440 --> 0:10:23.920 compliance attorneys go online and see, hey, what are all 0:10:23.960 --> 0:10:26.959 the words that a big dominant company shouldn't use. 0:10:27.559 --> 0:10:29.520 So honestly, it looked so bad. 0:10:29.880 --> 0:10:32.040 I get that, But at the end of the day, 0:10:32.120 --> 0:10:34.400 it is pretty common practice for a really big company 0:10:34.440 --> 0:10:35.960 to have that kind of guidance internally. 0:10:36.840 --> 0:10:41.240 So how did Google do on defense or on defense, 0:10:41.280 --> 0:10:43.080 I should say. 0:10:42.760 --> 0:10:46.120 Well, I think actually they did fairly well, because you know, 0:10:46.200 --> 0:10:47.880 I'm going to go back to something I said earlier 0:10:47.920 --> 0:10:51.840 that monopolization cases are judged on what's called reasonableness, and 0:10:51.880 --> 0:10:54.360 it's called the rule of reason. That's the standard. And 0:10:54.400 --> 0:10:56.360 what the rule of reason asks the judge to do, 0:10:56.400 --> 0:10:59.640 which sounds incredibly difficult and I'd never want to be 0:10:59.679 --> 0:11:02.040 faced with this as a judge, is to ask does 0:11:02.080 --> 0:11:04.520 the conduct cause harm? That the conduct that's highlighted by 0:11:04.520 --> 0:11:06.679 the DJ is anti competitive? Has it caused harm to 0:11:06.679 --> 0:11:08.880 a market? And the DJ has to prove that. But 0:11:09.000 --> 0:11:11.320 once the DJ has proved that, the other side, the 0:11:11.360 --> 0:11:13.240 defense and this is an any case, not just this 0:11:13.280 --> 0:11:15.800 Google search case, has to show well, what are the 0:11:15.840 --> 0:11:18.560 pro competitive aspects of what we do? And once they've 0:11:18.559 --> 0:11:20.679 shown that there are pro competitive aspects and they've kind 0:11:20.720 --> 0:11:23.120 of verified those through the evidence it's not just made 0:11:23.160 --> 0:11:26.280 up or pretextual, the judge they have to weigh it. 0:11:26.320 --> 0:11:29.199 They have to ask which one is stronger, there's some harm, 0:11:29.280 --> 0:11:32.319 there's some benefit, which one stronger, and whichever one wins 0:11:32.320 --> 0:11:35.360 out that's the answer. It's really it sounds like a 0:11:35.400 --> 0:11:37.439 crazy thing. To have to do and very difficult, and 0:11:37.720 --> 0:11:40.400 it sounds really subjective, and I think this judge knows 0:11:40.400 --> 0:11:41.600 that he's going to be faced with that. 0:11:41.559 --> 0:11:42.520 And it's going to be difficult. 0:11:42.520 --> 0:11:45.120 And what Google did, which I think is a good defense, 0:11:45.240 --> 0:11:47.200 is they said, look, you know, we have some of 0:11:47.240 --> 0:11:50.360 these agreements because we want ease of consumer use. We 0:11:50.400 --> 0:11:51.839 want them to be able to take out a new 0:11:51.880 --> 0:11:53.720 phone that they just bought and. 0:11:53.800 --> 0:11:54.959 Have a great experience. 0:11:55.000 --> 0:11:56.720 We don't want them to be faced with a million 0:11:56.800 --> 0:11:59.320 things they have to pick, like a choice screen going okay, 0:11:59.400 --> 0:12:01.120 you have a default search engine here, which one do 0:12:01.120 --> 0:12:02.600 you want? You have a default search engine in this 0:12:02.679 --> 0:12:04.839 other place, which one do you want. We want these 0:12:04.880 --> 0:12:07.680 phones to come pre installed with all the Google apps 0:12:07.679 --> 0:12:11.240 that somebody really wants an Android phone, like YouTube and 0:12:11.360 --> 0:12:15.800 Google Play, Stoor and Chrome. And it's a really seamless 0:12:15.960 --> 0:12:19.880 consumer experience to just automatically use Google Search because it's 0:12:19.880 --> 0:12:22.360 the best. And Apple would say the same thing. They'd say, hey, 0:12:22.559 --> 0:12:25.000 we looked into it, we thought about it, we looked 0:12:25.000 --> 0:12:26.880 at some of the other options. We've even talked to 0:12:26.920 --> 0:12:29.600 Microsoft at some point about having being but we also 0:12:29.720 --> 0:12:32.360 want our users to have the best experience and having 0:12:32.400 --> 0:12:35.720 the best experience is having Google Search installed as default, 0:12:35.920 --> 0:12:38.480 and that's certainly pro competitive. And they've also said, look, 0:12:38.480 --> 0:12:42.160 we're just the best. We put loads of money into this, 0:12:42.480 --> 0:12:45.160 loads of time, loads of people, loads of resources, and 0:12:45.200 --> 0:12:48.400 we're constantly innovating to get better. So, you know what, 0:12:48.559 --> 0:12:52.240 even if our advertising prices are going up and some 0:12:52.320 --> 0:12:55.120 companies believe they have to advertise through general search, it 0:12:55.160 --> 0:12:56.720 pops up when somebody does a search. 0:12:57.120 --> 0:12:58.440 They're getting better value, They're. 0:12:58.280 --> 0:13:01.000 Getting more clicks there, maybe getting more buys from that 0:13:01.080 --> 0:13:03.120 because of all the innovation that we do. 0:13:03.400 --> 0:13:05.840 So I think they did a good job. 0:13:05.920 --> 0:13:08.480 Face with some not so great facts like twenty six 0:13:08.520 --> 0:13:10.880 billion a year you know, paid for this. They did 0:13:10.880 --> 0:13:12.720 a good job of showing that there was this pro 0:13:12.760 --> 0:13:14.840 competitive side and that the judge is really going to 0:13:14.840 --> 0:13:16.080 have to weigh them against each other. 0:13:16.800 --> 0:13:20.080 Closing arguments will take place in early May, and the 0:13:20.200 --> 0:13:23.480 judge has actually said that he has no idea what 0:13:23.600 --> 0:13:27.120 he's going to do. Thanks so much, Jen, that's Bloomberg 0:13:27.200 --> 0:13:31.200 Intelligence Senior litigation analyst Jennifer Ree. What should you do 0:13:31.280 --> 0:13:34.760 when a regulator doesn't respond to your petition? Well, you 0:13:34.840 --> 0:13:39.280 could just proceed as planned but one cryptocurrency exchange has 0:13:39.360 --> 0:13:43.120 taken a less used path. Coinbase Global, has decided to 0:13:43.120 --> 0:13:46.680 sue the sec over its alleged foot dragging on the 0:13:46.760 --> 0:13:50.760 company's request for crypto ruling, and it's asking an appellate 0:13:50.840 --> 0:13:53.920 court to order the agency to respond. Joining me is 0:13:53.920 --> 0:13:56.760 Anthony Sabino, a professor in the law department at the 0:13:56.800 --> 0:14:01.199 Peter Tubin College of Business at Saint John's Universe. How 0:14:01.559 --> 0:14:06.240 unusual is it to sue a securities regulator to get 0:14:06.240 --> 0:14:07.520 them to make rules. 0:14:08.440 --> 0:14:11.719 It is highly unusual. But what we're witnessing here is 0:14:11.760 --> 0:14:13.520 it might be the beginning of a trend where it 0:14:13.559 --> 0:14:16.240 becomes a little more frequent, although I don't think it 0:14:16.280 --> 0:14:20.520 would ever become commonplace, because essentially, for business, the best 0:14:20.640 --> 0:14:24.440 mode of operations to say, okay, don't prod these securities 0:14:24.440 --> 0:14:28.080 in Exchange Commission or for that matter, any other governmental regulator, 0:14:28.160 --> 0:14:31.120 especially at the federal level. Never bother them, don't post 0:14:31.120 --> 0:14:33.840 the sleeping bear, leave them alone, okay, and let them 0:14:33.840 --> 0:14:36.520 make rulemaking on their own. However, we're seen in the 0:14:36.560 --> 0:14:39.480 cases that we've been discussing here June is the fact 0:14:39.520 --> 0:14:43.120 that these are companies that are more innovative, more on 0:14:43.160 --> 0:14:46.360 the cutting edge again, especially in the crypto space, and 0:14:46.680 --> 0:14:50.000 they really are impatient. They can't wait, and one can 0:14:50.120 --> 0:14:52.200 sympathize with that, and one can understand it to a 0:14:52.240 --> 0:14:54.680 fair degree. But by the same token, you know, the 0:14:54.760 --> 0:14:56.960 possibility is they may get a result that they don't 0:14:57.000 --> 0:15:00.200 really want, and this may rebound to their detriment. But 0:15:00.280 --> 0:15:02.560 again it remains to be seen. But the good news, 0:15:02.600 --> 0:15:05.240 if you will, is the fact that under the Administrative 0:15:05.240 --> 0:15:08.800 Procedure Act, which was inaugurated in the nineteen fifties to 0:15:08.840 --> 0:15:12.480 deal with the plethora of administrative agencies that had cropped 0:15:12.560 --> 0:15:15.280 up thirty years before into Franklin, Ellen or Roosevelt, it 0:15:15.320 --> 0:15:17.800 does provide an avenue of relief where by a party 0:15:17.800 --> 0:15:20.680 can say, look, dear agency, all right, we're in such 0:15:20.720 --> 0:15:23.480 and such business. We're not sure what to do here. 0:15:23.520 --> 0:15:25.640 We would like you to promulgate a rule about that. 0:15:26.040 --> 0:15:29.640 And it is basically Americans and American businesses saying, look, okay, 0:15:29.760 --> 0:15:32.680 we understand there has to be some modicum of government regulation, 0:15:33.120 --> 0:15:37.000 but we need clarity, we need predictability. Otherwise the wheels 0:15:37.000 --> 0:15:39.360 of free enterprise grind to a halt. And we're going 0:15:39.400 --> 0:15:41.880 to exercise our rights to say, okay, look, government works 0:15:41.920 --> 0:15:44.720 for the people, Government works for us, so therefore we 0:15:44.760 --> 0:15:46.360 want to get a result here. You just can't sit 0:15:46.400 --> 0:15:48.440 around and keep us waiting in Limba. 0:15:48.560 --> 0:15:51.840 Do you think the SEC hasn't written the rules for 0:15:51.960 --> 0:15:56.280 crypto because they're not quite sure how it works yet 0:15:56.280 --> 0:15:57.880 and what the problems. 0:15:57.360 --> 0:16:01.160 Are, June, I could not agree with you more exactly right, okay, 0:16:01.200 --> 0:16:04.080 because let's face it, okay, crypto is brand new for everybody, 0:16:04.080 --> 0:16:07.320 and again that's both good and bad. The crypto industry 0:16:07.360 --> 0:16:10.840 itself is constantly innovating. They're inventing new stuff up on 0:16:10.880 --> 0:16:12.640 the guardment. I'm sure as we're sitting here, in the 0:16:12.680 --> 0:16:15.120 next few minutes, some crypto entrepreneur is going to come 0:16:15.120 --> 0:16:18.160 out with a new device, okay, a new form of cryptocurrency. 0:16:18.400 --> 0:16:21.200 And that's wonderful because that's free enterprise and freedom at 0:16:21.200 --> 0:16:23.520 its best. But on the other hand, what that means 0:16:23.600 --> 0:16:25.560 is the SEC isn't sure what to do. And I 0:16:25.600 --> 0:16:27.960 think really that's the danger here for the agency, and 0:16:28.000 --> 0:16:30.320 this I can sympathize with the agency on this account, 0:16:30.600 --> 0:16:33.640 is the fact that how can they make rules for 0:16:33.760 --> 0:16:36.280 things that they do not yet fully understand? How can 0:16:36.320 --> 0:16:40.640 they make comprehensive rules for situations that are constantly cropping up. Okay, 0:16:40.720 --> 0:16:43.160 is newer things come up, There is yet to know 0:16:43.240 --> 0:16:45.280 who's on the on the playing field, if you will, 0:16:45.560 --> 0:16:47.560 and to understand what rules need to be made. So 0:16:47.640 --> 0:16:50.640 the agency to some extent is in the right when 0:16:50.640 --> 0:16:53.080 they say, look, we've got to look at this, we've 0:16:53.080 --> 0:16:55.480 got to analyze, et cetera. Because certainly no one in 0:16:55.520 --> 0:16:59.040 any industry wants to have rules that will stifle innovations, 0:16:59.080 --> 0:17:03.080 stifle competition in other ways, basically be detrimental to business. 0:17:03.440 --> 0:17:06.719 You want agencies to take a measured, logical approach and 0:17:06.800 --> 0:17:09.640 to act on a fully informed basis. And again, as 0:17:09.680 --> 0:17:12.919 we have all these innovations cropping up like weeds in 0:17:12.960 --> 0:17:15.280 a field, the bottom line is you have to give 0:17:15.280 --> 0:17:17.120 them some space to do that, which I also think 0:17:17.200 --> 0:17:20.359 explains to some extent why as a general matter, and 0:17:20.400 --> 0:17:22.439 again this could be evolving into something else, but as 0:17:22.440 --> 0:17:25.600 a general matter, today courts are reluctant to push agencies 0:17:25.640 --> 0:17:28.879 to act because they understand the limitations agencies have in 0:17:28.960 --> 0:17:32.520 terms of personnel, resources, budget and also the fact that 0:17:32.560 --> 0:17:35.720 again they need to make informed decisions because a rule 0:17:35.760 --> 0:17:38.240 that's made on a poorly informed basis is the one 0:17:38.240 --> 0:17:40.959 that's going to be challenged and most likely successfully in 0:17:41.000 --> 0:17:41.680 a court of law. 0:17:42.160 --> 0:17:46.040 Tell us what Coinbase is asking for here? What happened here? 0:17:46.160 --> 0:17:48.800 Yeah, well, as I understand it, basically, they had put 0:17:48.840 --> 0:17:51.640 forth a proposal to the SEC say look, we want 0:17:51.640 --> 0:17:53.920 some clarity here because we want to know whether you're 0:17:53.960 --> 0:17:56.080 going to regulate us or not. And again, the essence 0:17:56.119 --> 0:17:57.960 of that is something that we've been dealing with now 0:17:58.000 --> 0:17:59.600 for a couple of years, and we'll continue to deal 0:17:59.640 --> 0:18:02.320 with the need more years to come. Is that is 0:18:02.440 --> 0:18:06.760 crypto a commodity which would be put under CFTC Commodity 0:18:06.800 --> 0:18:10.080 Futures Trading Commission jurisdiction or is it a security as 0:18:10.119 --> 0:18:12.600 to find under the long standing Supreme Court test of 0:18:12.600 --> 0:18:16.040 how we from decades ago and therefore in the SEC jurisdiction. 0:18:16.400 --> 0:18:18.920 And so they want some clarification here. But that's part 0:18:18.960 --> 0:18:22.480 of the problem because again, as Coinbase continues to innovate, 0:18:22.520 --> 0:18:25.399 as any crypto merchant continues to innovate, they come up 0:18:25.440 --> 0:18:27.720 with new things. In the SEC isn't too sure what 0:18:27.800 --> 0:18:30.080 to do. Also, let's keep in mind that the SEC 0:18:30.160 --> 0:18:35.359 is absorbing the continued school diversity of court opinions. We 0:18:35.480 --> 0:18:38.720 had a few months ago, District Judge Anna Lisa Torres 0:18:38.720 --> 0:18:41.360 here in the southerns of New York, again the financial 0:18:41.359 --> 0:18:44.680 capital of America, if not the world, saying okay, this 0:18:44.760 --> 0:18:47.800 particular crypto product, I think it was a non fungible token, 0:18:47.960 --> 0:18:51.920 This digital token is not a security, so SEC, it's 0:18:51.960 --> 0:18:55.000 not within your bailiwick. CFTC can regulate this as a commodity. 0:18:55.320 --> 0:18:58.480 But in other instances, a different kind of investment is 0:18:58.760 --> 0:19:01.359 a security. Therefore it's being offered. Therefore it's like an 0:19:01.359 --> 0:19:05.320 IPO in this instance, the corollary the ico initial coin offering. 0:19:05.600 --> 0:19:06.800 SEC go ahead and regulate this. 0:19:07.240 --> 0:19:07.440 Now. 0:19:07.480 --> 0:19:10.200 A couple of months after that, okay, we had Judge 0:19:10.280 --> 0:19:13.760