Speaker 1: This is Bloomberg Law with June Brusso from Bloomberg Radio.
Speaker 1: Google is back on trial just one month after losing
Speaker 1: a landmark ruling finding that it illegally monopolizes Internet search.
Speaker 1: Now the Justice Department is alleging that Google monopolizes the
Speaker 1: six hundred and seventy seven billion dollar advertising market. Joining
Speaker 1: me is Bloomberg Anti Trust reporter Leah Nylan, who's covering
Speaker 1: the trial and joins us from the courthouse tell us
Speaker 1: about the government's case against Google.
Speaker 2: So, the Justice Department alleges that Google has illegally monopolized
Speaker 2: the ad tech tool market. This is a market that
Speaker 2: most consumers are probably not familiar with at all, because
Speaker 2: it is sort of the plumbing behind online advertising, and
Speaker 2: so it's the way that websites put, you know, ads
Speaker 2: up for sale and advertiseers buy them.
Speaker 3: So it's a.
Speaker 2: Lot of technically complicated stuff, but it is the way
Speaker 2: that Google makes billions of dollars each year. And so
Speaker 2: the government alleges that they have monopolized this market by
Speaker 2: buying up some rival competitors who are going to offer
Speaker 2: different products, controlling the way that their customers are able
Speaker 2: to interact with rivals. And changing sort.
Speaker 3: Of the rules of the game.
Speaker 2: Midstream, because a lot of these ads are actually sold auctions,
Speaker 2: and Google controls that auction and therefore can change some
Speaker 2: of the rules behind how those auctions work.
Speaker 1: In the opening statement, the Justice Department's attorney said, what
Speaker 1: we have is a trifecta of monopolies here. What did
Speaker 1: she mean.
Speaker 2: Yeah, they're actually alleging that there are three separate monopolies
Speaker 2: that Google has. One of them is on what they
Speaker 2: call the publisher side. That means some of the tools
Speaker 2: that are used by websites to help put their adspace
Speaker 2: up for sale. Those are called the ad server market.
Speaker 3: They have alleged that there is a.
Speaker 2: Market for the advertising exchanges. These are just like a
Speaker 2: stock exchange, is where the advertisements are bought and sold.
Speaker 2: And the third one is the advertiser side tools.
Speaker 3: This is the tools that.
Speaker 2: The advertisers use to put their ads out there for sale.
Speaker 1: Google's attorney what did they stress in their openings?
Speaker 3: Yeah.
Speaker 2: Google stressed a couple different things in their opening statement.
Speaker 2: The first one was that, you know, the market, in
Speaker 2: their view, is very competitive. They compete against a lot
Speaker 2: of different companies in a lot of different types of advertising,
Speaker 2: and they say that the Justice Department has sort of
Speaker 2: gerrymandered a market here to sort of bring their case. So,
Speaker 2: the Justice Department alleges that Google has monopolized the open
Speaker 2: web display advertising. This is the display ads, the sort
Speaker 2: of the things that you see on like blogs or
Speaker 2: news websites, sports websites, things like that.
Speaker 3: They often appear at the top of the page.
Speaker 2: Or like beside the content that you're reading. And Google
Speaker 2: argues that there are lots of other types of advertising.
Speaker 2: You know, you can advertise on social media, you can
Speaker 2: advertise in video, you can advertise all sorts of places,
Speaker 2: and it's weird, in their opinion for the Justice Department
Speaker 2: to be focused in on this one. They have two
Speaker 2: other arguments legally.
Speaker 3: One of them is.
Speaker 2: That they don't actually have an obligation under the antitrust
Speaker 2: law to do business with anyone. So if they decide
Speaker 2: that they don't want to make the tools that they
Speaker 2: use for advertising work with.
Speaker 3: Other people's tools, that that's completely fine.
Speaker 2: And then their third argument is that we should really
Speaker 2: think about this not as open web display advertising, but
Speaker 2: as a transaction, almost like a credit card.
Speaker 3: And under the law the.
Speaker 2: Supreme Court had made of rulings about how to think
Speaker 2: about markets in what they call two side transaction platforms,
Speaker 2: and so Google is arguing that that sort of legal
Speaker 2: overlay should apply here.
Speaker 1: I like this line by the Google attorney. There's no
Speaker 1: such thing as open web display advertising. She accused the
Speaker 1: government of trying to open a time capsule that would
Speaker 1: reveal a BlackBerry iPod and a Blockbuster video card.
Speaker 3: Yes, it was a pretty good line.
Speaker 2: Essentially, what they are saying is like, maybe at one
Speaker 2: point in time, the in networked this way, but lots
Speaker 2: of things have moved on, and the government is still
Speaker 2: very focused on what, in Google's view is a vision
Speaker 2: of the market that no longer exists anymore.
Speaker 1: And so Google also this echoed the argument that we
Speaker 1: heard in the other Google anti trust case that it's
Speaker 1: end to end integration makes the technology more efficient and
Speaker 1: secure and reliable. On that marketers and publishers choose it
Speaker 1: because they're superior, not because they don't have any other options.
Speaker 1: And in the other antitrust trial that they lost, they
Speaker 1: said that, you know, Google's just better, that's why people
Speaker 1: come to Google.
Speaker 2: Yeah, they're making a similar argument here. You know, they
Speaker 2: have pointed out that there are a lot of other options,
Speaker 2: both for where you can buy advertising and.
Speaker 3: For how you can buy advertising.
Speaker 2: So you can do it through Google's tools, but there
Speaker 2: are certainly other companies that offer similar tools that you
Speaker 2: can buy these same ads through. And so their argument is,
Speaker 2: you know, people are using these tools because they're well
Speaker 2: known and sort of trusted. The government's response is actually
Speaker 2: pretty similar to the previous case. They argue that, you know,
Speaker 2: in these kinds of markets, scale is really important, So
Speaker 2: like the publishers want to go to where the advertisers are,
Speaker 2: and the advertisers want to go to where the publishers are.
Speaker 2: And because Google owns the ad server part on.
Speaker 3: The publisher side, and they also own the other.
Speaker 2: Tools for publishers, you know, they sort of have an
Speaker 2: advantage here that a lot of other players.
Speaker 3: Do not have.
Speaker 2: And while now Google has this what they call an
Speaker 2: integrated stack, for a long time that wasn't true. Nobody
Speaker 2: had an integrated stack. These were all sort of separate products,
Speaker 2: and the government argues that maybe they should be separated
Speaker 2: because they keep going back to this thing that you've
Speaker 2: seen in a lot of Google's documents, which there have
Speaker 2: been some emails in which people have suggested it's a
Speaker 2: little bit like Google is operating both like Goldman Sachs
Speaker 2: a trader and the New York Stock Exchange the place
Speaker 2: where they're making trade. And in the financial world, that
Speaker 2: would never be allowed, like you would not allow somebody
Speaker 2: who is transacting on the platform to also own the platform.
Speaker 2: But here Google does own.
Speaker 3: All of the pieces, the buy side, the cell side.
Speaker 2: And the platform itself, and that represents sort of a
Speaker 2: conflict of interest that the Justice Department says is very problematic.
Speaker 1: Who has the Justice Department put on the stand?
Speaker 3: So far, we've actually been gone really fast.
Speaker 2: I think we're on like Witness eight or nine.
Speaker 3: A really yes.
Speaker 2: So the various parts. We've heard from two website publishers,
Speaker 2: Gannett and News Corps, and they've talked a little bit
Speaker 2: about how that kine in online advertising has significantly impacted
Speaker 2: their business. They've had to, you know, shut our publications
Speaker 2: and fire journalists because they're just not getting as much
Speaker 2: advertising through these online tools as they used to. We've
Speaker 2: also heard from a couple rivals who offer other ad
Speaker 2: tech tools that are similar to what Google offers. So
Speaker 2: we heard from another company that is an exchange called
Speaker 2: index Exchange, and we heard from another company that offers
Speaker 2: an ad server. It's a little bit different from Google,
Speaker 2: and their argument was that they tried to initially get
Speaker 2: in the same market as Google and they couldn't because
Speaker 2: it was sort of the gorilla in the room. And
Speaker 2: we've also heard from two former Google employees so far
Speaker 2: who worked on the display ad business and sort of
Speaker 2: had a hand in how some of these tools were developed.
Speaker 1: Does the government intend to also call people who are
Speaker 1: still at Google.
Speaker 2: Yes, they do plan to call some folks who are
Speaker 2: still at Google. I think they're trying to get through
Speaker 2: some of what we might call like the victim witnesses first,
Speaker 2: so they were trying to establish some of the harm
Speaker 2: from Google's conduct. But they do have a number of
Speaker 2: Google witnesses that they plan to call. The most senior
Speaker 2: one is Neil Mohan. He is actually now the CEO
Speaker 2: of YouTube, but for a long time he was very
Speaker 2: involved in Google's display advertising business. And then after him,
Speaker 2: the most sort of senior person is somebody by the
Speaker 2: name of Don Harrison. He's a pretty senior executive at Google.
Speaker 3: He didn't testify in the search trial.
Speaker 2: That he did testify in the Epics trial that was
Speaker 2: over Android.
Speaker 1: Well, those are going to be very interesting witnesses to see,
Speaker 1: you know, hostile witnesses. And who does Google plan to call?
Speaker 2: Yeah, most of the people Google plans to call are
Speaker 2: again its own employees, because they are hoping to sort
Speaker 2: of show that, you know, Google has really innovated in
Speaker 2: the market. Their argument is that they've made a lot
Speaker 2: of changes to make this ecosystem better. In particular, they've
Speaker 2: spent a lot of resources trying to focus on rooting
Speaker 2: out like.
Speaker 3: BAM and ad fraud.
Speaker 2: So they plan to call a number of witnesses who
Speaker 2: will talk about Google's efforts there and why some of
Speaker 2: the specific things that the government alleges their anti competitive were,
Speaker 2: in their views, sort of done for legitimate business purposes.
Speaker 1: Is the government call for a breakup of Google's ad
Speaker 1: tech business here?
Speaker 2: Yes, they are specifically calling for a breakup of the business.
Speaker 3: Here.
Speaker 2: They argue that Google should not essentially be allowed to
Speaker 2: operate on all sides of the market, you know, the
Speaker 2: by side, the sell side, and the exchange, and that.
Speaker 3: They should have to at least sell off one side
Speaker 3: of that.
Speaker 2: Google you know, maintains that that would really break the
Speaker 2: sort of feamless experience that they've really created for marketers
Speaker 2: and website publishers.
Speaker 1: Yeah, because in the other trial, there's a possibility they
Speaker 1: could ask for their breakup, but they didn't say that,
Speaker 1: like right at the start.
Speaker 2: Yeah, in this one they did, like right at the
Speaker 2: very beginning, say that they thought a breakup was needed.
Speaker 2: Here in part they have identified a couple of transactions
Speaker 2: that Google has engaged in over the years, including in
Speaker 2: particular the two thousand and eight acquisition of double Click,
Speaker 2: and in that one they bought what has now become.
Speaker 3: The exchange of Google's exchange.
Speaker 2: And so they argue that that was in the complaint.
Speaker 2: They have a nice phrase that that was the beginning
Speaker 2: of marched to monopoly. But that transaction and then a
Speaker 2: couple others that they outlined really gave Google the tools
Speaker 2: to build this sort of ad empire, and that maybe
Speaker 2: we should just unwind some of those transactions.
Speaker 1: Google has lost the last two antitrust trials. A lot
Speaker 1: seems to be riding on this for Google, and a
Speaker 1: judge is going to decide this, right, there's no jury here, Yes.
Speaker 2: There was no jury. It was initially going to be
Speaker 2: a jury trial, but Google did a very interesting thing
Speaker 2: in which it just agreed to pay the government's damages,
Speaker 2: which were two point three million, and that obviated the
Speaker 2: need for a jury, so it is now just a
Speaker 2: judge trial. She is expected to rule sometime after the trial,
Speaker 2: maybe even by the end of the year.
Speaker 1: And how long is a trial expected to last?
Speaker 2: So initially they were suggesting it might be four to
Speaker 2: six weeks. They have, however, this week gone much much
Speaker 2: faster than they had anticipated, in part because the judge
Speaker 2: is really focused on moving things along very expeditiously, So
Speaker 2: the current estimate is maybe.
Speaker 1: Three to four Thanks so much, Lea. We'll catch up
Speaker 1: with you when the trial ends. That's Bloomberg Anti trust
Speaker 1: reporter Leah Niln coming up next on the Bloomberg Law Show.
Speaker 1: It's a trial where lots of handbags are on display.
Speaker 1: The Federal Trade Commission is suing to block Tapestry and
Speaker 1: Capri from merging in an eight point five billion dollar deal.
Speaker 1: This is Bloomberg. It's not often that a rack of
Speaker 1: handbags is rolled into court as evidence. They range from
Speaker 1: a green and white Kate Spade tote priced at two
Speaker 1: hundred and seventy nine dollars to a one thousand, ninety
Speaker 1: five dollars brown leather Coach Rogue handbag. There's the merch
Speaker 1: and there's the money. In the anti trust trial that
Speaker 1: will spell the fate of the eight point five billion
Speaker 1: dollar deal to marry the Coach and Kate Spade brands
Speaker 1: with Versace and Michael Core's joining me is Bloomberg Intelligence
Speaker 1: senior litigation analyst Jennifer Ree, who's covering the trial. Jen
Speaker 1: it's the FTC so in to stop this deal. Tell
Speaker 1: us about the opening statements by its lawyer.
Speaker 4: They actually say they have two theories of harm by
Speaker 4: which they could block this deal. And it's sort of
Speaker 4: what we think of as a typical horizontal deal, meaning
Speaker 4: there are two companies that want to merge that have
Speaker 4: products that compete against each other, So pretty straightforward, the
Speaker 4: traditional kind of merger that has been challenged by the
Speaker 4: FTC or Department of Justice in the past. And in
Speaker 4: this case, what they're really looking at is handbags and
Speaker 4: a market for what they call accessible luxury handbags and
Speaker 4: what that really means. They're sort of the handbags in
Speaker 4: the middle market. They say, it's not the ultra premium,
Speaker 4: ultra luxury usually European handbags made by companies like Louis
Speaker 4: Vuitan and Prada and Gucci, and it's not really these
Speaker 4: mass market bags that are often not leather and usually sold,
Speaker 4: you know, for under one hundred dollars. But it's kind
Speaker 4: of what's in between. And if you look at that
Speaker 4: piece of the market, Tapestry has Coach and Kate's Bade brands,
Speaker 4: and Capri has the Michael Core's brand, And what the
Speaker 4: FTCT says is, look, these are each other's primary competitors.
Speaker 4: Coach and Kate Spade primarily see themselves as competing in
Speaker 4: the US at least against Michael Core's, and Michael Corres
Speaker 4: primarily sees itself as competing against Coach and Kate Spade.
Speaker 4: And if you look at the other bags that are
Speaker 4: within what they call the successible luxury market, the market
Speaker 4: shares combined would be, according to the FTC, fifty eight percent,
Speaker 4: and this would be a market that is unduly concentrated
Speaker 4: and would be presumed harmful. So that's kind of one argument,
Speaker 4: which is a fairly typical argument. They define a market,
Speaker 4: they look at what the market shairs are in the market.
Speaker 4: They look at what the concentration in the market would
Speaker 4: be before and after the deal. Their second theory is
Speaker 4: a somewhat novel one, and it comes out of new
Speaker 4: guidelines that the Federal Trade Commission and Department of Justice
Speaker 4: issued at the end of last year. Now, they've had
Speaker 4: guidelines for many, many years that lay out how they
Speaker 4: assess the deal and whether the deal violates the antitrust
Speaker 4: laws or not. They're not binding on judges, but most
Speaker 4: judges find them to be persuasive and have followed them.
Speaker 4: This FTC updated the guidelines that happens periodically, as I said,
Speaker 4: at the end of twenty twenty three, and they added
Speaker 4: a new provision. And what that provision says is they
Speaker 4: don't really have to define a market or lay out
Speaker 4: what the combined market shares would be if they can
Speaker 4: prove that the merging parties are each other's primary head
Speaker 4: to head competitors, they constrain each other's pricing essentially in
Speaker 4: the market, and that if they come together, that constraint
Speaker 4: on pricing will be eliminated and they'll have the incentive
Speaker 4: in the ability to increase price.
Speaker 3: So they're also.
Speaker 4: Relying on this new guideline in case the judge doesn't
Speaker 4: buy this concept of an accessible luxury handbag market.
Speaker 1: The FTC lawyer said in the opening statement that the
Speaker 1: case is about working and middle class women who will
Speaker 1: suffer harm if the acquisition goes through, harm because they
Speaker 1: can't buy a semi luxury.
Speaker 4: Harm because what they claim is that that sector of
Speaker 4: the population or the primary buyers of these handbags, and
Speaker 4: that there will be three hundred and sixty five million
Speaker 4: dollars annually in increased prices across the three brands. That
Speaker 4: is what the FTC's economist has calculated out through his modeling,
Speaker 4: and that the primary buyers are a certain segment of
Speaker 4: the population that tend to make under eighty thousand dollars
Speaker 4: or up to about eighty thousand dollars a year, and
Speaker 4: that these are the people that will be harmed.
Speaker 1: Okay, it always seems odd to me because you don't
Speaker 1: have to buy right a cold handbag.
Speaker 4: Yeah, that's the thing that's so odd about this case.
Speaker 4: It's a highly discretionary purchase. And as some of the
Speaker 4: witnesses for the companies have said, understand, look, you know,
Speaker 4: we compete for share of dollars spend. A person goes
Speaker 4: into a store to buy something, they may decide to
Speaker 4: buy that handbag, or they might decide to buy those
Speaker 4: boots instead. And it's a very discretionary purchase. If the
Speaker 4: price is too high, the buyer can walk away. And
Speaker 4: that is what makes this case quite unusual. It's not
Speaker 4: like FDC versus Kroger and Albertson. People must buy food, right,
Speaker 4: but they don't have to necessarily buy a coach or
Speaker 4: a Kate's bad or Michael Core's handbag.
Speaker 1: So now tell us about the opening by Tapestry's lawyer.
Speaker 4: Well, Tapestries lawyers I think have done a very very
Speaker 4: good job. I mean what they said is they've portrayed
Speaker 4: the market is being much more competitive, far more dynamic,
Speaker 4: fast moving, competitive and changing and fragmented than what the
Speaker 4: FTC is portrayed. Now, first they've said, look, there isn't
Speaker 4: this successible luxury market. There's just this span of prices
Speaker 4: that go from what you think of as a less
Speaker 4: expensive mass market bag all the way up to the
Speaker 4: thousands of dollars for these luxury bags. And that many
Speaker 4: of consumers they survey have a lot of different bags
Speaker 4: that widely varied price points within their closet, and that
Speaker 4: the market's changed radically, including in the last few years
Speaker 4: kind of the birth of or the growth of the
Speaker 4: purchase of previously used handbags, which has become a big
Speaker 4: thing both online and in some department stores. And that
Speaker 4: the FTC is sort of not looking at the commercial
Speaker 4: realities of the market as it is today, and that
Speaker 4: a lot of the data that the economists use to
Speaker 4: look at the market and to come up with this
Speaker 4: theoretical three hundred and sixty five million annual harm to
Speaker 4: consumers is based on data from twenty twenty one in
Speaker 4: twenty two, and it's just not relevant anymore. And they
Speaker 4: did a pretty good job, I think, at making that argument.
Speaker 1: He said that Lawrence Butterman, anyone who took the subway
Speaker 1: to court today, or walked on Broadway or Fifth or
Speaker 1: has access to an iPhone or Android phone can see
Speaker 1: that the FDC's claims about market competition are completely divorced
Speaker 1: from reality.
Speaker 4: Yeah. And the funny thing is that the company's lawyers
Speaker 4: rolled into court the very first day with a big
Speaker 4: rack full of all sorts of different handbags.
Speaker 1: I was going to ask you that, And on that
Speaker 1: cart there was one thousand dollars coach handbag yeah, so,
Speaker 1: I mean, how does that fit their market definition?
Speaker 4: Let's see you And that's the difficulty I think in
Speaker 4: this market definition they sort of tentatively said that there
Speaker 4: aren't really precise boundaries or parameters, but generally these accessible
Speaker 4: luxury handbags range between one hundred dollars and one thousand dollars.
Speaker 4: And that's the real difficulty of their market because it's
Speaker 4: very hard to argue that one hundred dollars bag doesn't
Speaker 4: compete with a ninety dollars bag, or that a thousand
Speaker 4: dollars bag doesn't compete with let's say, one thousand and
Speaker 4: fifty dollars bag. You know, the difficulty of defining a
Speaker 4: market and putting the boundaries around where competition lies when
Speaker 4: you have such a wide range of pricing and a
Speaker 4: wide range of different consumers that have a different idea
Speaker 4: about what they want or what they're willing to spend,
Speaker 4: makes it difficult to come up with these market shairs.
Speaker 4: And that's why the Federal Trade Commission is also relying
Speaker 4: on that second theory coming from their new guidelines, that
Speaker 4: they don't really have to do that that if they
Speaker 4: can just prove that these two companies view each other
Speaker 4: as their primary competitor and compete head to head.
Speaker 3: That to us.
Speaker 4: And the thing is, there are a lot of documents
Speaker 4: that actually support company documents that support this assertion by
Speaker 4: the FTC. It's the difficulty here, It's going to kind
Speaker 4: of be what do the documents look like versus how
Speaker 4: credible is the testimony of the witnesses, Because there are
Speaker 4: plenty of documents where these companies call each other their
Speaker 4: primary competitor or where they tend to compare their pricing
Speaker 4: to just a small group that generally consists of Michael Core's,
Speaker 4: Kate Spade, Coach, Mark Jacobs, and Toribirch. There seem to
Speaker 4: be a lot of documents like that, and that does
Speaker 4: suggest a smaller sphere of competition than what the witnesses
Speaker 4: from the companies are portraying.
Speaker 1: Yeah, because I mean a coach bag is going to
Speaker 1: be more expensive than a Michael Core's bag, yes, right, generally,
Speaker 1: and as is a Kate Spade bag. And you're talking about,
Speaker 1: you know, a pretty wide difference there, right.
Speaker 4: So the economists for the FTC basically said from his modeling,
Speaker 4: coach bags sell at an average of one hundred and
Speaker 4: forty seven dollars more than a Cores bag. And what
Speaker 4: he calculated out via his modeling, which is quite complicated,
Speaker 4: is that once tapped Street owns Capri and has the
Speaker 4: Cores bag, they have the ability incentive to raise prices
Speaker 4: because to the extent that they raise the price of
Speaker 4: a Corps bag and lose sales, they're gaining enough of
Speaker 4: those sales the substitute buy by. That buyer is going
Speaker 4: to be a Coach or at kate'spadebag, and so they're
Speaker 4: gaining backs enough to make it profitable to raise prices.
Speaker 1: Can tell us about the first witnesses.
Speaker 4: So the first witnesses were called by the SEC, but
Speaker 4: they are company representatives. We had, you know, the CEO
Speaker 4: of Capri, the CEO of Tapestry, you had the president
Speaker 4: of Coach, you had a senior vice president from Tapestry,
Speaker 4: and you know, I think that all of them across
Speaker 4: the board have done a good job of basically saying
Speaker 4: that they don't view Michael Core's bags as their primary competitor,
Speaker 4: that they view competition as broad and dynamic and ever changing,
Speaker 4: and that part of the reason that these documents only
Speaker 4: reference this smaller set of competitors is because a lot
Speaker 4: of their competitors aren't publicly traded. It's hard to get
Speaker 4: the data, and these are the companies where there's an
Speaker 4: ease of data. So it's just they can get the data,
Speaker 4: they can get financial information, and they can easily compare
Speaker 4: themselves to them. And they also say that they compare
Speaker 4: themselves Tapestry to Capri and Capri to Tapestry. They compare
Speaker 4: themselves quite a lot in earnings calls with investors because
Speaker 4: they are similar companies in the eyes of investors, in
Speaker 4: that they are two publicly traded American fashion houses, and
Speaker 4: that's why they come up a lot as competitors in
Speaker 4: these investor calls. So they did a good job of
Speaker 4: sort of explaining away what I would call bad documents.
Speaker 4: And that's why I kind of see this as you know,
Speaker 4: which way is the judge going to go. Is she
Speaker 4: going to say, no, the documents really tell me the story,
Speaker 4: or are the witnesses really telling me the story? You know,
Speaker 4: which is more credible in her eyes in terms of
Speaker 4: making some decision here.
Speaker 1: Has Michael core said it needs an infusion of capital.
Speaker 1: They're not doing as well as they used to.
Speaker 4: Their sales have been declining and they've lost what all
Speaker 4: of the witness is called brand heat. I've never heard that,
Speaker 4: but now I know.
Speaker 1: I can feel it.
Speaker 4: You can feel it that when a bag is hot,
Speaker 4: a bag is hot, maybe Taylor Swift warret on a
Speaker 4: picture on Instagram and that bag is now going to
Speaker 4: be hot. And so they said Michael Cores at one
Speaker 4: time had brand heat and seems to have lost the
Speaker 4: brand heat and not been able to regain it, and
Speaker 4: as the result, has had declining sales and in order
Speaker 4: to move bags, has had to discount heavily. Now Tapestry says,
Speaker 4: we can take that brand and we just have better
Speaker 4: resources to revitalize it bring back the brand heat. Michael Cores, though,
Speaker 4: seems to also within their ordinary course documents, have a
Speaker 4: plan that they're implementing and plan to implement in the
Speaker 4: future to try to again gain traction and gain momentum
Speaker 4: and bring back that brand heat. So even though you know,
Speaker 4: the argument here is that Tapestry can help them, they
Speaker 4: seem to also have their own internal plan to revitalize.
Speaker 4: So it's not so much about whether they need an
Speaker 4: infusion of capital. It's more about, you know, can they
Speaker 4: bring that brand back so that it's popular again.
Speaker 1: So Wall Street's merger arbitrageres are currently giving Tapestry and
Speaker 1: Capri a better than even chance of closing the transaction.
Speaker 1: What does Jennifer Ree give it?
Speaker 2: Well, I tell you.
Speaker 4: I think I agree. You know, coming into the trial,
Speaker 4: I was really very fifty to fifty on it. And
Speaker 4: part of the problem here, June is that an enormous
Speaker 4: amount of the documents are sealed, so we don't know
Speaker 4: what they say. So I don't know how bad those
Speaker 4: documents are that the judge will see. But I think
Speaker 4: the company witnesses have seemed very credible to me. They
Speaker 4: seem to be earnest. It doesn't seem to be a
Speaker 4: lawyer argument that they're making, and what they're saying seems
Speaker 4: to be common sense. And the market that just I,
Speaker 4: as a consumer observed seems to align with what they're saying,
Speaker 4: that it is dynamic, it is rapidly changing, and there
Speaker 4: are a lot of options. And then the second thing
Speaker 4: is that the FTC's economic expert testified yesterday morning, and
Speaker 4: I felt like his conclusions were backed by data that
Speaker 4: was just a little bit weak. I think that data
Speaker 4: is difficult and the judge may not credit his conclusions
Speaker 4: because the inputs are sketchy. You know, it is older data.
Speaker 4: It's data from twenty twenty one. In twenty twenty and
Speaker 4: some of the sales data he used came from a
Speaker 4: database called NPD that tracks sales by brand, by wholesalers
Speaker 4: that means just department stores that's at Dillard's, Macy's, Nordstrom.
Speaker 4: And he was able to calculate chares essentially using that data.
Speaker 4: But that data doesn't track all sales and handbags, I
Speaker 4: mean people buy them online. It excludes the previously owned bags,
Speaker 4: that excludes the e commerce direct to consumer, So it's
Speaker 4: a little bit hard to rely on the market share
Speaker 4: coming out of that data. And the second thing he
Speaker 4: did caused me to shake my head a little bit
Speaker 4: was that this NPD data categorized bags in many different
Speaker 4: categories names like better, Premium, Active, Leisure, Moderate, Bridge, contemporary,
Speaker 4: and he took two of those categories only Bridge and contemporary.
Speaker 4: And you ask yourself, well, what if bags in the
Speaker 4: other categories also compete, You're leaving them out. And he
Speaker 4: didn't talk to the company that collects this data to
Speaker 4: understand why they put different bags in different categories and
Speaker 4: whether that was sort of the right category for accessible
Speaker 4: luxury market that they're claiming, you know, is the appropriate market.
Speaker 4: And in his opening statement, what the lawyer for the
Speaker 4: company said was that if you do include one of
Speaker 4: these other categories like better or active leisure, that their
Speaker 4: combined market share has come down to below thirty percent,
Speaker 4: and that's below the problematic level rather than fifty eight percent.
Speaker 4: So it's hard to rely on what the FTC's expert
Speaker 4: has done here. I don't think listening to that that
Speaker 4: if I were the judge, that I could and I
Speaker 4: think in reaction to that and in reaction to the
Speaker 4: witnesses this week, the merger arts are feeling more positive
Speaker 4: about the deal.
Speaker 1: Well, we have a ways to go yet. We'll check
Speaker 1: back with you, Jen, Thanks so much. That's Bloomberg Intelligence
Speaker 1: Senior litigation analyst Jenniferree coming up next. Why Justice Samuel
Speaker 1: Alito's stock portfolio stands out you're listening to Bloomberg. Samuel
Speaker 1: Alito is the only justice with a stake in more
Speaker 1: than two dozen individual companies, a distinction that threatens to
Speaker 1: sideline him from major business cases. Since twenty twenty one,
Speaker 1: Alito has recused himself from sixty four cases involving corporations
Speaker 1: he owned shares of. This as scrutiny of the Court's
Speaker 1: judicial ethics has intensified after revelations that Justice Clarence Thomas
Speaker 1: and Alito, to a lesser degree, accepted undisclosed gifts and
Speaker 1: travel from billionaire benefactors. Joining me is Emily Burnbaum Bloomberg
Speaker 1: Lobbying and legal affairs reporter Emily tell us how Alito's
Speaker 1: stock portfolio distinguishes him from the other justices.
Speaker 5: Alito's stock portfolio is very different from any of the
Speaker 5: other sitting justices right now. So he owns stock in
Speaker 5: more than two dozen individual companies, about twenty eight companies,
Speaker 5: And that was a practice that was more commonplace in
Speaker 5: years past, and now he's pretty much the last justice
Speaker 5: left standing with stock and individual companies. So the most part,
Speaker 5: the other justices are invested in index funds. You know,
Speaker 5: they invest in ways that ensure that they are not
Speaker 5: conflicted when it comes to individual companies.
Speaker 1: There's nothing unethical about owning stock. What are the ethics
Speaker 1: rules about stock?
Speaker 5: The rule is if you have a financial stake in
Speaker 5: a company, that you should refuse yourself from cases involving
Speaker 5: that company. So that means in Alito's case, that he
Speaker 5: has recused from dozens and dozens of cases involving companies
Speaker 5: in which he owns stock. So he owns stock in
Speaker 5: some of our biggest companies. So that's racy on Kinoko, Phillips,
Speaker 5: big oil companies, big transportation companies, and companies that are
Speaker 5: in high litigation areas.
Speaker 2: So he has.
Speaker 5: Recused himself from sixty four cases involving corporations he owned
Speaker 5: shares of since twenty twenty one, and last term alone,
Speaker 5: he recused from fifteen cases due to stock ownership. So
Speaker 5: that's a lot more recusals in general than his fellow justices.
Speaker 5: Often they'll recuse because they've seen the case four in
Speaker 5: lower courts, or maybe one of their parents was involved
Speaker 5: in the case in some way. But Alito is distinct
Speaker 5: in that he has to keep refusing himself over and
Speaker 5: over because of his stock portfolio.
Speaker 1: Justices aren't required to say why they're recusing themselves. Recently,
Speaker 1: the liberal justices have been giving reasons, but the conservative
Speaker 1: justices have not explain how we know that he's recused
Speaker 1: himself because of stock ownership.
Speaker 5: Yeah, so he doesn't say himself. This is because this stock.
Speaker 5: It's essentially just a matter of looking at the publicly
Speaker 5: available information.
Speaker 3: You know, he.
Speaker 5: Refused is from cases where one of the companies from
Speaker 5: which he owns stock is a party or has filed
Speaker 5: a brief, so you know, Johnson and Johnson. He doesn't
Speaker 5: participate in those cases, and actually neither does Brett Kavanaugh
Speaker 5: because his father was a lobbyist for the talk industry,
Speaker 5: and so you basically just look at you know, Okay,
Speaker 5: this case involves Boeing. Alito owns stock and Boeing he's
Speaker 5: refused himself from the case. So as I was talking
Speaker 5: to experts about this article, they say Alito is very
Speaker 5: good most of the time at anticipating when he needs
Speaker 5: to recuse. There have been a couple instances where maybe
Speaker 5: a company's subsidiary was involved it was a little more gray,
Speaker 5: or there was a stock he wasn't aware of owned
Speaker 5: by one of his sons. That was one case. But
Speaker 5: for the most part, he looks ahead of time and refuses.
Speaker 5: But yes, you're right. The latest code of ethics that
Speaker 5: the Supreme Court put out does say that you can
Speaker 5: disclose why you're accusing, and that's something that Justice Kagan
Speaker 5: has done, but Alito still has not chosen to do that.
Speaker 1: And so often he'll sell off the stock so that
Speaker 1: he can sit on the case.
Speaker 5: Yes, there have been instances of that. So there is
Speaker 5: an instance related to Exxon. In twenty sixteen, he sold
Speaker 5: his stake after years of accusals related to the company.
Speaker 5: He sold his stock in Oracle ahead of a really
Speaker 5: important copyright case that was Oracle versus Google. So yeah,
Speaker 5: throughout his time on the Court, he's chosen to sell
Speaker 5: stock strategically. He actually late last year sold his Johnson
Speaker 5: and Johnson's stock. He traded it in for a subsidiary
Speaker 5: of Johnson and Johnson. So it's so far a little
Speaker 5: unclear if that will impact whether he can weigh in
Speaker 5: on Johnson Johnson related cases or not. We still yet
Speaker 5: to see.
Speaker 1: You mentioned the Supreme Court's Voluntary Code of Ethics, which
Speaker 1: it adopted in November. Explain how that code encourages justices
Speaker 1: to try to not refuse.
Speaker 5: So the code has a really long section about refusal.
Speaker 5: It says Supreme Court justices should try to avoid refusal
Speaker 5: whenever they can. Because they're only nine members, and this
Speaker 5: is a direct quote. It says much can be lost
Speaker 5: when even one justice does not participate in a particular case.
Speaker 5: They say it's particularly important when it comes to the
Speaker 5: court deciding which cases to take, because it just makes
Speaker 5: it that much harder for parties to have their cases
Speaker 5: accepted when a bunch of the justices aren't even allowed
Speaker 5: to participate in the decision making. So the Code of
Speaker 5: Ethics says that that can have a distorting effect. So
Speaker 5: while it's not an ethics issue for Aldo to own
Speaker 5: stock in that you know, he's fully allowed to, there
Speaker 5: are concerns about how well the court functions when one
Speaker 5: of the justices is conflicted out from dozes of cases.
Speaker 1: You spoke to Northwestern professor Stephen Lubad who said it's
Speaker 1: a question not of ethics, but of judgment. Not everything
Speaker 1: that's legal is a good idea.
Speaker 5: Yeah, So he's pointing out, you know, there's no allegation
Speaker 5: that Alito is violating rules. There's not a clause that
Speaker 5: says don't own stock in individual companies. It's more that this
Speaker 5: has really folid out of fashion, especially as scrutiny has
Speaker 5: increased on the Supreme Court. Amid all of the ethics concerns,
Speaker 5: a lot of justice has chosen no longer to invest
Speaker 5: in individual companies. There's obviously more ethical scrutiny of the
Speaker 5: Supreme Court and of our federal judiciary than ever. So
Speaker 5: then it becomes a question of why does he still
Speaker 5: own these stocks? You know, there's not that much evidence.
Speaker 5: You know, it's much better for your accumulation of wealth
Speaker 5: to own stock in individual companies, probably just as good
Speaker 5: to own index funds. So then it becomes a question
Speaker 5: of why, you know, when this hampers the Court's functioning,
Speaker 5: When this means Alito will sit out of pretty important cases,
Speaker 5: I think it just comes down to the question of
Speaker 5: what's the point.
Speaker 1: I can't figure it out, and I'm sure he will
Speaker 1: not tell us. And also, as you're right, he is
Speaker 1: a very reliable pro business vote. Can you agree with
Speaker 1: the Chamber of Commerce in seventy three percent of cases
Speaker 1: last term.
Speaker 5: Yes, So he's been a long time critic of federal
Speaker 5: environmental regulations. He often sides with business. One really important
Speaker 5: case that is pending before the Court right now is
Speaker 5: essentially whether states and cities can sue oil companies for
Speaker 5: damages over how oil companies have contributed to climate change.
Speaker 5: But this is a really big issue there's tons of
Speaker 5: similar lawsuits climbing up across the country, and Alito is
Speaker 5: not going to be able to weigh in. He's already
Speaker 5: re use himself from the petition pending before the court
Speaker 5: in this case because he owns stock in several oil companies.
Speaker 5: So if I were an oil company, that would be
Speaker 5: pretty disappointing. Because he's reliably pro business, so it's going
Speaker 5: to have an impact on lots of similar big business cases.
Speaker 1: So he might still sell his stock before the briefings
Speaker 1: in oral arguments.
Speaker 5: He could do that in this case, he's already refused
Speaker 5: himself from considering whether the court should take it up.
Speaker 5: If he sold all of his oil company stocks tomorrow,
Speaker 5: then he potentially could take part.
Speaker 2: But his annual.
Speaker 5: Financial disclosure just came out the other day. He hasn't
Speaker 5: sold any new stocks, so he could, but right now
Speaker 5: it doesn't seem like he's planning to, and we don't.
Speaker 1: Really know the exact stock value. It's a range.
Speaker 5: Yeah, They're all reported in ranges. So he has stocks
Speaker 5: that are between one and fifteen thousand. He has a
Speaker 5: bunch of stocks that are between fifteen and fifty. I
Speaker 5: don't think right now he has any stocks that are
Speaker 5: worth more than that, so it's hard to say exactly
Speaker 5: how much all of them are worth altogether. One disclaimer,
Speaker 5: financial disclosures don't differentiate between the stocks owned by Alito
Speaker 5: or owned by his wife, So some of these stocks
Speaker 5: could belong to his wife, but just the court considers
Speaker 5: them to be the same because they are married.
Speaker 1: And we should mention that most of these recusals are
Speaker 1: coming while the court is considering cases, not after the
Speaker 1: court has taken the case.
Speaker 5: Yeah, for the most part.
Speaker 1: Yes, there have been a few reported instances where Alito
Speaker 1: failed to accuse himself in cases where he should have
Speaker 1: because of stock ownership.
Speaker 5: So in twenty seventeen, there was a case involving Merk,
Speaker 5: so he initially failed to recuse despite owning stock in
Speaker 5: the company. He ultimately sold his shares and participated in
Speaker 5: that case. And then in there was another instance in
Speaker 5: which he says there was an unintentional conflict of interests,
Speaker 5: so he blamed it on staff oversight. He took part
Speaker 5: in a two thousand and nine ruling that involved ABC
Speaker 5: News even though his children held stock in Disney, so
Speaker 5: he in that case voted against ABC. He joined a
Speaker 5: five to four majority, So you know, his vote was
Speaker 5: pretty consequential in that case. He owed a lot of
Speaker 5: stock and so he said it kind of flipped under
Speaker 5: the radar.
Speaker 1: That's some slip. There would have been a tie if
Speaker 1: he hadn't participated, and then the decision of the lower
Speaker 1: court would have stood. Instead, the Supreme Court reversed the
Speaker 1: decision that was favorable to the networks in that five
Speaker 1: to four vote that he took part in. Now I'm
Speaker 1: not sure there's anything unethical about this, but one of
Speaker 1: his trades appeared to be political.
Speaker 5: Yeah, so he still hasn't said anything about this publicly,
Speaker 5: but you might remember last year there was a big
Speaker 5: conservative boycott of Anheuser Busch that's the maker of bud Light.
Speaker 5: Basically they got a lot of hot water with conservatives
Speaker 5: because they partnered with a transgender influencer to promote some beer.
Speaker 5: So around the time of that boycott, Alito sold his
Speaker 5: shares of Anheuser Busch and he bought shares of Arrival
Speaker 5: beer maker, which is molten Core's. So a lot of
Speaker 5: people noticed that speculated about whether he was participating in
Speaker 5: the conservative boycott, and he hasn't said anything, but the
Speaker 5: timing did align with the boycott.
Speaker 1: Sort of reminds me about the flag flying incident. Thanks
Speaker 1: so much, Emily, it's a really revealing story. That's Emily Burnbaum,
Speaker 1: Bloomberg Lobbying and legal affairs reporter. And that's it for
Speaker 1: this edition of the Bloomberg Law Podcast. Remember you can
Speaker 1: always get the latest legal news by subscribing and listening
Speaker 1: to the show on Apple Podcasts, Spotify, and at Bloomberg
Speaker 1: dot com, slash podcast, slash Law. I'm June Grosso and
Speaker 1: this is Bloomberg