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Speaker 1: This is Bloomberg Law with June Brusso from Bloomberg Radio.

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Speaker 1: It's four thousand, I know, and there's a waiting list.

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Speaker 1: I assumed five years for a bag. It's not a bag,

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Speaker 1: it's a Birken The Hermes broken bag the ultimate status symbol,

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Speaker 1: instantly recognizable, hard to get with stunning prices ranging from

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Speaker 1: ten thousand to more than three hundred thousand dollars, and

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Speaker 1: of course it's been the subject of more than one

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Speaker 1: storyline on Sex in the City, Broke my Broken Sort.

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Speaker 1: So it's no surprise that French luxury brand air Mez

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Speaker 1: sued for trademark infringement when a digital artist started creating

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Speaker 1: and selling meta broken and f T s. They depict

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Speaker 1: digital images of the broken bag covered a cartoonish colorful

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Speaker 1: fur instead of leather. Is it art or a digital knockoff?

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Speaker 1: The trial is the first to focus on how trademark

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Speaker 1: rights will be applied to n f T s, and

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Speaker 1: the outcome may have broader implications for whether n f

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Speaker 1: t s are art or commercial assets. My guest is

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Speaker 1: intellectual property litigator Terence Ross, a partner caton Uchen Rosenman.

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Speaker 1: Terry set the stage for us about this trademark battle

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Speaker 1: over the meta Burken n f T s So Hermes

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Speaker 1: has put out for a decade now a type of

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Speaker 1: pope bag for lack of better word that they branded

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Speaker 1: the Birkin, and the Birken has literally become iconic in

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Speaker 1: the fashion world. The least expensive one I could find

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Speaker 1: online sold, but most of these are far more expensive

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Speaker 1: and can run over a hundred thousand dollars each. The

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Speaker 1: very high quality bag made out of only to find

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Speaker 1: its materials, including esoteric things like ostrich and rocodile. The

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Speaker 1: latches are made out of palladium or gold, you know,

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Speaker 1: very expensive metal. The craftsmanship is absolutely the best in

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Speaker 1: the world. It's a phenomenal handbag. Is to afford to

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Speaker 1: spend that much for a tote bag. All the celebrities

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Speaker 1: and brag about them. The Kardashians, Cardi b all have them.

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Speaker 1: And so in December of one along comes a gentleman

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Speaker 1: by the name of Ason Rothschild who is involved in

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Speaker 1: fashion and art and entertainment in Los Angeles, and he

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Speaker 1: puts out online what he describes as Meta Birken, and

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Speaker 1: they are an FT non fungible token in the digital

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Speaker 1: world of the metaverse. And for all practical purposes, they

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Speaker 1: are a two dimensional image of the Birken in the

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Speaker 1: form of n f T s. He embellished them in

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Speaker 1: some ways trying to sell online m He finds out

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Speaker 1: about this and the cease and desist letter accusing the

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Speaker 1: trademark in the fringement, and when he refuses to comply

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Speaker 1: with the season desist letter, Rmese files a lawsuit or

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Speaker 1: trademark infringement and and other clauses of action in the

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Speaker 1: United States District Card for the Southern District of New

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Speaker 1: York as a January and a year later here we

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Speaker 1: are beginning of February, and that lawsuit is now in

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Speaker 1: trial in New York City in front of a jury.

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Speaker 1: Or mist claims that consumers were duped into believing that

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Speaker 1: the n f T s were created or endorsed by

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Speaker 1: her mess. So this is fundamental to trademark law in

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Speaker 1: the United States. Trademark law exists to protect consumers against

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Speaker 1: being duped or tricked into buying goods or services under

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Speaker 1: the mistaken assumption that they are being offered by someone

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Speaker 1: other than the person actually offering. So in every trademark

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Speaker 1: infringement case, it is necessary for the plant of the

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Speaker 1: trademark owner. To establish what we call consumer confusion, you

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Speaker 1: don't have to establish that every consumer is confused, just

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Speaker 1: a significant portion of them, and most courts say that's

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Speaker 1: in the range of ten to the consumers, depending on

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Speaker 1: the type of good or service. And the argument here,

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Speaker 1: which there seems to be some support for, is that

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Speaker 1: people assume that Hermes had entered the metaverse and was

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Speaker 1: putting out these meta berkins. There has been testimony that

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Speaker 1: one Hermes executive was teaching a class at I think

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Speaker 1: Columbia University in New York City and students came up

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Speaker 1: to him after the class and asked about the new

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Speaker 1: Hermes line meta burkins, and I think there are obviously

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Speaker 1: the are Columbia University of smart kids, and you know,

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Speaker 1: if they're being duped, that's the guest that the broader

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Speaker 1: public probably is also being duped into thinking that somehow

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Speaker 1: Hermes is affiliated or associated with these meta berkins. Rothschild said,

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Speaker 1: as quote, my meta Berkin's project as a whole was

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Speaker 1: an artistic experiment to explore where the value in the

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Speaker 1: broken hand bag actually lies in the handcrafted physical objects

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Speaker 1: or in the image it projects. So his story has

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Speaker 1: changed over time. When he first put these out in December,

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Speaker 1: he described them as a tribute to the iconic Hermes Berken. Apparently,

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Speaker 1: after the lawsuit was filed and he got legal counsel,

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Speaker 1: he started to describe the meta Berkins as a commentary

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Speaker 1: on the fashion company's mistreatment of animals and a way

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Speaker 1: to own a berkin without actually having to kill a

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Speaker 1: crocodile and ostrich cow whatever the particular Berken is made

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Speaker 1: out of. So the story shifted over time, and the

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Speaker 1: reason for that is that the defense strategy is trying

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Speaker 1: to bring itself within the Rogers v. Grimaldi test, which

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Speaker 1: is a tricky test, and provide the First Amendment protection

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Speaker 1: against trade mark infringement. And we've talked about that test before.

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Speaker 1: There's a case before the Supreme Court that we discussed

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Speaker 1: involving Jack Daniels and their trademark bottle. We have June

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Speaker 1: talked about this before, and I think just in December

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Speaker 1: when the case you're referring to, which goes by the

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Speaker 1: title Jack Daniels Versus v. I P. Products, was first

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Speaker 1: accepted by the Supreme Court, they granted cert cr on it.

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Speaker 1: And it's one of the confusing things here clearly Jed

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Speaker 1: Draycoss is the trial judge on this case. Very smart man,

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Speaker 1: very good judge. You must know that the Supreme Court

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Speaker 1: is considering the Rogers e. Grimaldi test, and I would

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Speaker 1: have thought, indeed, if I were the judge, I would

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Speaker 1: have simply stayed this lawsuit pending Supreme Court guidance on

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Speaker 1: whether the Rogers test even exists anymore, and if it

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Speaker 1: does exist, what are the parameters for it. When I

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Speaker 1: heard about this, I thought, who would have bought these

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Speaker 1: n f T s if it was you know, these

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Speaker 1: fur lined bags not shaped like a birkin, but also

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Speaker 1: about Andy Whirlhol's silk screens of Campbell soup cans. If

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Speaker 1: this was a painting in a gallery of birken hambag,

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Speaker 1: you know, would there be any question that it was

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Speaker 1: considered art. So, June, I can't help you with the

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Speaker 1: question of who it's bocking, and it's not just the

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Speaker 1: meta Birken. I don't understand why anyone buys any n

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Speaker 1: f T s, and I understand that some of these

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Speaker 1: n f T s sold for as much as an

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Speaker 1: actual Burken So I'd rather have the handbag. I agree

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Speaker 1: with you as for the Campbell suit, the Andy Warhol

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Speaker 1: famous painting. That has been a trope that the defense

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Speaker 1: has trotted out from a very early point in the case.

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Speaker 1: They want to sell the notion that this is artwork

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Speaker 1: and therefore an expressive work within the Rogers test that's

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Speaker 1: protected by the First Amendment. That argument took a body

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Speaker 1: blow in trial when Arakoff barred the defenses expert witness

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Speaker 1: from testifying that the Meta Berkins were nothing more than

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Speaker 1: the digital equivalent of Andy Warhol's Campbell Soup painting. But that,

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Speaker 1: in terms of trial strategy, was very serious blow to

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Speaker 1: the defense and that they weren't going to be allowed

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Speaker 1: to present this key witness and probably weren't going to

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Speaker 1: be able to talk about the Campbell Soup argument. Why

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Speaker 1: did Judge Rakoff make that decision, Well, the Supreme Court

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Speaker 1: number of years ago established a very tough test for

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Speaker 1: allowing expert witnesses to testify uh and under that test,

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Speaker 1: the disrecord judge, the trial judge has to determine that

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Speaker 1: first the witness is qualified in whatever field to gran testify.

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Speaker 1: It too, that the opinion they intend to offer is

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Speaker 1: um based on solid methodology and grounded in some form

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Speaker 1: of scientific approach, and third that the results obtained by

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Speaker 1: the expert in coming to opinion are replicable by other experts,

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Speaker 1: because that's ultimately under science the way new theories are

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Speaker 1: established and accepted in scientific community. Somebody does the procedure,

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Speaker 1: reports upon it in a peer review journal. Other scientists

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Speaker 1: go out, they repeat the exact procedure, and they come

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Speaker 1: up with the same result that therefore it becomes accepted

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Speaker 1: the scientific community. And what Judge ray Cost said here

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Speaker 1: is you maybe have the qualifications and experience to offer

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Speaker 1: expert testimony, but there's nothing about how you reached your

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Speaker 1: opinion that's based through grounded in any scientific approach, let

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Speaker 1: alone replicable by other experts, And therefore it doesn't pass

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Speaker 1: the Supreme Court tests and I cannot allow it indevidence.

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Speaker 1: And I thought Judge ray Costs decision was absolutely correct

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Speaker 1: in that regard. He also said that the um as

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Speaker 1: experts explanation of n f T S was over complicated

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Speaker 1: and that the jury appeared puzzled to join the crowd.

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Speaker 1: He said it was far more confusing than helpful. So

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Speaker 1: this is the most common criticism of trial lawyers that

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Speaker 1: you get from juries and individual drawers. When you interviewed.

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Speaker 1: The map to this fact built my career on the

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Speaker 1: ability to explain very complex things in very simple ways

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Speaker 1: to lay people such as jurors or judgets. That is unusual.

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Speaker 1: The vast majority of trial lawyers in the intellectual property

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Speaker 1: space seemed to um fall into the trap of over

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Speaker 1: explaining in very unnecessary detail how things work. And n

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Speaker 1: f t s are fundamentally about digital source codes, and

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Speaker 1: the lawyers and the expert they put on explained this

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Speaker 1: when did the great detail about how would write source

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Speaker 1: code and and about digital coding and things that were

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Speaker 1: really unnecessary instead of talking about n f T s

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Speaker 1: in the way that most human beings talk about it

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Speaker 1: in in terms of analogies to real world objects. You know.

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Speaker 1: Of day one of the trial, of the of the

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Speaker 1: evidence of the trial, it seemed like both sides suffered

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Speaker 1: significant blows. The loss of the expert was a blow

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Speaker 1: the defense um this dreadful approach to testifying about explaining

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Speaker 1: fts by the planets expert was a mistake and a

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Speaker 1: blow to their case. So neither side got off to

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Speaker 1: quick starts in this trial. So I mean, what does

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Speaker 1: ers have to prove that it's confusing? In the marketplace

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Speaker 1: that it's like, you know, the rip off handbags that

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Speaker 1: we see on the street. What exactly is is its

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Speaker 1: burden of proof? Hear the law, the land of Act

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Speaker 1: is the name of the trademark law in the United States,

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Speaker 1: and it prohibits anyone from and I'm just reading here

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Speaker 1: now causing confusion or deceit as to affiliation, connection, or

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Speaker 1: association in or as to origin, sponsorship, or approval of

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Speaker 1: their goods or services with a trademark because their services.

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Speaker 1: And so you have to show that the consuming public,

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Speaker 1: which I think would be someone in the luxury goods marketplace,

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Speaker 1: that the consuming public would be thinking that somehow the

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Speaker 1: meta burkin was affiliated with, connected with, associated with, sponsored by,

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Speaker 1: or approved by Hermes. And so what we're in here

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Speaker 1: a lot of is testimony on the planet side of

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Speaker 1: instances in which consumers reported that sort of confusion to them.

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Speaker 1: And the example of this one executive going and teaching

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Speaker 1: at Colombian being approached by students about the Hermes new

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Speaker 1: meta burkin is a classic example of the sort of

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Speaker 1: consumer confusion that's required to established trademark infringement. And we'll

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Speaker 1: just have to wait for the trial to go on

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Speaker 1: to see how much more of that is and then

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Speaker 1: it will be up to the jury to decide whether

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Speaker 1: that's sufficient or not. And then there's the Rogers v.

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Speaker 1: Grimaldi test, which would be a defense even if there

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Speaker 1: was consumer confusion. So if this jury believes that these

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Speaker 1: n f T s are in fact art, then the

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Speaker 1: defense would win. So let's just remember what the Rodgers v.

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Speaker 1: Grimaldi test is all about and remind people even then.

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Speaker 1: We just did an episode in the back in December.

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Speaker 1: This was a lawsuit by Ginger Rogers, the famous dancer,

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Speaker 1: against the producers of a movie who had titled the

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Speaker 1: movie Friend and Ginger I think was the name of

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Speaker 1: Ginger referring to her. Went up on appeal of Second Circuit,

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Speaker 1: and they held that the use of a celebrity name

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Speaker 1: in an expressive work, if artistically relevant to that expressive

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Speaker 1: work and not intentionally misleading, is protected on of the

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Speaker 1: First Amendment against trademark infringement. And so it was a

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Speaker 1: relatively narrow ruling. You know, it was limited to US

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Speaker 1: celebrity names. It's been expanded beyond that to a broader

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Speaker 1: range of trademarks. But again, the requirement has always been

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Speaker 1: in connection with the use of that trademark connection with

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Speaker 1: an expressive work, if it's really artistically necessary to use

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Speaker 1: that trademark, and if it's not misleading, intentionally misleading, And

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Speaker 1: there's a lot of factual predicates there that and facts

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Speaker 1: are determined by jury, not judges or lawyers. And so

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Speaker 1: the first thing juries going to have to decide is

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Speaker 1: whether or not the Meta Birkin is an expressive work.

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Speaker 1: And that's why you see the plainiff trying to push

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Speaker 1: the notion that Mr ross Shaw was just about to

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Speaker 1: make money here, and you see on the other side,

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Speaker 1: on the defense side, the argument Mr Rothschild is an

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Speaker 1: artist and this is an artistic work. I mean, they

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Speaker 1: want to bring it within this Rodgers test and the

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Speaker 1: requirement established it was an expressive work and artistically relevant,

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Speaker 1: not intentionally misleading. And we'll just have to see how

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Speaker 1: that plays out. I mean, Judge Rakoff said on a

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Speaker 1: motion to dismiss brought by the dependants that he thought

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Speaker 1: Rogers v. Grimaldi applied here. I think there's a big

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Speaker 1: question mark about that. The case accepted by the Supreme Court,

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Speaker 1: which came out of the Ninth Circuit is the very

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Speaker 1: first case in which the Rogers test was applied to

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Speaker 1: a commercial product there it was a dog shoot toy,

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Speaker 1: and other circuit courts have consistencies. Was said that Rogers

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Speaker 1: test is not applied to commercial products. N f T

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Speaker 1: s are really a type of commercial product. And that's

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Speaker 1: why this is at the intersection of technology and art.

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Speaker 1: I mean, is the n f T work of art?

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Speaker 1: Is it? Technology is a bunch of source code? I mean,

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Speaker 1: what is it? And I think Judge Rickoff may have

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Speaker 1: sort of jumped the gun by saying that the Rodgers

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Speaker 1: test applies when I think there's a lot of factual

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Speaker 1: issues about that. And I really think it's going to

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Speaker 1: depend on what Supreme Court says in the Jack Daniels case,

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Speaker 1: because the Supreme Court good one option for them is

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Speaker 1: to say, hey, you know, there is no such thing

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Speaker 1: as Roger's test that was made up by a court

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Speaker 1: that's not in the statute. Statute already has a fair

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Speaker 1: use test that should be applied instead of this Roger's test.

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Speaker 1: I don't know what's going to happen. That's why I

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Speaker 1: think it's very curious to allow this case to go

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Speaker 1: forward when it all could become moot in June. Which

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Speaker 1: side do you think has the better argument. Which side

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Speaker 1: would you rather be representing? I always prefer repressing the

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Speaker 1: side that has the money to pay me, and I

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Speaker 1: doubt Mason rots Sound has that money is apparently using

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Speaker 1: a new law firm that I think it's sort of

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Speaker 1: a public interest type firm called Lex Lumena. But as

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Speaker 1: far as the law and the fact this is the case,

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Speaker 1: the first impression, I think it's fair to say my

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Speaker 1: gut reaction is that the Hermes side of the argument

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Speaker 1: is a bit stronger. Particularly, I don't like the way

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Speaker 1: that the defendant story kept changing over time, apparently in

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Speaker 1: a sort of post hoc attempt to fit itself within

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Speaker 1: the Rogers test. You lawyer up and you go, oh,

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Speaker 1: you know what I should have been saying all along,

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Speaker 1: that this is artistically relevant, is an expressive work. I'm

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Speaker 1: not just trying to make money less. I mean, they

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Speaker 1: seem to be trying to force fit this into the

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Speaker 1: Rogers test, and I not so sure that it fits.

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Speaker 1: Quite Frankly, who would buy this if it didn't have

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Speaker 1: the burke In name on it? If these were just

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Speaker 1: called handback, would any consumer actually buy these? I mean,

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Speaker 1: isn't it the association with the Birkin iconic handbag that

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Speaker 1: makes it purchasable and people interested in it. I don't know.

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Speaker 1: I mean, it's an interesting question. This case to be

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Speaker 1: a game change. You're right, this is a really important

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Speaker 1: case to trademark law as the metaverse expands and more

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Speaker 1: companies move into it. And we've heard a lot of

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Speaker 1: testimony already, and her Knees has plans to move into

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Speaker 1: the metaverse, and therefore this would directly impact their ability

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Speaker 1: to do that. We need to probably update the Land

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Speaker 1: of Act to really address this sort of issue. You're

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Speaker 1: absolutely right, June. It is a cutting edge haste and

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Speaker 1: just the first of many. I think we're seeing this field.

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Speaker 1: We'll keep track of what happens here, and that Jack

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Speaker 1: Daniels case is going to be heard by the Supreme

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Speaker 1: Court on March two, so maybe we'll learn more about

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Speaker 1: their take on the Rogers test at that point. Thanks

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Speaker 1: so much, Terry. That's intellectual property litigator Terence Ross, a

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Speaker 1: partner at Caton Euten Rosenman. Republican state attorneys general are

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Speaker 1: trying to kill a climate friendly retirement investment rule they

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Speaker 1: derived as WOKE. More than two dozen states are suing

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Speaker 1: to block the rule which permits private sector employers to

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Speaker 1: consider environmental, social, and corporate governance factors when choosing pension investments,

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Speaker 1: and the US Labor Department is facing litigation deja vu

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Speaker 1: because it has to defend its rule in a conservative

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Speaker 1: Texas jurisdiction known for striking down consequential employee benefit regulations.

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Speaker 1: Will his to re repeat itself? Joining me to answer

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Speaker 1: that question is Josh Lichtenstein, partner and head of the

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Speaker 1: ARISCA fiduciary practice at Ropes and Gray. So, Josh tell

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Speaker 1: us about this rule that's being challenged. The rule that

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Speaker 1: we're talking about here, it's often referred to as an

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Speaker 1: e x G investing rule, but it's really broader than that.

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Speaker 1: This is actually a rule that governs the way that

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Speaker 1: produciaries to arista plans, and that's both the traditional defined

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Speaker 1: benefit pensition plans and define contribution plans like a following

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Speaker 1: Cave plan. It's the rule that governs the way that

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Speaker 1: produciaries to those plans make all of their investment decisions.

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Speaker 1: And so the rule will cover how plan produciaries select

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Speaker 1: a particular fund that they either want to invest assets

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Speaker 1: in or want to make available to four along participants,

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Speaker 1: and it goes to how they're supposed to determine what

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Speaker 1: criteria are relevant interesting those funds, and then how they're

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Speaker 1: supposed to wait those criteria. And while people are generally

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Speaker 1: thinking about this in terms of whether a plan sponsor

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Speaker 1: can use E s G factors as part of their

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Speaker 1: investment decision or not, it's really much broader than that,

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Speaker 1: and it goes to every financial or potentially financial factor

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Speaker 1: that might be utilized by a plan producer. So Texas

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Speaker 1: and other Republican led states are suing, what are their allegations,

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Speaker 1: what's their cause of action? Basically it's very interesting, right,

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Speaker 1: you know, And I think that this is important to

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Speaker 1: sort of be clear about because there are a lot

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Speaker 1: of headlines about various of these states, including Texas, having

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Speaker 1: passed laws the government how their own retirement plans get invested.

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Speaker 1: And generally speaking, you know, these laws are limiting the

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Speaker 1: ability to use E s G considerations for ind USTs

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Speaker 1: and purposes is or are restricting the state pensions from

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Speaker 1: investing with certain asset managers based on levels of participation

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Speaker 1: in certain industries like the uscile fuels industry. But the

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Speaker 1: Department of Labor's rule does not actually impact those government

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Speaker 1: plans are making all of these headlines. The Department of

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Speaker 1: Labor's rule only impacts private pension plans. Of these are

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Speaker 1: pension plans that are either maintained by a private employer

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Speaker 1: or that are maintained by a union that covers employees

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Speaker 1: of private employers. So it's not obvious necessarily, you know,

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Speaker 1: why it would be the States that would want to

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Speaker 1: bring a lawsuit like this because doesn't directly impact their plans.

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Speaker 1: You know, what the States are claiming at heart as

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Speaker 1: the basis for why they should be able to sue

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Speaker 1: is an alleged detrimental impact on residents of the states

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Speaker 1: and on the tax receipts of the states. But there

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Speaker 1: are also some private plaintiffs, you know, that are part

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Speaker 1: of the suit, and there's ending might be somewhat more

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Speaker 1: obvious as a plan sponsor alleging that they will be

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Speaker 1: um you know, more work and more costs associated with

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Speaker 1: money their plan under the rule of plan participants and

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Speaker 1: energy company. But at heart, what all of these allegations

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Speaker 1: really are about. They're basically allegations that the rule put

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Speaker 1: forward by the Biden administration's Department of Labor will have

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Speaker 1: the effects of devoting more retirement assets towards E S G.

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Speaker 1: GOLs and away from the fossil fuels industry and certain

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Speaker 1: other sectors, and that that will have a detrimental impact

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Speaker 1: on the states that are joining this letter, and that

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Speaker 1: it would be sort of a being appropriate use of

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Speaker 1: retiring assets to pursue non retirement related goals. I know,

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Speaker 1: I started this answer by saying that the duos rules

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Speaker 1: do not govern the state plans, and that's correctly, it's

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Speaker 1: not covering them. But it's interesting the state laws that

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Speaker 1: government state pension plans are all modeled on the federal law.

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Speaker 1: They're all modeled on ARISSA, and so the Biden administration

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Speaker 1: and many of these states that are involved in this

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Speaker 1: lawsuit have actually themselves come to very different interpretations of

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Speaker 1: the same statutory language around few Sharry standards, and so,

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Speaker 1: you know, sort of separate and apart from the question

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Speaker 1: about the interests of the states have in directly bringing

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Speaker 1: this lawsuits, they're sort of a secondary question of who

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Speaker 1: really has the right interpretation of this statutory language when

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Speaker 1: you have multiple government bodies, you know, at the state

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Speaker 1: in paral level, interpreting the same language that brings up

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Speaker 1: a couple of things. The Texas Attorney General Can Paxton

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Speaker 1: said that this kind of investing what's hard working Americans

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Speaker 1: retirement savings at risk. The rule reverses restrictions on socially

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Speaker 1: conscious investing that we're adopted by the Trump administration. Can

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Speaker 1: you compare the rules for US? So, I find the

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Speaker 1: allegations in the complaints to be somewhat opposite to what

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Speaker 1: my read of the actual rule is, because the allegations

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Speaker 1: of the complaints are basically that the Department of Labor's

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Speaker 1: current rule will have the effect of making it more

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Speaker 1: difficult and more costly for planned sponsors to have to

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Speaker 1: evaluate different investment options, and that it will have the

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Speaker 1: effect of driving more assets into e s G type funds.

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Speaker 1: But I think that the reality is that the Biden

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Speaker 1: administration's rule is very neutral. I actually think it's the

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Speaker 1: most neutral version of this guidance that we have seen

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Speaker 1: from the Department of Labor, and the Department of Labor

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Speaker 1: has been putting guidance out on this topic for decades,

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Speaker 1: literally for decades. It may have the longest history of

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Speaker 1: any of you US regulator regulating the E s G

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Speaker 1: type investment decisions, and the guidance has gone back and

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Speaker 1: forth over time as administrations have changed, but you know,

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Speaker 1: there's sort of core principles that have been in the

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Speaker 1: guidance from the start. I've really been that fiduciaries are

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Speaker 1: supposed to invest solely based on what's in the best

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Speaker 1: interests of the planned participants, and that you know, they're

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Speaker 1: only supposed to consider sort of non economic collateral factors

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Speaker 1: like the positive externalities or the social good created by

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Speaker 1: E s G investing in very limited circumstances where the

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Speaker 1: fiduciary otherwise can't choose between two different investment options, and

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Speaker 1: so rather than flipping a coin to choose which of

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Speaker 1: the two they can select m the investing option actually

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Speaker 1: considering those non economic considerations like the positive externalities. And

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Speaker 1: that's what the guidance has said, with varying levels of

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Speaker 1: emphasis for years. The Trump administration rule came out a

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Speaker 1: little bit different because the Trump administration rule, both the

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Speaker 1: proposed rule and then also the final rule, and with

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Speaker 1: a viewed as being very very restrictive on the ability

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Speaker 1: to consider E s G factors as pure economic factors.

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Speaker 1: And so that was really the reason why the Trump

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Speaker 1: adminstrator rules having impact on the market, and why it

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Speaker 1: was causing plan sponsors so much angst and worried because

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Speaker 1: it made them worry that entire classes of economic data

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Speaker 1: could be prohibited, I mean, part of their decision space

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Speaker 1: because the Trump administration rule was so skeptical of the

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Speaker 1: ability for E s G factors to the economic considerations.

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Speaker 1: And that's really strange because if you look at institutional

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Speaker 1: investors behavior more broadly in the market, it's just become

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Speaker 1: very common practice, as I understand it, to incorporate E

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Speaker 1: s G data the same way that other financial data

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Speaker 1: is incorporated as just the means of assessing different types

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Speaker 1: of risks. And so, but the Trump administration rule, you know,

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Speaker 1: one of the fears that people had was that the

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Speaker 1: rule was basically going to force pension plans from being

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Speaker 1: able to invest into mainstream like not you know, E

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Speaker 1: s G impact funds, just sort of mainstream investment funds

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Speaker 1: which are incorporating E s G risk factors as part

434
00:27:24,880 --> 00:27:27,200
Speaker 1: of their economic analysis the same way that they consider

435
00:27:27,240 --> 00:27:30,120
Speaker 1: any other risk factor. So when you see the Attorney

436
00:27:30,160 --> 00:27:33,120
Speaker 1: General saying that that this is going to create extra

437
00:27:33,560 --> 00:27:38,640
Speaker 1: risk or be harmful to plan participants. To me, that

438
00:27:38,760 --> 00:27:44,399
Speaker 1: doesn't really ring true because, based on my understanding, in

439
00:27:44,520 --> 00:27:48,480
Speaker 1: almost every case you know, where a plan sponsor or

440
00:27:48,520 --> 00:27:51,639
Speaker 1: plan producer is going to be considering E s G

441
00:27:51,840 --> 00:27:54,840
Speaker 1: factors as part of their investment process, it's because they're

442
00:27:54,840 --> 00:27:58,240
Speaker 1: just behaving the same way that other similarly situated institutional

443
00:27:58,280 --> 00:28:02,480
Speaker 1: investors would behave in you know, considering the full range

444
00:28:02,720 --> 00:28:05,280
Speaker 1: of economic criteria. And the other thing that I think

445
00:28:05,359 --> 00:28:08,600
Speaker 1: is interesting is that you know, even within these states,

446
00:28:08,760 --> 00:28:13,160
Speaker 1: right like Texas State Planned have themselves, you know, adopted

447
00:28:13,400 --> 00:28:15,880
Speaker 1: E s G considerations as part of their own risk

448
00:28:15,920 --> 00:28:18,760
Speaker 1: evaluation framework. And there are questions now under state law

449
00:28:18,800 --> 00:28:20,719
Speaker 1: about whether they're allowed to really do that or not,

450
00:28:20,960 --> 00:28:25,320
Speaker 1: But it's just a very accepted part of institutional invest

451
00:28:25,320 --> 00:28:28,040
Speaker 1: things that you would consider E s G risk factors

452
00:28:28,080 --> 00:28:31,040
Speaker 1: like you consider other risk factors. We've seen the State

453
00:28:31,119 --> 00:28:36,399
Speaker 1: of Texas and other Republican led states bring all kinds

454
00:28:36,440 --> 00:28:41,880
Speaker 1: of suits against the Biden administration, everything from immigration to

455
00:28:42,360 --> 00:28:46,280
Speaker 1: healthcare issues. So what do you think the real reason

456
00:28:46,560 --> 00:28:50,480
Speaker 1: is for bringing this suit? Well, I mean, it's impossible

457
00:28:50,480 --> 00:28:52,440
Speaker 1: to get inside of people's heads you know exactly why

458
00:28:52,480 --> 00:28:54,920
Speaker 1: they're bringing it, right, But I think it's hard to

459
00:28:54,920 --> 00:28:57,280
Speaker 1: ignore the political dimension here at E s G has

460
00:28:57,360 --> 00:29:00,360
Speaker 1: obviously become a very political topic. I all so think

461
00:29:00,400 --> 00:29:03,840
Speaker 1: that part of it maybe that, as I was saying before,

462
00:29:04,480 --> 00:29:07,440
Speaker 1: you know, a lot of these states have adopted or

463
00:29:07,480 --> 00:29:13,240
Speaker 1: are adopting their own E s G restrictive views of

464
00:29:13,320 --> 00:29:18,240
Speaker 1: investing for their state retirement plans. And because the states

465
00:29:18,240 --> 00:29:23,120
Speaker 1: are operating under the same statutory language as the federal government,

466
00:29:23,240 --> 00:29:27,520
Speaker 1: is here the fact that the Biden administration's rule has

467
00:29:27,600 --> 00:29:31,920
Speaker 1: a very different interpretation of the way that produciary duties

468
00:29:31,960 --> 00:29:35,000
Speaker 1: should be discharged. We're making investments, you know, because the

469
00:29:35,000 --> 00:29:38,600
Speaker 1: Biden administrations rule is basically from its prefuducers to choose

470
00:29:38,640 --> 00:29:42,440
Speaker 1: any factor that they think is an important financial factor

471
00:29:42,440 --> 00:29:44,680
Speaker 1: in the considerations, and a lot of these state rules

472
00:29:44,720 --> 00:29:47,520
Speaker 1: are restricting consideration of the s G even there would

473
00:29:47,520 --> 00:29:50,760
Speaker 1: be a financial factor, or her skeptical the ability of

474
00:29:50,840 --> 00:29:53,000
Speaker 1: the s G to the financial factor. So I think

475
00:29:53,040 --> 00:29:56,320
Speaker 1: that there may be a motivation here from these states

476
00:29:56,320 --> 00:29:58,840
Speaker 1: that if they're either able to get the Biden rule

477
00:29:59,360 --> 00:30:02,040
Speaker 1: not own, or even if you're just able to sort

478
00:30:02,040 --> 00:30:04,760
Speaker 1: of put the argument out there into the world that

479
00:30:04,960 --> 00:30:09,840
Speaker 1: their interpretations are also sort of valid or consistent with

480
00:30:09,960 --> 00:30:13,600
Speaker 1: historical interpretations of the standards, notwithstanding that they differ so

481
00:30:13,680 --> 00:30:17,840
Speaker 1: much from the Biden administration rule. Now, we could talk

482
00:30:17,880 --> 00:30:23,880
Speaker 1: about the accuracy of the account that the complaints gives

483
00:30:24,040 --> 00:30:27,680
Speaker 1: of sort of historic interpretations of the rule, and I'm

484
00:30:27,720 --> 00:30:29,600
Speaker 1: not really sure that they get the rights to be frank,

485
00:30:30,280 --> 00:30:32,360
Speaker 1: but I think that that may be part of what

486
00:30:32,560 --> 00:30:34,880
Speaker 1: the motivation is here, that the states are trying to

487
00:30:34,960 --> 00:30:41,240
Speaker 1: protect their own somewhat radical interpretations of the statutory language

488
00:30:41,640 --> 00:30:46,200
Speaker 1: by challenging the Biden administrations more traditional interpretation of the

489
00:30:46,200 --> 00:30:50,600
Speaker 1: statutory language. This lawsuit is going to be heard by

490
00:30:50,800 --> 00:30:55,560
Speaker 1: federal Judge Matthew Kismarik, and he's a trumpet pointee who's

491
00:30:55,560 --> 00:31:00,520
Speaker 1: struck down Biden administration rules on immigration and health care

492
00:31:00,560 --> 00:31:05,880
Speaker 1: protections for LGBT people. I mean, we've seen the fact

493
00:31:05,920 --> 00:31:09,680
Speaker 1: that the Texas a g they file in a friendly venue,

494
00:31:09,760 --> 00:31:13,840
Speaker 1: just as the Democratic a g s would file on

495
00:31:13,880 --> 00:31:17,680
Speaker 1: a friendly venue under Trump. So how likely is it

496
00:31:17,800 --> 00:31:22,240
Speaker 1: that this judge will issue an injunction blocking the rule.

497
00:31:22,960 --> 00:31:24,920
Speaker 1: I can't speak to how likely they are to issue

498
00:31:24,920 --> 00:31:27,040
Speaker 1: an a junction, but I agree with you, if they've

499
00:31:27,040 --> 00:31:32,400
Speaker 1: selected a very friendly venue and I wouldn't be taking

500
00:31:32,920 --> 00:31:37,560
Speaker 1: this lawsuit as seriously as a threat to the rule

501
00:31:37,920 --> 00:31:40,640
Speaker 1: if it were in the left friendly jurisdiction, because I

502
00:31:40,760 --> 00:31:45,520
Speaker 1: really do think that the Biden administration rule is very

503
00:31:45,680 --> 00:31:48,720
Speaker 1: sort of neutral, and that's the arguments put forward in

504
00:31:49,200 --> 00:31:52,800
Speaker 1: the complaints about it driving more assets towards d s

505
00:31:52,880 --> 00:31:56,160
Speaker 1: G are incorrect. But I do think that the fact

506
00:31:56,160 --> 00:31:57,840
Speaker 1: that's in front of this judge, and the fact that

507
00:31:57,880 --> 00:32:00,360
Speaker 1: it's you know, within the Fifth Circuit, anything vision lights

508
00:32:00,400 --> 00:32:02,680
Speaker 1: up being appealed to wind up in front of the Circuit,

509
00:32:02,960 --> 00:32:06,200
Speaker 1: and that does create a greater risk of an adverse

510
00:32:06,240 --> 00:32:08,640
Speaker 1: finding for the Department of Labor than if it was

511
00:32:08,840 --> 00:32:12,080
Speaker 1: in another court. And you know, I always come back to,

512
00:32:12,880 --> 00:32:15,040
Speaker 1: you know, this division of the Department of Labor that's

513
00:32:15,080 --> 00:32:19,280
Speaker 1: responsible for retirement. It had you know, an expansive rulemaking

514
00:32:19,360 --> 00:32:22,800
Speaker 1: on the definition of a fiduciary under arrissa, and that

515
00:32:22,840 --> 00:32:27,160
Speaker 1: was struck down by the Fifth Circuit back in And

516
00:32:27,560 --> 00:32:29,360
Speaker 1: that was a pretty surprising decision to a lot of

517
00:32:29,360 --> 00:32:33,239
Speaker 1: people because irrespective of what somebody might have thought of

518
00:32:33,280 --> 00:32:36,080
Speaker 1: the merits of the rule the Department of Labor had

519
00:32:36,120 --> 00:32:38,840
Speaker 1: gone through, it seemed like a very painstaking process and

520
00:32:38,880 --> 00:32:41,120
Speaker 1: despite that very painstaking process, the rule was found to

521
00:32:41,160 --> 00:32:45,240
Speaker 1: be arbitrary and deprecias and so here again, I think

522
00:32:45,280 --> 00:32:49,080
Speaker 1: that the administration has gone through an extensive process. If anything,

523
00:32:49,080 --> 00:32:51,000
Speaker 1: people were wondering what was taking them so long to

524
00:32:51,000 --> 00:32:53,240
Speaker 1: come out with final rule, because there was a long

525
00:32:53,280 --> 00:32:56,200
Speaker 1: time that elapsed between the end of the comment period

526
00:32:56,240 --> 00:32:58,280
Speaker 1: on the proposal and when the final rule came out.

527
00:32:58,800 --> 00:33:01,480
Speaker 1: But you know, it all just goes to the rigor

528
00:33:01,720 --> 00:33:04,480
Speaker 1: of the process and consideration of the comments became in.

529
00:33:04,960 --> 00:33:07,320
Speaker 1: But you know, I think it's very very hard to

530
00:33:07,360 --> 00:33:11,720
Speaker 1: predict how how this particular court and how the Fifth Circuit,

531
00:33:11,760 --> 00:33:15,800
Speaker 1: also on an appeal, will react to these types of arguments.

532
00:33:15,840 --> 00:33:19,480
Speaker 1: I will say, though, that if the deals current rule

533
00:33:19,600 --> 00:33:22,520
Speaker 1: is struck down by a court on the basis of

534
00:33:22,600 --> 00:33:25,720
Speaker 1: the process that they went through, that I wouldn't necessarily

535
00:33:25,760 --> 00:33:28,000
Speaker 1: expect the results of that to be that we wind

536
00:33:28,040 --> 00:33:31,240
Speaker 1: up back at the Trump administration's rule, because I would

537
00:33:31,240 --> 00:33:34,400
Speaker 1: expect the Trump administration's rule, if that was then put

538
00:33:34,440 --> 00:33:37,800
Speaker 1: back into place, to be challenged itself on similar grounds.

539
00:33:37,880 --> 00:33:41,080
Speaker 1: And I would expect that any claim that the Trump

540
00:33:41,120 --> 00:33:44,600
Speaker 1: administration rule, you know, didn't go through an appropriate process

541
00:33:44,720 --> 00:33:47,840
Speaker 1: would be much stronger an arguments of the Biden administration

542
00:33:47,880 --> 00:33:50,800
Speaker 1: didn't go through an appropriate process because the Trump administration

543
00:33:50,880 --> 00:33:54,720
Speaker 1: had very short comment periods and a much faster turnaround

544
00:33:54,800 --> 00:33:58,240
Speaker 1: time between the close of the common period on the

545
00:33:58,280 --> 00:34:00,440
Speaker 1: proposed rule and when they came out with a rule,

546
00:34:01,080 --> 00:34:04,080
Speaker 1: and the Trump administration final rule was very different from

547
00:34:04,120 --> 00:34:07,120
Speaker 1: the proposed rule, and they had had to respond to

548
00:34:07,520 --> 00:34:11,759
Speaker 1: a much larger number of individual comment letters which themselves

549
00:34:11,960 --> 00:34:15,560
Speaker 1: were starkly sort of negative and disapproving of the Trump

550
00:34:15,600 --> 00:34:19,680
Speaker 1: administration rule. So I think that if the Biden administration

551
00:34:19,760 --> 00:34:23,239
Speaker 1: rule is struck down, then the ultimate outcome it might

552
00:34:23,280 --> 00:34:27,280
Speaker 1: be a reversion to the prior law. And then again

553
00:34:27,320 --> 00:34:29,239
Speaker 1: I would probably expect that we've lined up with the

554
00:34:29,360 --> 00:34:33,920
Speaker 1: rule that still remains sort of neutral, not anti E

555
00:34:34,160 --> 00:34:38,040
Speaker 1: s G consideration like the Trump administration rules. So how

556
00:34:38,080 --> 00:34:40,800
Speaker 1: much of a setback would it be for the Biden

557
00:34:40,800 --> 00:34:44,680
Speaker 1: administration if there was an adjunction issued against this rule?

558
00:34:44,800 --> 00:34:47,040
Speaker 1: Would it be a great setback? I mean, I think

559
00:34:47,080 --> 00:34:50,040
Speaker 1: it would be a pretty significant set back to my mind,

560
00:34:50,360 --> 00:34:52,960
Speaker 1: because the Department of Labor put a lot of resources

561
00:34:53,000 --> 00:34:55,520
Speaker 1: into this rule, similar to how they put a lot

562
00:34:55,560 --> 00:34:58,440
Speaker 1: of resources into the prior produciery rule which are struck down.

563
00:34:58,920 --> 00:35:03,200
Speaker 1: The agency had limited resources, r a limited number of employees,

564
00:35:03,200 --> 00:35:05,040
Speaker 1: and they have a lot of responsibilities. They have a

565
00:35:05,080 --> 00:35:07,239
Speaker 1: lot of rules they need to put out, and they

566
00:35:07,280 --> 00:35:11,400
Speaker 1: oversee something very important, right They oversee private retirements in America,

567
00:35:11,440 --> 00:35:14,520
Speaker 1: which is critically important. So you know, I think that

568
00:35:15,120 --> 00:35:17,839
Speaker 1: the loss of the time that they put into this rule,

569
00:35:18,040 --> 00:35:20,960
Speaker 1: plus the need to vote more resources, would be a

570
00:35:21,040 --> 00:35:23,640
Speaker 1: real set back. I will also say that I think

571
00:35:23,680 --> 00:35:27,400
Speaker 1: that it would be very unfortunate for pretty much every

572
00:35:27,719 --> 00:35:32,520
Speaker 1: stakeholder if the rule was struck down, because I really

573
00:35:32,560 --> 00:35:35,879
Speaker 1: do believe that the Biden administration rule gets it right

574
00:35:36,040 --> 00:35:39,799
Speaker 1: in a way that administrations both Democratic and Republicans have

575
00:35:40,000 --> 00:35:43,280
Speaker 1: failed to do so in the past. Because it's so neutral.

576
00:35:43,640 --> 00:35:46,719
Speaker 1: It makes it so abundantly clear in my mind that

577
00:35:47,000 --> 00:35:49,560
Speaker 1: plan producers are supposed to be able just to choose

578
00:35:49,600 --> 00:35:52,239
Speaker 1: what they think is appropriate in making their investment decisions.

579
00:35:52,320 --> 00:35:54,319
Speaker 1: That I think that's the right rule. I think that's

580
00:35:54,360 --> 00:35:56,680
Speaker 1: the way things are supposed to be. That the regulators

581
00:35:56,680 --> 00:35:58,480
Speaker 1: shouldn't be putting it some on the scale for or

582
00:35:58,520 --> 00:36:02,080
Speaker 1: against any particular set of economic considerations, and should let

583
00:36:02,160 --> 00:36:04,759
Speaker 1: the plant producers make their choices. See, I think it

584
00:36:04,760 --> 00:36:08,160
Speaker 1: would be a pretty big setback not just to the administration,

585
00:36:08,719 --> 00:36:13,359
Speaker 1: but to plan sponsors, retirement didaver's, asset managers, consultants, really

586
00:36:13,400 --> 00:36:16,800
Speaker 1: everybody if the rule was to be struck down. I

587
00:36:16,800 --> 00:36:19,319
Speaker 1: will also just say, you know, as another note on

588
00:36:19,360 --> 00:36:22,200
Speaker 1: that point, that while the Trump administration rule was sort

589
00:36:22,200 --> 00:36:27,600
Speaker 1: of wildly unpopular among basically every constituency, we had consumer advocates,

590
00:36:27,800 --> 00:36:32,160
Speaker 1: trade organization drifting in the active management industry, and plan

591
00:36:32,280 --> 00:36:34,879
Speaker 1: sponsors all lining up together just saying that the Trump

592
00:36:34,920 --> 00:36:38,160
Speaker 1: administration rule was a harmful rule in a lot of ways,

593
00:36:38,360 --> 00:36:40,360
Speaker 1: and it had a negative impact on the market of

594
00:36:40,400 --> 00:36:43,800
Speaker 1: chilling effects is the language that people use the Biden rule.

595
00:36:44,200 --> 00:36:46,680
Speaker 1: The only detractors I'm aware of really of this rule

596
00:36:47,080 --> 00:36:51,360
Speaker 1: elected Republican officials. I'm really not aware of any market

597
00:36:51,400 --> 00:36:55,360
Speaker 1: participants or planned sponsors who are unhappy with this rule.

598
00:36:56,000 --> 00:36:58,560
Speaker 1: I think it's noteworthy that when they were gathering private

599
00:36:58,560 --> 00:37:02,680
Speaker 1: plaintiffs for this plan, just one plan sponsor and not

600
00:37:02,800 --> 00:37:04,960
Speaker 1: like one of the most noteworthy plan sponsors in America

601
00:37:05,040 --> 00:37:08,000
Speaker 1: or anything. So I think, from my perspective, I think

602
00:37:08,080 --> 00:37:12,600
Speaker 1: that having a settled, neutral rule benefits everybody and creating

603
00:37:12,640 --> 00:37:16,200
Speaker 1: more chaos in the space only hurts retirees. Thanks for

604
00:37:16,239 --> 00:37:19,560
Speaker 1: being on the show, Josh. That's Josh Lichtenstein, a partner

605
00:37:19,560 --> 00:37:22,080
Speaker 1: in Ropes and Gray. And that's it for this edition

606
00:37:22,080 --> 00:37:24,759
Speaker 1: of The Bloomberg Law Show. Remember you can always get

607
00:37:24,800 --> 00:37:28,120
Speaker 1: the latest legal news Honor Bloomberg Law Podcast. You can

608
00:37:28,160 --> 00:37:32,399
Speaker 1: find them on Apple Podcasts, Spotify, and at www dot

609
00:37:32,400 --> 00:37:36,520
Speaker 1: bloomberg dot com, slash podcast, slash Law, and remember to

610
00:37:36,600 --> 00:37:39,440
Speaker 1: tune into The Bloomberg Law Show every week night at

611
00:37:39,480 --> 00:37:42,960
Speaker 1: ten pm Wall Street Time. I'm June Grosso and you're

612
00:37:43,040 --> 00:37:44,239
Speaker 1: listening to Bloomberg