Speaker 1: Hello, and welcome to the Votes and Verdicts podcast, hosted
Speaker 1: by the Litigation and Policy team at Bloomberg Intelligence, the
Speaker 1: investment research platform of Bloomberg LP. This podcast series examines
Speaker 1: the intersection of business policy and law, and today we'll
Speaker 1: be looking at the litigation and policy catalysts that we're
Speaker 1: watching in February twenty twenty four and that we think
Speaker 1: will impact companies across a number of different sectors. My
Speaker 1: name is Elliot Stein. I'm a senior litigation analyst covering
Speaker 1: litigation and the financial sector, and I will be your
Speaker 1: host for today, February one, twenty twenty four. As always,
Speaker 1: if you have any questions about any of the matters
Speaker 1: that we'll be discussing on this episode, please don't hesitate
Speaker 1: to reach out to us at your convenience with your questions.
Speaker 1: All right, So we'll be discussing a handful of sectors today. First,
Speaker 1: our healthcare policy analyst Dwayne Wright will discuss why Scenting
Speaker 1: and United Health are the likely beneficiaries of an Affordable
Speaker 1: Care Act sign up surge, and separately, why retail companies
Speaker 1: like Best Buy and healthcare providers like a Medicist will
Speaker 1: benefit from Medicare's Hospital.
Speaker 2: At home waiver.
Speaker 1: After that, Tish Walker, our healthcare patent litigation analyst, will
Speaker 1: preview an upcoming claim construction hearing on February ace in
Speaker 1: litigation between Our Buddhists and Maderna over the latter's COVID vaccine.
Speaker 1: Sticking with Patents, Tamlin Basin will tell us about Apple's
Speaker 1: choices now that a US import ban on some of
Speaker 1: its watches has taken effect. Sticking with tech. Matt Settenhelm,
Speaker 1: our TMT litigation and policy analyst, will discuss February twenty
Speaker 1: sixth oral arguments in the Supreme Court concerning whether the
Speaker 1: First Amendment allows states to force Internet platforms like Google
Speaker 1: and Meta to carry content against their will. After that,
Speaker 1: I'll discuss in upcoming hearing on February fifth in a
Speaker 1: lawsuit by private equity firms and hedge fund hedge funds
Speaker 1: challenging a recent SEC rule that would increase regulation of
Speaker 1: private fund advisors. Nathan Dean, our financials policy analyst in Washington, DC,
Speaker 1: will then give us an update on the Basel three
Speaker 1: endgame concerning capital requirements for banks, and he'll also talk
Speaker 1: about in anticipated final rule by the CFPB on credit
Speaker 1: card late fees. After that, Justin Taresi, who covers consumer
Speaker 1: and industrial litigation and policy, will discuss additional trial that
Speaker 1: the company buyer faces in cancer related roundup litigation in
Speaker 1: state courts across the US. And last, but not least,
Speaker 1: our antitrust analyst Jenrie will discuss a lawsuit likely to
Speaker 1: be filed by the FTC against the Kroger Albertson's MNA deal.
Speaker 1: As always, all of this research is available on the
Speaker 1: Bloomberg terminal under big and just a quick word about
Speaker 1: Bloomberg Intelligence for those who don't know. We are the
Speaker 1: investment research platform on the Bloomberg terminal, providing in depth
Speaker 1: research on industries, companies, and markets and delivering key data
Speaker 1: from bi analysts in their given industries. All right, So
Speaker 1: with all that out of the way, let's get started
Speaker 1: with the content. Dwayne, let's bring you in to start
Speaker 1: with some DC policy talk, specifically in the healthcare sector.
Speaker 1: You've written that there has been a record number of
Speaker 1: Affordable Care Act sign ups for twenty twenty four and
Speaker 1: that's and United Health are among the health insurers most
Speaker 1: likely to benefit from that. And you also had a
Speaker 1: really interesting note on hospital at home care and why
Speaker 1: companies like best Buy and a medicis are likely to
Speaker 1: benefit from a Medicare waiver for such care. Do you
Speaker 1: want to come in and tell us more about these issues?
Speaker 3: Yeah? Sure, thanks Elliott. So there was some good news
Speaker 3: for health insurance in January, the obvious bad news being
Speaker 3: unfavorable Medicare advantage cost trends. Leaving that aside, there was
Speaker 3: good news for their commercial segments, especially for United Health
Speaker 3: senteen and elevants. Affordable Care Act sign ups during the
Speaker 3: open enrollment period top twenty one point three million people.
Speaker 3: Why is that good news? It's five million more than
Speaker 3: sign ups from twenty twenty three. It offsets some of
Speaker 3: the roughly fifteen million people that are expected to lose
Speaker 3: Medicaid coverage during the renewal process that began in April,
Speaker 3: and it suggests that of the fifteen million, some are
Speaker 3: being captured into a different business segment, allowing companies to
Speaker 3: retain premium revenues. CMS estimates that of the twenty one
Speaker 3: point three million or the five million new enrollees two
Speaker 3: point four or previously on Medicaid. So why is this happening?
Speaker 3: One the timing the Medicaid renwal process and a multi
Speaker 3: stakeholder push on coverage is free advertising for the Affordable
Speaker 3: Care Act as a health coverage option, and the number
Speaker 3: two enhanced subsidies, the I rays and HAND subsidies lowers
Speaker 3: premiums for individuals below a certain income or if their
Speaker 3: premiums are a certain percentage of their annual income. So
Speaker 3: both of these trends have been favorable for the health insurance.
Speaker 3: Now what's the outlook, Well, it wouldn't be surprised if
Speaker 3: enrollment eventually tops twenty two million this year, largely because
Speaker 3: the Medicaid manual process will continue through the first half
Speaker 3: of this year, and as more enrollies lose coverage, the
Speaker 3: ACA could be a coverage option. Number two, the growth
Speaker 3: trajectory helps cement the ACA into the healthcare fabric, making
Speaker 3: it more and more difficult to repeal, which presidential candidate
Speaker 3: Trump has promised to do if elected. And then for
Speaker 3: United Health and centeen, they're probably the biggest winners because
Speaker 3: they have the largest footprints in terms of the number
Speaker 3: of states they're in, roughly twenty eight or twenty nine
Speaker 3: states for those companies, followed by Elevants and some others
Speaker 3: so they're likely to see the biggest gains from this
Speaker 3: and will continue to see the biggest gains as the
Speaker 3: Medicaid process unfolds through this year. Now, on the other topic,
Speaker 3: the hospital at home trend, it's something they keep an
Speaker 3: eye on. It's starting out very small, but this could
Speaker 3: grow over time. And so what am I talking about
Speaker 3: with hospital at home? It's a pandemic era waiver that
Speaker 3: allows hospitals to provide in patient hospital care for patients
Speaker 3: in Medicare's fee for service program. These hospitals get the
Speaker 3: same in patient payments amount they would have received if
Speaker 3: they had received care provided care in a brick and
Speaker 3: mortar setting, but the waiver allows them to get the
Speaker 3: payment when the care is provided at home. The waivers
Speaker 3: expires at the end of the year, and we think
Speaker 3: it will get extended. The key here is how healthcare
Speaker 3: players and some non healthcare players are using this as
Speaker 3: an opportunity to expand their growth opportunities to capture some
Speaker 3: of those healthcare dollars. So when you think about a
Speaker 3: company like By you wouldn't think healthcare, but they've expanded
Speaker 3: their remote monitoring and telehealth capabilities through acquisition and are
Speaker 3: partnering with hospital systems to provide the IT infrastructure to
Speaker 3: safely do these hospital at home programs. Companies like Medicists
Speaker 3: have expanded their home health capabilities through acquisition, but they
Speaker 3: too are being in the process of being acquired by
Speaker 3: United Health, seemingly as a way for the company to
Speaker 3: improve margins on their Medicare population by creating a pathway
Speaker 3: for treatment in a cheaper setting without lowering quality. So
Speaker 3: is this a big revenue driver for companies now? No,
Speaker 3: But with increasing pressure on health plans through lower payment rates,
Speaker 3: a shift to value based healthcare, growing medicare population, the
Speaker 3: hospital home trend is something that we're keeping an eye
Speaker 3: and to see how it evolves over the coming years.
Speaker 3: So if that I'll turn back to Elliott.
Speaker 1: Great, thanks a Lotwayne, really interesting stuff. All right, We're
Speaker 1: going to stick with healthcare and bring in Tish Walker. Tish,
Speaker 1: you've been following the our Buddhists versus Maderna patent litigation
Speaker 1: over Moderna's COVID nineteen vaccine, and it sounds like there
Speaker 1: is a key hearing coming up on February ACE that
Speaker 1: you're going to be watching. Can you tell us more
Speaker 1: about that hearing? And why it's so important.
Speaker 4: Hi, Elliott, Sure, so, yeah, I've been following this case, gosh,
Speaker 4: since twenty twenty two. This was actually the first case
Speaker 4: that was filed on the COVID vaccines litigations, where our
Speaker 4: Bautists sued Maderna alleging that Maderni's spike facts infringes several
Speaker 4: of their patents that cover lipid nanoparticle technology. The patents
Speaker 4: that they asserted expire. One expired last year in July
Speaker 4: of twenty twenty three, and the others expire in twenty
Speaker 4: twenty nine. So the hearing that's coming up as a
Speaker 4: claim construction hearing, it's going to provide the court and
Speaker 4: opportunity to construe the claims. And we think this key
Speaker 4: is really going to be this hearing is going to
Speaker 4: be key to Maderna because you know, based on the filings,
Speaker 4: Maderna looks like they are setting up to argue that
Speaker 4: their COVID vaccine doesn't infringe these patents, and I think
Speaker 4: the key to their argument is likely going to be
Speaker 4: that their vaccine contains a different amount of lipids than
Speaker 4: what's actually claimed in our beautuses claims, particularly in the
Speaker 4: twenty twenty nine patents. So the twenty twenty nine patents,
Speaker 4: most of them claim these lipid nanoparticle formulations that contain
Speaker 4: a certain amount of lipids, and of interest here is
Speaker 4: the cationic lipid, which typically their claims say fifty to
Speaker 4: sixty five percent. Now, looking at some of the filings,
Speaker 4: it looks like Maderna has some level potentially lower than
Speaker 4: fifty percent, though it's not clear. We're not able to
Speaker 4: deduce from their filings what amount they actually have. So
Speaker 4: what's going to be key at this hearing is how
Speaker 4: those claims are construed around fifty to sixty percent and
Speaker 4: what amount, if any below that fifty percent is our
Speaker 4: beutises claims going to be set to cover. Now, one
Speaker 4: of those patents in the twenty twenty nine patents has
Speaker 4: been drafted where they don't actually recite a specific amount
Speaker 4: of caonic lipid. But what Maderna is arguing in the
Speaker 4: claim construction as well. During prosecution of all these patents,
Speaker 4: the key feature that you our Bautist relied on for
Speaker 4: patentability was to say that it was fifty to sixty
Speaker 4: five percent caic lipid. So they're looking to have the
Speaker 4: court read that into the claims the patent that doesn't
Speaker 4: specify the percentage of cabianic lipid. That's the three seven
Speaker 4: eight patent that expires in twenty twenty nine. So I
Speaker 4: think this is going to be sort of the first
Speaker 4: battle between these two to really get a sense of
Speaker 4: what our beautuses patents cover and how successful potentially Maderna's
Speaker 4: arguments could be for non infringement. This is a brand
Speaker 4: on brand type of patent litigation, So really what we're
Speaker 4: looking at is whether Maderna is going to be on
Speaker 4: the hook for reasonable royalty. So you know, we think
Speaker 4: the risk to Maderna is about one hundred and seven
Speaker 4: to fifty six or five sixty eight million in total
Speaker 4: patent royalties through twenty twenty nine. But again we think
Speaker 4: this is really going to be key to whether they
Speaker 4: can limit or potentially reduce that liability. And with that,
Speaker 4: I'll turn it back to you, Elliott.
Speaker 1: Good stuff, Thanks Tish. All right, let's stick with patents,
Speaker 1: but move over to the tech sector and bringing Tamlin
Speaker 1: basin our Tamlin. I think when we last had you
Speaker 1: on here, you were previewing for us the likelihood of
Speaker 1: an important ban against certain Apple watches and I guess
Speaker 1: now that import ban has taken effect, and you've written
Speaker 1: about what Apple's options are going forward to deal with it,
Speaker 1: you want to tell us more about that?
Speaker 5: Yeah, sure, hi Elia. Yeah, so you're right, Apple is
Speaker 5: no longer selling watches in the US market they can
Speaker 5: measure a user's blood oxygen level, and the reason for
Speaker 5: that is a long running intellectual property dispute with medical
Speaker 5: device maker Masimo, And in particular, it's this import man
Speaker 5: you messed mentioned that was issued by the International Trade
Speaker 5: Commission after finding that Apple's watches and friend two of
Speaker 5: Masimo's patents. Now, the last time we talked, that ban
Speaker 5: had been temporarily paused by the US Court of Appeals
Speaker 5: for the Federal Circuit, but the court then said that
Speaker 5: the band could go back into effect during the tendency
Speaker 5: of Apples appeals appeal of that underlying decision. So the
Speaker 5: band did take hold January eighteenth. So right now, and
Speaker 5: what we're waiting for is any indication that Apple is
Speaker 5: willing to finally settle this lawsuit now so far it
Speaker 5: has refused, and its attempt to design around the infringing
Speaker 5: patents was successful only because what it essentially did was
Speaker 5: issue a software update that blocked this feature from working,
Speaker 5: And in fact, because these patents protect hardware specifically, it
Speaker 5: sort of protects the placing of the sensors on the
Speaker 5: back of the watch to measure these blood oxygen levels.
Speaker 5: But because of that, we don't think it's likely that
Speaker 5: Apple is going to be able to come up with
Speaker 5: any easy way to bring a watch to market that
Speaker 5: includes these features absent a broad and significant redesign. Now
Speaker 5: the litigation has shifted somewhat to the focus of litigation
Speaker 5: to a case in Delaware where Apple is actually the plaintiff.
Speaker 5: It's trying to stop Masimo from bringing its own watch
Speaker 5: to the market. Now, in that case, Masimo has challenged
Speaker 5: apples asserted patents at the patent trial and pel board,
Speaker 5: and it has asked the Delaware court to pause that
Speaker 5: proceeding while those challenges play out. Apple a few weeks
Speaker 5: ago opposes that stay, and our use of the district
Speaker 5: court case is Apple's best chance to stop masscrow from
Speaker 5: really coming in here and taking massive scale share in
Speaker 5: this market for smart watches that monitor these functionalities. Now,
Speaker 5: we think the court will deny Apple's request and the
Speaker 5: case will be stayed while these challenges play out, But
Speaker 5: the fun fundamental question remains is will Apple settle now
Speaker 5: most companies would have done so already rather than letting
Speaker 5: a highly touted, touted feature be removed from a signature
Speaker 5: signature product. Apple's resistance to a deal is likely at
Speaker 5: least partially driven by a reluctant to setup precedent of
Speaker 5: paying off patent owners. Now. Like most large tech companies,
Speaker 5: Apple does face dozens of patent infringement lawsuits each year,
Speaker 5: and if it were to settle all of those cases,
Speaker 5: it really would have a material impact on Apple's margins. However,
Speaker 5: we're just gonna have to wait and see if it
Speaker 5: reaches a threshold in this dispute with Masimo where the
Speaker 5: damages of that sales ban outweigh the potential risks of
Speaker 5: setting such a precedent. So I will leave it there.
Speaker 5: Back to you, Elliott, Thanks Jaremn.
Speaker 1: That's super interesting, multifaceted litigation. All right, let's stick with tech.
Speaker 1: We'll move over to the Internet side of the sector,
Speaker 1: bringing Matt sett in Helm Matt pretty high profile case
Speaker 1: you're following in the Supreme Court that's going to be
Speaker 1: argued later in February over whether states like Florida and
Speaker 1: Texas can compel companies like Google and Meta to carry
Speaker 1: content against their will. Interesting First Amendment issue, I guess,
Speaker 1: with big implications for these companies in particular. You want
Speaker 1: to come in and tell us more about it.
Speaker 2: Yeah, yeah, thanks elliott. A. Big tech regulation remains a
Speaker 2: hot topic here in Washington, d c. And just this
Speaker 2: week we had, you know, a very high profile hearing
Speaker 2: in the Senate about how to regulate these companies for
Speaker 2: harms to that they may be causing for children. This
Speaker 2: Supreme Court case really gets to how can can regulators
Speaker 2: go after these companies and how does the First Amendment
Speaker 2: limit their ability to regulate an issue specifically, Here are
Speaker 2: two state laws, one from Florida one from Texas that
Speaker 2: were motivated by concerns that the big tech companies were
Speaker 2: biased against conservatives. But fundamentally these laws raise a basic
Speaker 2: question about control from the companies. Can regulators force the
Speaker 2: companies to operate as open platforms for the speech of others.
Speaker 2: The companies say no. They say they have a First
Speaker 2: Amendment right to decide what appears on their platforms, what
Speaker 2: to emphasize on their platforms. Just as the New York
Speaker 2: Times gets to decide what stories to run and which
Speaker 2: to emphasize or prioritize, just as a museum curator gets
Speaker 2: to decide what to display. The government can't dictate how
Speaker 2: they make those speech decisions, and so that's what's tied
Speaker 2: up here in terms of impact. I think there are
Speaker 2: two important things to watch here. One, if the States
Speaker 2: win big here and social media companies can't control their platforms,
Speaker 2: they can be treated as common carriers. It risks denting
Speaker 2: their digital ad business that brings in billions of dollars
Speaker 2: a year for Alphabet and Meta. The platforms would be
Speaker 2: at risk of being overwhelmed by content that the companies
Speaker 2: now look work very hard to remove. Advertisers could look elsewhere,
Speaker 2: and that could have a on the business. If the
Speaker 2: companies win and the First Amendment shields them from this
Speaker 2: sort of regulation, the question is how big of a
Speaker 2: victory did they win. How much does the First Amendment
Speaker 2: shield other types of regulation, such as data privacy regulation,
Speaker 2: such as regulation aimed at protecting kids. There's the potential
Speaker 2: for a very big win for the companies here as well.
Speaker 2: So how does it likely play out. It's not a
Speaker 2: sure thing, and I expect the Supreme Court to be
Speaker 2: divided on this, but I give the companies a seventy
Speaker 2: percent chance to win this case. I think Justice is Alito,
Speaker 2: Gorsicch and Thomas are good bets to rule against the
Speaker 2: companies and to rule for the States, But in my view,
Speaker 2: it's difficult to see the States getting two more votes
Speaker 2: to win this case. Justices Barrett, Kavanaugh and Roberts will
Speaker 2: be the most important to watch at the February twenty
Speaker 2: sixth hearing, and so keep an eye on them. I
Speaker 2: expect the Court to decide this case in the second quarter,
Speaker 2: probably in May or June. With that, let me toss
Speaker 2: it back to you Elliott.
Speaker 1: Great, thanks Matt.
Speaker 5: That'll be a really.
Speaker 1: Interesting one to watch. I'm sure it'll garner a lot
Speaker 1: of headlines. All right, I'll jump in here to talk
Speaker 1: about a lawsuit by trade groups on behalf of hedge
Speaker 1: funds and private equity firms challenging an SEC rule from
Speaker 1: August that increases regulations for private fund advisors. Specifically, that
Speaker 1: rule requires private fund advisors to give investors quarterly statements
Speaker 1: detailing performance, fees and expenses. The rules also call for
Speaker 1: these advisors to obtain annual audits for each private fund.
Speaker 1: The rules also prohibit providing preferential treatment to investors, and
Speaker 1: the rules impose restrictions on expenses and fees that are
Speaker 1: related to government investigations. So all told, these rules are
Speaker 1: estimated to cost private funds about five billion dollars per
Speaker 1: year to comply with, and they're expected to result in
Speaker 1: loss of investor capital and higher fees for investors as well.
Speaker 1: Oral argument is going to be held February fifth before
Speaker 1: a three judge panel of the Fifth Circuit Court of Appeals,
Speaker 1: which generally is, I think most people are now aware,
Speaker 1: has been a very business friendly court and also a
Speaker 1: court very skeptical of administrative overreach, and that's one of
Speaker 1: the reasons we think the challengers that are suing here
Speaker 1: have a seventy percent chance of striking down the rule,
Speaker 1: as we think their primary arguments will resonate with these
Speaker 1: judges on the Fifth Circuit and then also the Supreme
Speaker 1: Court if it gets that far. Just to be a
Speaker 1: little more specific, I think the trade groups have a
Speaker 1: strong argument that the SEC is exceeding its authority because
Speaker 1: the agency is relying on a general anti fraud provision
Speaker 1: of the Investment Advisors Act as well as action of
Speaker 1: Dodd Frank that doesn't really even mention private funds but
Speaker 1: instead is focused on retail investors, which really aren't at
Speaker 1: issue here. So I think the court will find that
Speaker 1: the rule violates the Major Questions doctrine because Congress didn't
Speaker 1: explicitly give the SEC the authority to regulate private funds
Speaker 1: in this manner, like I said or argument on February fifth,
Speaker 1: and I expect a decision by this three judge panel
Speaker 1: by the end of the second quarter. If the SEC loses,
Speaker 1: as we expect they will, the agency can then pursue
Speaker 1: further review by the full Fifth Circuit Court of Appeals
Speaker 1: or the Supreme Court, but I don't expect the agency
Speaker 1: to do any better with those appeals either. So for now,
Speaker 1: stay tuned for updates following the February fifth hearing, and
Speaker 1: we will move on to Nathan Dean to talk some
Speaker 1: financials policy. Nason, a lot of talk about the Bosle
Speaker 1: three endgame recently and whether it will be finalized this
Speaker 1: year or not. Plus, I feel like we've been waiting
Speaker 1: for the cspb's final rule on credit card late fees
Speaker 1: for quite a while. Now, you want to come in
Speaker 1: and tell us the latest on both of those issues.
Speaker 6: Yeah, so let's start with the Bosle three endgame. You know,
Speaker 6: I think a lot of people know what this is,
Speaker 6: but just for those of you who don't know, it is,
Speaker 6: it's the last remaining piece of the Bosle three accords,
Speaker 6: hence the name endgame, and it's recalibration of risk weighting
Speaker 6: of assets, which when taken with all the changes as proposed,
Speaker 6: you're looking around a nineteen percent increase in capital requirements
Speaker 6: for the largest banks, so the JP Morgan is the
Speaker 6: Bank Americas. For the regional banks, you're looking around five
Speaker 6: to six percent. Now, this rule is universally hated by
Speaker 6: the industry. In fact, for those of us in the
Speaker 6: DC area, we actually had commercials during the Ravens Chiefs
Speaker 6: game talking about Bosle three endgame. So what the industry
Speaker 6: is doing is at this moment is they are putting
Speaker 6: pressure on the FED, the OCC and the FDIC to
Speaker 6: either scale back drastically their rule, or their hope better
Speaker 6: hopes is to delay this until after the twenty twenty
Speaker 6: four election, and then if you get a Republican victor
Speaker 6: in the White House, then you know this rule could
Speaker 6: be indefinitely delayed. So what do we think is going
Speaker 6: to happen? Well, the comment deadline was January sixteenth, to
Speaker 6: the FED and the other regulators are going to go
Speaker 6: quiet for the next few months. They're going to analyze
Speaker 6: all the comments, there are lots of them, and then
Speaker 6: they're going to try and give us signals on what
Speaker 6: they think will happen. Now, as of right now, we
Speaker 6: are still saying sixty percent chance of finalization this year.
Speaker 6: But I want to throw a huge caveat on this
Speaker 6: because the FED is hanging by a thread because the
Speaker 6: amount of changes that they are going to make, which
Speaker 6: I think they will make, and we actually saw a
Speaker 6: note from one of the bank, one of the big
Speaker 6: banks this week saying that they think there are going
Speaker 6: to be substantial changes to the basle three endgame is
Speaker 6: because if you look at the risk weighting of assets
Speaker 6: within this rule, specifically geared towards consumer products like mortgages, loans.
Speaker 6: We've even seen criticism from moderate Democrats over the environmental
Speaker 6: aspect of this, for the risk waiting of climate financial
Speaker 6: instruments that's going to change. There are three pillars to
Speaker 6: this rule. It's operational risk, capital risk, and market risk,
Speaker 6: and it's the operational risk and the capital risk that
Speaker 6: I think are going to be dramatically changed. Now will
Speaker 6: we don't have a prediction on will it be a
Speaker 6: nineteen percent increase in capital. It'll probably be much smaller
Speaker 6: than that. But that's the thing that we're going with
Speaker 6: at this moment. But like I said, there is a
Speaker 6: decent chance that this could also be delayed because there's
Speaker 6: another there's a substantial number of changes that they want
Speaker 6: to make and only so much time. The other thing
Speaker 6: that they've got the regulators have going against them is
Speaker 6: there is a threat of lawsuit and theyre is very
Speaker 6: feasible that if they do finalize this rule that on
Speaker 6: next year edition our next year January edition of this podcast,
Speaker 6: Elliott will be talking about the lawsuit that has been
Speaker 6: made against the Basle three endgame. So just keep that
Speaker 6: in mind. The industry is prepped for a lawsuit. We're
Speaker 6: not making a determination on that yet, but just that's
Speaker 6: one way that the banks have said, you better make
Speaker 6: sure you get this right, because if you don't, we're
Speaker 6: gonna sue you. Now, moving on to the credit card
Speaker 6: late feed. The reason why we're telling this about this
Speaker 6: now is that I suspect the Consumer Financial Protection Bureau
Speaker 6: is going to release their proposal on credit card late
Speaker 6: fees before the March seventh State of the Union. Now,
Speaker 6: this was supposed to come out off the tailine of
Speaker 6: twenty twenty three. It didn't. I suspect that it was
Speaker 6: delayed because of political decisions. This rule goes into President
Speaker 6: Biden's agenda on his war on quote unquote junk fees.
Speaker 6: This is primarily over the CFPB and the FTC, but
Speaker 6: for the CFPP, this is one of the key rule makings.
Speaker 6: Now what does this do. Well, there's about two twelve
Speaker 6: billion dollars in late fees out there right now per
Speaker 6: per year. Because late fees are capped at thirty dollars.
Speaker 6: This will take the thirty dollars fee and drop it
Speaker 6: down to eight dollars and as a result, up to
Speaker 6: nine billion once you had all the other technicalities around it.
Speaker 6: Nine are the twelve billion dollars in late fees could
Speaker 6: be at risk. Now who does this impact, Well, it's
Speaker 6: the private card. Private label cards like Synchrony and Bread Financial.
Speaker 6: The are the ones that are mostlyt risk. So if,
Speaker 6: for example, if you have a Nordstrom card, or a
Speaker 6: Seers card, And I just realized I dated myself, because
Speaker 6: I'm not sure if a Steers card actually exists anymore.
Speaker 6: But if you have one of those private label cards,
Speaker 6: it's the company behind it that usually gets more of
Speaker 6: these late fees. And in fact, we just recently saw
Speaker 6: Bread Financial say in their fourth quarter earnings that if
Speaker 6: this rule is in place, or had this rule been
Speaker 6: in place at the table end of twenty twenty three,
Speaker 6: their revenue year over year would be twenty five percent
Speaker 6: lower than what it is right now. So this is
Speaker 6: a real risk. Bread and Synchrony both companies have said
Speaker 6: that they're taking steps to deal with this. But I
Speaker 6: do highly anticipate that CPB is going to finalize this
Speaker 6: in the next few weeks and that President Biden is
Speaker 6: going to mention it in the State of the Union address.
Speaker 6: Thank you, ellertt.
Speaker 1: Yeah, Ben Nason, and I think early on you said
Speaker 1: that it was a proposal coming up, but then as
Speaker 1: you said again, it's the rule finalization that you're expected
Speaker 1: in the coming weeks.
Speaker 6: That's correct.
Speaker 1: Yeah, yeah, all right, let's shift gears to mass torts
Speaker 1: and bring in Justin Tesi, who covers consumer and industrial
Speaker 1: litigation and.
Speaker 5: Policy for US.
Speaker 1: Justin Bayer hit with a two zero point twenty five
Speaker 1: billion dollar jury verdict just recently in litigation over whether
Speaker 1: the weed killer roundup causes cancer, and you've written that
Speaker 1: Buyer will face additional trials and state courts throughout the US.
Speaker 1: Can you come in and tell us a little bit
Speaker 1: more about this litigation?
Speaker 7: Yeah, absolutely, thanks Elliott. So you know, after a bit
Speaker 7: of a lull in the new year, here, all lines
Speaker 7: are back on Buyer and the company's we'd killer litigation
Speaker 7: after the verdict you just mentioned in Philadelphia last week
Speaker 7: for two point two five billion dollars awarded to a
Speaker 7: single plaintiff, And this brings Buyer's total liability for jury
Speaker 7: verdicts since the start of twenty twenty three to over
Speaker 7: four billion dollars now, and this is even now the
Speaker 7: company's won about ten of the sixteen trials it's faced
Speaker 7: in the last year. So Buyer saying that you know
Speaker 7: they will be appealing this verdict and other roundup verdicts.
Speaker 7: But because of the ratio of this particular verdict damages
Speaker 7: which was two hundred twenty five thousand dollars in compensatory
Speaker 7: damages to two point billion dollars in punitives. You weren't
Speaker 7: actually within this constitutional ratio where you know, the the
Speaker 7: damages itself are, aren't. You know, in a place of
Speaker 7: unconstitutional numbers, there's a cap of one to nine usually
Speaker 7: that would trigger an unconstitutional ratio, and that's just not
Speaker 7: the case here. So well, an automatic reduction in the
Speaker 7: jury verdict isn't necessarily on the table. Going to attack
Speaker 7: the compensatory damages themselves as excessive in the coming weeks,
Speaker 7: and it's going to be a bit of a harder challenge,
Speaker 7: but we think it's highly likely that this amount will
Speaker 7: be reduced by some factor. The issue is it just
Speaker 7: might not be to the degree the company is hoping
Speaker 7: to reduce it. For so in these suits, plaintiffs are
Speaker 7: claiming that round up. You know, a product that Buyer
Speaker 7: inherited from its acquisition of Monsanto back in twenty sixteen
Speaker 7: has caused their varying cancers. The most notably of those
Speaker 7: is non Hodgkins from FOMA, and in twenty twenty one,
Speaker 7: the company took a charge related to this little litigation
Speaker 7: for a total of sixteen billion dollars. That same year,
Speaker 7: Buyers settled about one hundred and twenty five thousand of
Speaker 7: those cases for nine point six billion dollars, but that
Speaker 7: still leaves a remainder of about six point four billion
Speaker 7: in the company's reserves. So what's changed from twenty twenty
Speaker 7: one is the company's currently stated litigation strategy of really
Speaker 7: digging in a deals and fighting the cases through trial
Speaker 7: to a full jury verdict. And the company's reaffirmed the
Speaker 7: strategy and stance several times, and even in the recent
Speaker 7: weeks when these verdicts have been coming out, the company
Speaker 7: still strongly denies the life estate the alleged carcynogen in
Speaker 7: Roundup actually does cause the cancers at issue, and complicating
Speaker 7: matters here the number of remaining roundup cases. It's about
Speaker 7: fifty thousand cases now nationwide, and it's continuing to grow
Speaker 7: with no cap really insight. A lot of these cancers
Speaker 7: are latent, and you folks who might bring us to
Speaker 7: it might not yet be aware that they're ill, or
Speaker 7: tie their illness purportedly two roundups. But these cases, the
Speaker 7: fifty thousand of them, most of them are now in
Speaker 7: file and state courts and scattered throughout the entire country
Speaker 7: and complicating things there, we're talking about different statutory and
Speaker 7: common law rules in each one of these states that's
Speaker 7: really affecting the outcomes of these cases from place to place.
Speaker 7: Really wide different results we're seeing in different jurisdictions, So
Speaker 7: we're really on watch here for a parade of what
Speaker 7: we think will be mixed verdicts that will continue over
Speaker 7: February and the coming year. There's at least ten trials
Speaker 7: on the calendar right now for twenty twenty four, four
Speaker 7: state trials that are slated for next month alone in February,
Speaker 7: and from what we're seeing, their reportedly taking place in Delaware, Arkansas, California,
Speaker 7: and another one in Philadelphia. Most of these jurisdictions have
Speaker 7: been notoriously plaintive friendly, not great news for buyer, So
Speaker 7: you know, you might be asking why the continued push
Speaker 7: here to fight these cases and not just try to
Speaker 7: settle what's left in the reserves that are remaining. And
Speaker 7: that brings us to our second catalyst for buyer that's
Speaker 7: moving concurrently with these jury trials, and that is that
Speaker 7: we're waiting on a ruling from Atlanta's Eleventh Circuit, where
Speaker 7: a panel of that court is reevaluating whether state law
Speaker 7: claims on round up are preempted by federal law an
Speaker 7: unbanked decision from that circuit that they could in fact
Speaker 7: be preempted depending on whether an EPA determination about life
Speaker 7: estate carried the force of law. So if the Appeals
Speaker 7: Court finds these claims as preempted, and we give Yer
Speaker 7: as slight edge here with the odds we think they will,
Speaker 7: this creates a circuit split with the Nine Circuit in
Speaker 7: California and raises the chances significantly that the Supreme Court
Speaker 7: will hear the preemption question. Buyers stated publicly many times
Speaker 7: and even now on its website that it hopes for
Speaker 7: a Supreme Court resolution of these cases in their favor.
Speaker 7: A favorable ruling from the Supreme Court here could effectively
Speaker 7: end state cases related to round up nationwide. So we
Speaker 7: believe this ruling from the Eleventh Circuit is imminent, could
Speaker 7: come any time, but the court has been a bit slow,
Speaker 7: so we think, you know, it could take through the
Speaker 7: first half of this year before we see something there.
Speaker 7: And that's buyer and around. That's Buyo litigation in a nutshell.
Speaker 1: Thanks Elliott, that's your roundup of round up litigation. I mean,
Speaker 1: that's super interesting because of the multi again, multifaceted litigation
Speaker 1: and moving on several tracks that impact each other. All Right, Last,
Speaker 1: but not least, let's bring in our anti trust guru, Jenri. Jen,
Speaker 1: you're expecting the STC, which has been pretty active in
Speaker 1: the anti trust space, to file a lawsuit challenging the
Speaker 1: Kroger Albertson's deal. Why don't you come in and tell
Speaker 1: us why you think that and what investors should be
Speaker 1: looking out for.
Speaker 3: Yeah?
Speaker 8: Sure, thanks, Elliott. So this deal has been pending since
Speaker 8: October of twenty twenty two, so why is it coming
Speaker 8: back now? And I think it's likely the FTC sues
Speaker 8: the companies this month to try to stop them from
Speaker 8: closing the deal, and it's because the companies have a
Speaker 8: timing agreement with the FDC that ends in mid February.
Speaker 8: Now that could get extended, which would then push back
Speaker 8: the start of a lawsuit, but I sort of doubt it.
Speaker 8: And if the FDC wants to try to stop them
Speaker 8: from closing, they have to bring a suit before the
Speaker 8: end of that timing agreement because after that they don't
Speaker 8: have a legal ability to stop them from closing. So
Speaker 8: these companies are two grocery store chains as I think
Speaker 8: everyone knows, and they each own numerous brands, quite a
Speaker 8: few that I didn't even realize they owned until I
Speaker 8: started looking at this, like Albertson's owning Balducci's, which came
Speaker 8: as a surprise to me. So they're bigger nationally than
Speaker 8: you might think at first first glance. And this came
Speaker 8: from years of consolidation in the grocery sect, which kind
Speaker 8: of poses a problem for getting this deal cleared. So
Speaker 8: for months now, the companies have been trying to convince
Speaker 8: the FTC to allow them to close the deal with
Speaker 8: the settlement, and the settlement would involve the divestiture of
Speaker 8: up to about six hundred and fifty Kroker and Alberson's
Speaker 8: grocery stores. Now, the way this works, broadly speaking, is
Speaker 8: that the FTC would assess this deal by looking at
Speaker 8: hundreds of separate little deals, little geographic markets where both
Speaker 8: companies have stores. So I call it a map deal
Speaker 8: because they go on a map and they draw circles
Speaker 8: around the stores on a map that range from one
Speaker 8: mile and radius to about ten miles depending on the region,
Speaker 8: and then they ask what the competitive dynamic is within
Speaker 8: each of those circles and whether or not by virtue
Speaker 8: of the consolidation, will buyers of groceries or employees of
Speaker 8: those grocery stores have fewer options, such that they may
Speaker 8: face higher prices, a lack of innovation and choice, lower wages,
Speaker 8: or lack of employment. So Kroger's basically offering to resolve concerns,
Speaker 8: and about six hundred and fifty of those circles more
Speaker 8: or less. Sometimes in one circle you have to sell
Speaker 8: two stores. So if they sold to an independent grocer,
Speaker 8: then competition would be preserved, right because you'd have a
Speaker 8: new party in there now. Five or six years ago,
Speaker 8: this would have been kind of a no brainer to
Speaker 8: win clearance from the FTC. But this FTC is far
Speaker 8: more aggressive than previous agencies with respect to trying to
Speaker 8: prevent consolidation, and they're far less willing to accept this
Speaker 8: kind of settlement offer. And they're generally unhappy right now
Speaker 8: with a level of concentration in groceries and skeptical of
Speaker 8: these divestitures being successful. So that's why I think they're
Speaker 8: going to sue instead of accepting this settlement. So that
Speaker 8: means it's up to a judge to decide whether the
Speaker 8: settlement offer is good enough, because I really think that's
Speaker 8: where it's going to come down to in court, and
Speaker 8: I think it's really close. And the reason I think
Speaker 8: it's close is because while six hundred and fifty stores
Speaker 8: I believe is enough, the buyer Croker chose kind of
Speaker 8: has some issues. It's kind of borderline. It's a company
Speaker 8: called CNS, which is mostly a wholesaler and not a retailer.
Speaker 8: It does own the store brand Pigley Wiggly some people
Speaker 8: might have heard of, and it's been said that they
Speaker 8: have one hundred and sixty stores, but I believe they
Speaker 8: actually franchise quite a few of those stores, so they're
Speaker 8: not actually operating them. So adding six hundred and fifty
Speaker 8: is a huge increase, and they'd also be buying stores
Speaker 8: and states where they don't currently have distribution and havenn
Speaker 8: operated in the past. Now, under the guidelines for horizontal mergers,
Speaker 8: settlement offers have to do two things. They have to
Speaker 8: put together a critical massive assets that will permit the
Speaker 8: purchaser to compete effectively in the markets identified as problematic.
Speaker 8: They've probably done that, But the second thing is they
Speaker 8: have to have a buyer that will genuinely recreate the
Speaker 8: competitive force loss as a result of the merger. They
Speaker 8: have to be committed, dedicated, and experienced to be effective.
Speaker 8: That's how the agency you'll look at it, and that's
Speaker 8: what they'll have to prove to a judge. So I
Speaker 8: think this is going to come down to whether CNS
Speaker 8: in court can prove to the judge that they are
Speaker 8: that buyer, that they can take these stores. They have
Speaker 8: the resources, they have the plan and compete as effectively
Speaker 8: as Kroger or Alberton's are competing today. Now, I kind
Speaker 8: of at least very superficially without having the evidence I need,
Speaker 8: and lean toward them being able to pull it off,
Speaker 8: mostly because I think these companies are pretty sophisticated from
Speaker 8: an antitrust perspective and probably did their due diligence. But
Speaker 8: after trial I might have a different view once I've
Speaker 8: had access to the evidence as to cns's suitability. I
Speaker 8: will attend the trial and keep updating materials on the
Speaker 8: deal as things develop, So for anyone specifically interested in
Speaker 8: this deal, please keep watching for my updates.
Speaker 1: Back to you, Elliott, great stuff as always, Jen, and
Speaker 1: congratulations on being the first person to mention Piggly Wiggly
Speaker 1: on a vot episode. I had to get that in there. Absolutely,
Speaker 1: I don't blame you, all right, Okay, So I think
Speaker 1: with that we will wrap up this episode of Votes
Speaker 1: and Verdicts a lot of interesting things to watch in February.
Speaker 1: As always, thank you for listening, and as a reminder,
Speaker 1: you can find all of our research on the Bloomberg
Speaker 1: terminal at Big and we encourage you to reach out
Speaker 1: to us with any questions that you may have. Also
Speaker 1: encourage you to listen to other episodes of Votes and
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Speaker 1: favorite podcasts on. So with that, thank you for listening
Speaker 1: and have a great day.