WEBVTT - Abbott, Apple, Citi, Nexstar, Musk, OpenAI 0:00:13.440 --> 0:00:16.919 Hello, and welcome to the Votes and Verdicts podcast, hosted 0:00:16.920 --> 0:00:20.439 by the Litigation and policy team at Bloomberg Intelligence, the 0:00:20.520 --> 0:00:25.919 investment research platform of Bloomberg LP. Bloomberg Intelligence has five 0:00:26.000 --> 0:00:29.480 hundred analysts and strategists working across the globe focused on 0:00:29.520 --> 0:00:32.839 all major markets. Our coverage includes over two thousand equities 0:00:32.840 --> 0:00:35.440 and credits, and we have outlooks on more than ninety 0:00:35.479 --> 0:00:40.279 industries and one hundred market industries, currencies, and commodities. This 0:00:40.400 --> 0:00:44.600 podcast series examines the intersection of business policy and law, 0:00:45.200 --> 0:00:47.519 and today we'll be looking at the litigation and policy 0:00:47.520 --> 0:00:52.000 catalysts that we're watching in March twenty twenty five and 0:00:52.040 --> 0:00:54.400 that we think will impact companies across a number of 0:00:54.480 --> 0:00:58.000 different sectors. My name is Elliott Stein. I'm a senior 0:00:58.040 --> 0:01:02.320 litigation analyst covering litigation in the financial sector, and I'll 0:01:02.360 --> 0:01:06.440 be your host for today, February twenty eighth, twenty twenty five. 0:01:06.959 --> 0:01:09.120 If you have any questions about any of the matters 0:01:09.120 --> 0:01:12.800 that we'll be discussing on this episode, please don't hesitate 0:01:12.840 --> 0:01:15.600 to reach out to us at your convenience with questions. 0:01:16.760 --> 0:01:21.440 So we'll be discussing a handful of sectors and issues today. First, 0:01:21.480 --> 0:01:24.920 Matt Schettenhelm, who covers TMT policy and litigation for US. 0:01:24.959 --> 0:01:28.440 We'll discuss the March nineteenth court hearing where Nextstar and 0:01:28.520 --> 0:01:32.320 other broadcasters will present their arguments and a challenge to 0:01:32.400 --> 0:01:37.000 the FCC's limits on TV and radio station ownership. After that, 0:01:37.080 --> 0:01:41.520 Holly Frome, who covers consumer and industrials litigation and policy, 0:01:41.560 --> 0:01:44.360 and also healthcare litigation. We'll discuss the March twenty fourth 0:01:44.400 --> 0:01:48.360 here into bar experts and suits alleging that infant formulas 0:01:48.360 --> 0:01:52.320 made by Abbott and Records meet Johnson Unit caused necritizing 0:01:53.000 --> 0:01:56.800 terra colitis. After that, we'll talk antitrust, and we'll bring 0:01:56.800 --> 0:01:59.920 in Jen Reed to talk about Epic Games versus Apple 0:02:01.560 --> 0:02:04.560 and an anticipated ruling by the judge in that litigation 0:02:04.640 --> 0:02:09.640 on whether to sanction Apple for violating an injunction imposed 0:02:09.680 --> 0:02:13.400 after its app store rules were found to violate California law. 0:02:13.880 --> 0:02:16.160 After that, Justin Teresi will discuss the rule and he 0:02:16.240 --> 0:02:20.240 expects in litigation by Elon Musk and XAI against Sam 0:02:20.280 --> 0:02:24.840 Altman and others seeking to halt open ais conversion to 0:02:25.120 --> 0:02:28.520 for profit status. Then we'll move on to healthcare and 0:02:28.560 --> 0:02:30.840 we'll bring in Dwayne Wright, who covers health care policy 0:02:31.360 --> 0:02:34.800 out of Washington, DC, and he'll update us on potential 0:02:34.880 --> 0:02:38.760 cuts of ten billion dollars to medicare advantage as part 0:02:38.800 --> 0:02:42.400 of the ongoing budget negotiations and why that matters for 0:02:42.600 --> 0:02:47.000 companies like Humana and United Health. Well, then close out 0:02:47.000 --> 0:02:50.560 with financials. First, we'll bring in Nathan Dean, our financials 0:02:50.600 --> 0:02:53.880 policy analyst also in Washington, d C, to talk some 0:02:54.000 --> 0:02:59.440 more about reconciliation and FED chair Jerome Powells testimony recently 0:02:59.680 --> 0:03:03.080 concerned and in bank capital rules. And then I'll wrap 0:03:03.080 --> 0:03:04.960 it all up with a pair of cases I'm watching 0:03:05.320 --> 0:03:10.160 challenging Biden era financial regulations, one concerning the CFPB rule 0:03:10.200 --> 0:03:13.200 that would cost credit card issuers about ten billion dollars 0:03:13.200 --> 0:03:16.720 in late fees, and the other is the SEC's climate 0:03:16.840 --> 0:03:20.880 disclosure rule. All of our research is available on the 0:03:20.919 --> 0:03:25.200 Bloomberg terminal at bi GO. But with all that out 0:03:25.200 --> 0:03:29.120 of the way, let's get started with the content. Matt Settinhelm, 0:03:29.240 --> 0:03:32.079 let's start with you. Bring you in to talk about 0:03:32.120 --> 0:03:36.720 limits on TV and radio station ownership. You're tracking litigation 0:03:36.800 --> 0:03:41.880 by Nextstar and other broadcasters they sued to challenge such limits, 0:03:41.880 --> 0:03:45.080 and it sounds like there's a key hearing you'll be 0:03:45.120 --> 0:03:47.120 watching on March nineteenth. In that case, you want to 0:03:47.120 --> 0:03:49.160 come in, Yes, tell us about the case, tell us 0:03:49.160 --> 0:03:50.640 about the hearing and why it all matters. 0:03:51.360 --> 0:03:55.160 Yeah, thanks Elliott. Yes, circle March nineteenth on your calendar. 0:03:55.360 --> 0:03:59.240 If you're an investor in US broadcast companies. One of 0:03:59.280 --> 0:04:03.040 the things that most interesting for broadcasters under the Trump 0:04:03.080 --> 0:04:09.360 administration is whether they're finally going to escape longstanding regulation 0:04:09.600 --> 0:04:13.880 that they face that their competition from, you know, internet 0:04:13.960 --> 0:04:19.919 based companies don't face. And one of the most important 0:04:20.000 --> 0:04:24.920 areas of regulation is is these FCC media ownership rules 0:04:24.960 --> 0:04:28.680 that limit how many TV and radio stations these US 0:04:28.839 --> 0:04:33.479 companies can own. They've been on the books for decades, 0:04:33.960 --> 0:04:37.200 and I think finally there's a chance for the companies 0:04:37.320 --> 0:04:41.360 to chip away at them. So what happens March nineteenth? 0:04:41.839 --> 0:04:44.880 That's the day that the National Association of Broadcasters and 0:04:44.960 --> 0:04:48.760 Nexstar and other companies will present oral argument to a 0:04:48.880 --> 0:04:51.880 three judge panel at the a Circuit Court of Appeals, 0:04:51.880 --> 0:04:54.880 a federal Court of Appeals in Saint Louis, and the 0:04:54.920 --> 0:04:59.880 broadcasters are challenging a Biden era FCC order from decem 0:05:00.000 --> 0:05:03.440 member of twenty twenty three that basically said, look, we're 0:05:03.440 --> 0:05:06.920 going to keep all of our broadcast ownership rules in place, 0:05:07.000 --> 0:05:10.160 and in some cases, we're even going to tighten those rules. 0:05:10.960 --> 0:05:14.560 And so what's at issue here is a challenge to 0:05:14.800 --> 0:05:17.080 that decision by the Biden. 0:05:16.839 --> 0:05:18.320 FCC to keep the rules. 0:05:18.839 --> 0:05:21.800 But what's really fascinating about it is is that the 0:05:21.839 --> 0:05:25.320 broadcasters aren't just asking this court to strike down that 0:05:25.600 --> 0:05:29.320 order keeping the rules. They're asking the court to go 0:05:29.360 --> 0:05:32.640 further and just wipe the rules off the books entirely, 0:05:32.760 --> 0:05:37.400 these long standing rules. That's an unusual request, not something 0:05:37.440 --> 0:05:39.640 that a court of appeals would typically do. But the 0:05:39.760 --> 0:05:44.040 FCC's response to it was was pretty weak in my view. 0:05:44.720 --> 0:05:46.640 And the key thing to know here is that this 0:05:46.720 --> 0:05:50.799 is a very favorable court for the industry. The case 0:05:50.839 --> 0:05:54.680 will be heard by three Republican appointed judges. Again, this 0:05:54.760 --> 0:05:57.520 is at the Eighth Circuit Court of Appeals in Saint Louis. 0:05:58.240 --> 0:06:01.640 And so my question isn't whether the FCC will lose. 0:06:01.680 --> 0:06:04.160 I think it will lose. The question is how badly 0:06:04.360 --> 0:06:07.040 will it lose? And so you know, I put it 0:06:07.080 --> 0:06:09.800 about an eighty percent chance of an FCC loss, but 0:06:10.000 --> 0:06:14.200 a forty percent chance of sort of that drastic remedy 0:06:14.240 --> 0:06:17.000 that the industry is seeking, that these rules just get 0:06:17.400 --> 0:06:20.560 stricken from the books entirely. And so that's a real 0:06:20.640 --> 0:06:23.960 possibility here. So and the reason that matters is timing. 0:06:24.160 --> 0:06:27.440 If the court keeps the rules on the books, the 0:06:27.480 --> 0:06:29.920 Trump FCC, I do think, is going to work to 0:06:29.920 --> 0:06:32.760 tear those rules down, to take them down, but that 0:06:32.960 --> 0:06:35.960 has to go through the Administrative Procedure Act, and so 0:06:36.040 --> 0:06:38.080 that takes six to nine months in a rule making. 0:06:38.200 --> 0:06:40.680 If the court rules in this case to wipe the 0:06:40.720 --> 0:06:45.640 rules off the books, that could expedite the deregulation. So again, 0:06:45.960 --> 0:06:48.440 hearing March nineteenth, we'll get a chance to look at 0:06:48.480 --> 0:06:51.320 how these three judges are thinking about this case. They'll 0:06:51.360 --> 0:06:54.479 issue a decision three to six months later. I think 0:06:54.480 --> 0:06:57.320 it should go well for the industry. The only question 0:06:57.440 --> 0:07:00.359 is how well with that. I'll toss it back to you. 0:07:01.120 --> 0:07:01.360 Great. 0:07:01.400 --> 0:07:03.919 Thanks a lot, Matt. We'll definitely look forward to seeing 0:07:03.920 --> 0:07:07.320 your updates after the hearing. All right, Holly from Let's 0:07:07.360 --> 0:07:11.080 bring you in to talk about Abbott and Recorts meet 0:07:11.200 --> 0:07:15.720 Johnson Unit. Those companies are facing lawsuits alleging that their 0:07:15.760 --> 0:07:20.840 pre term infant formulas caused necritizing enterra colitis. Can you 0:07:20.840 --> 0:07:23.960 tell us more about that litigation and what you're watching 0:07:24.080 --> 0:07:26.320 for this March twenty fourth, Here into bar. 0:07:26.280 --> 0:07:31.320 Experts, Thanks Elliott, Abbot and recorts meet Johnson, having sued 0:07:31.360 --> 0:07:35.160 over one thousand buy over one thousand plaintiffs alleging preterm 0:07:35.240 --> 0:07:40.920 infant formula causes necrotizing intro colitis, which is an intestinal disease. 0:07:40.960 --> 0:07:44.800 It's very serious, it could be to lifelong complications. Plaintiffs 0:07:44.840 --> 0:07:47.680 counsel at a hearing suggested that there could ultimately be 0:07:47.720 --> 0:07:50.080 ten thousand cases filed, so the motions coming up are 0:07:50.160 --> 0:07:53.120 very important. There have been three verdicts so far, all 0:07:53.160 --> 0:07:56.400 from state court. Two were for plainus and collectively they 0:07:56.400 --> 0:07:59.120 totaled over a halfn billion dollars, and there was also 0:07:59.200 --> 0:08:01.920 one defense for an We estimate about half of the 0:08:02.640 --> 0:08:05.520 cases so far have been filed in federal court. Where 0:08:05.640 --> 0:08:08.200 as you mentioned, we were waiting hearings on bidstabur or 0:08:08.200 --> 0:08:11.440 plaintiff's experts. Those hearings are set to take place March 0:08:11.520 --> 0:08:15.640 twenty fourth. If those motions are granted, federal cases likely 0:08:15.720 --> 0:08:19.280 get dismissed because plaintiffs cannot prove their case without an expert. 0:08:19.520 --> 0:08:21.520 We've said we think plaintiffs will have a harder time 0:08:21.520 --> 0:08:24.400 in federal court admitting experts. From what we've read in 0:08:24.400 --> 0:08:26.960 the briefing, it looks like plainiffs experts will have weaknesses, 0:08:27.040 --> 0:08:31.000 primarily because they cannot identify the dose required to cause 0:08:31.000 --> 0:08:34.679 a problem, and one causation expert relies on animal studies 0:08:34.760 --> 0:08:38.959 rather than human studies, which are known to be you know, 0:08:41.000 --> 0:08:45.240 have a less evidentiary persuasion than human studies. Still, the 0:08:45.280 --> 0:08:49.160 briefing is incomplete, but we expect we may get a 0:08:49.160 --> 0:08:51.360 better idea of what the judge is thinking at the 0:08:51.400 --> 0:08:54.160 hearing in March, and we expect a decision on that 0:08:54.280 --> 0:08:57.200 motion before the first trial, which is set for May. 0:08:57.760 --> 0:08:59.920 And with that, I'll turn it back to you, Elliott. 0:09:01.080 --> 0:09:04.640 Great, Thanks Oli. All right, Jenrie, let's bring you into 0:09:04.679 --> 0:09:09.880 talk antitrust Epic Games versus Apple. I know, from what 0:09:09.920 --> 0:09:12.480 you've told me before, the judge previously found that Apple's 0:09:12.480 --> 0:09:16.080 app store rules violated California law. But it sounds like 0:09:16.120 --> 0:09:19.600 maybe Apple is in violation of an injunction related to that. 0:09:20.240 --> 0:09:22.080 Why don't you come in remind us what the case 0:09:22.160 --> 0:09:24.959 is about, what type of sanctions Apple might face if 0:09:24.960 --> 0:09:28.160 the court finds it is indeed in violation of an injunction. 0:09:28.920 --> 0:09:32.480 Yeah, thanks Elliott. So really, honestly, this is a continuing 0:09:32.520 --> 0:09:34.720 saga of a matter that should have concluded a long 0:09:34.760 --> 0:09:38.000 time ago, because Epic Games originally sued Apple in August 0:09:38.040 --> 0:09:42.400 of twenty twenty, and the litigation completed in total January 0:09:42.400 --> 0:09:44.800 of last year, when the Supreme Court refused to hear 0:09:45.240 --> 0:09:48.160 appeals by both companies, Epic and Apple of a Ninth 0:09:48.200 --> 0:09:52.080 Circuit ruling. So finally, Apple's reckoning on this is kind 0:09:52.080 --> 0:09:54.640 of coming and I think soon in the next couple months. 0:09:54.920 --> 0:09:57.880 And honestly, it could cost the company billions of dollars 0:09:57.960 --> 0:10:01.800 in app store revenue. So as a recap because it 0:10:01.800 --> 0:10:04.920 has been a winding road. When Epics sued Apple back 0:10:04.920 --> 0:10:07.240 in August of twenty twenty, it was about rules for 0:10:07.320 --> 0:10:10.880 its app store and iOS. Generally, Apple operates as a 0:10:10.880 --> 0:10:13.120 walled garden, and what that means is that it generally 0:10:13.200 --> 0:10:16.160 maintains control of any apps that you can download on 0:10:16.240 --> 0:10:19.079 its mobile devices. So the app store, you know, as 0:10:19.080 --> 0:10:21.720 we know, whoever has an Apple phone is the only 0:10:21.760 --> 0:10:24.760 distribution point for apps that you might want. And if 0:10:24.800 --> 0:10:27.920 you make any app purchases that takes place in the 0:10:27.960 --> 0:10:32.280 App Store and always flows through Apple's own payment processing systems. Now, 0:10:32.280 --> 0:10:34.960 Epic is a really big digital gaming company, and it 0:10:35.040 --> 0:10:38.160 wanted its own storefront on Apple devices. Google too, but 0:10:38.240 --> 0:10:41.360 that's a whole different litigation. And it wanted the ability 0:10:41.400 --> 0:10:44.520 to use its own payment processors for purchases of its 0:10:44.559 --> 0:10:47.120 games in the app Store. Now, this is not just 0:10:47.160 --> 0:10:49.200 because it wants to sell apps and make some money 0:10:49.240 --> 0:10:52.000 doing that, but it also didn't want to pay Apple's fees, 0:10:52.760 --> 0:10:55.760 and those fees are pretty high. So for transactions in 0:10:55.800 --> 0:10:58.560 the app Store, they are fifteen percent and thirty percent, 0:10:59.000 --> 0:11:01.560 depending on the size of the developer, whether they're under 0:11:01.559 --> 0:11:04.320 a million in revenue per year or over. So when 0:11:04.320 --> 0:11:06.880 it sued Apple from anopolization, it claimed that it was 0:11:06.960 --> 0:11:11.000 unlawfully monopolizing the distribution of apps on iOS devices and 0:11:11.040 --> 0:11:14.319 the payment for apps. Now, oddly, because I just set 0:11:14.360 --> 0:11:17.240 a reckonings coming for Apple, Epic did lose on all 0:11:17.280 --> 0:11:20.079 of its anti trust claims, and that's mostly because the 0:11:20.160 --> 0:11:24.199 judge disagreed with the way Epic defined the market In antitrust, 0:11:24.240 --> 0:11:27.280 this can often be the downfall of plaintiffs. It's really 0:11:27.320 --> 0:11:30.559 kind of a dispositive issue. Epic kind of said, Apple 0:11:30.559 --> 0:11:34.600 doesn't compete with any other entity, but the judge said, well, 0:11:34.679 --> 0:11:38.080 it's really a mobile digital gaming market where Apple does 0:11:38.120 --> 0:11:41.640 compete with others and doesn't have monopoly power. But the 0:11:41.679 --> 0:11:44.400 thing is that judge did find that one of Apple's 0:11:44.520 --> 0:11:48.840 rules violated a California's state law prohibiting unfair business practices, 0:11:48.880 --> 0:11:53.040 and these are Apple's anti steering rules. These prevent developers 0:11:53.080 --> 0:11:56.400 from communicating with users within the app in the app store. 0:11:56.679 --> 0:11:58.760 So if the developer, let's say, offer that app for 0:11:58.760 --> 0:12:01.200 a lower price on its own way website, they can't 0:12:01.200 --> 0:12:03.680 communicate that to a user within the app, as that 0:12:03.800 --> 0:12:06.280 user may be opening the app for the first time. 0:12:06.640 --> 0:12:09.160 So she ordered Apple to drop the rules and then 0:12:09.280 --> 0:12:12.560 also to allow developers to communicate within the app to 0:12:12.679 --> 0:12:15.640 users and to include a link so a user could 0:12:15.640 --> 0:12:17.480 click that link to take them out of the app 0:12:17.520 --> 0:12:19.400 store into the web, and they could pay for the 0:12:19.400 --> 0:12:22.480 purchase in the web if they wanted to. Apple had 0:12:22.480 --> 0:12:25.160 to comply. Once the Supreme Court ruled in January of 0:12:25.200 --> 0:12:28.000 twenty twenty four, I guess I should say refuse to 0:12:28.000 --> 0:12:30.320 hear the appeal, and it said it had done so. 0:12:30.640 --> 0:12:34.280 In March of last year, but Epic challenged its compliance 0:12:34.320 --> 0:12:36.520 and asked the court to find Apple in contempt. And 0:12:36.559 --> 0:12:40.040 that's because as part of its compliance, what Apple did, 0:12:40.880 --> 0:12:44.520 which is that it charged developers twelve percent and twenty 0:12:44.559 --> 0:12:47.280 seven percent as opposed to the fifteen percent and thirty 0:12:47.320 --> 0:12:50.199 percent for any purchases that started in the app store 0:12:50.240 --> 0:12:52.959 but then ultimately were made on the web. Now here's 0:12:52.960 --> 0:12:55.200 the thing. Developers have to pay at least three percent 0:12:55.280 --> 0:12:58.520 or more for payment processing in their own website, so 0:12:58.600 --> 0:13:02.480 this didn't change their costs and it essentially disincentivized any 0:13:02.480 --> 0:13:06.520 developer from actually taking up this option of including this link. 0:13:06.960 --> 0:13:10.640 So there were hearings on epics challenge last May last 0:13:10.720 --> 0:13:14.000 year and also this week. The judge is expecting post 0:13:14.000 --> 0:13:16.800 heering briefing on both sets of hearings by March seventh, 0:13:17.080 --> 0:13:19.160 and she has said she's going to rule very quickly 0:13:19.200 --> 0:13:21.360 after that, So in my mind, I think that's going 0:13:21.400 --> 0:13:24.600 to be about a month. She is visibly angry with Apple, 0:13:25.679 --> 0:13:27.520 so I think not only is she going to find 0:13:27.520 --> 0:13:31.439 the company in contempt civil contempt, I think there will 0:13:31.520 --> 0:13:35.240 be ramifications for the injunction and compliance with the injunction. 0:13:35.400 --> 0:13:38.880 Now a contemporarily might just mean a fine, which I 0:13:38.880 --> 0:13:42.240 don't think will be material to Apple. But where they're 0:13:42.240 --> 0:13:43.840 going to end up here is that they're going to 0:13:43.840 --> 0:13:46.560 have to charge much lower fees or no fees at 0:13:46.600 --> 0:13:48.480 all for these purchases that are linked out of the 0:13:48.480 --> 0:13:52.080 app store. Apple makes billions of dollars in App store revenue, 0:13:52.120 --> 0:13:54.560 and the majority of that comes from the twenty to 0:13:54.640 --> 0:13:57.640 thirty biggest apps. Those are the ones that can easily 0:13:57.720 --> 0:13:59.959 set up payment within their own websites and use this 0:14:00.080 --> 0:14:04.760 linking out option. And Apple's own finance department has modeled 0:14:04.800 --> 0:14:07.280 the impact on Apple of a lower fee or even 0:14:07.360 --> 0:14:10.400 no fee. Now, those figures were kept confidential in the hearings, 0:14:10.400 --> 0:14:13.000 but what was clear is that it could be in 0:14:13.040 --> 0:14:16.440 the multimillions, if not billions of dollars if they have 0:14:16.520 --> 0:14:19.960 to drastically lower that fee. So, like I said, the 0:14:20.080 --> 0:14:22.840 judge is going to decide soon within a month. I 0:14:22.880 --> 0:14:25.480 think after that it's just going to just give Apple 0:14:25.560 --> 0:14:28.480 whatever time it technically it needs to make the technological 0:14:28.560 --> 0:14:31.720 changes to implement whatever it needs to implement here. And 0:14:31.720 --> 0:14:35.560 so that means very likely this year, and that is it. 0:14:35.600 --> 0:14:36.480 Back to you, elliott O. 0:14:37.200 --> 0:14:41.520 Thanks Jen All right, justin let's bring you in to 0:14:41.600 --> 0:14:45.320 talk some Elon, Musk and Ai, because I mean, how 0:14:45.320 --> 0:14:47.600 can we have an episode that doesn't touch on either 0:14:47.640 --> 0:14:49.960 of those things, much less both. At the same time, 0:14:50.280 --> 0:14:54.560 you're following this case where Musk and his company Xai 0:14:54.720 --> 0:14:58.880 are trying to stop Sam Altman from converting open Ai 0:14:59.360 --> 0:15:02.560 from a non time to a for profit. Hopefully I 0:15:02.560 --> 0:15:04.040 have that all right, But why don't you come in 0:15:04.080 --> 0:15:06.440 and make sure I have that right and get us 0:15:06.520 --> 0:15:08.280 up to speed on the case and why it's important 0:15:08.280 --> 0:15:10.000 for investors exactly. 0:15:10.080 --> 0:15:12.160 I know that that's really right, And you know, Matt 0:15:12.160 --> 0:15:14.040 and I have been taking a look at this case here. 0:15:14.280 --> 0:15:17.400 It's everybody's favorite subjects I think rolled into one litigation 0:15:17.480 --> 0:15:19.240 at least at the moment, we've got Elon and Musk 0:15:19.280 --> 0:15:21.360 on one side, Sam Altman on the other, and we're 0:15:21.360 --> 0:15:24.240 really looking at Ai and the development of both of 0:15:24.280 --> 0:15:28.000 their companies moving forward here from a competitive standpoint. If 0:15:28.000 --> 0:15:31.200 this one seems a little bit haywire, that's because it 0:15:31.320 --> 0:15:34.080 really is. So we're looking here at the third amendic 0:15:34.080 --> 0:15:37.000 complaint now in a lawsuit. The last two were withdrawn 0:15:37.040 --> 0:15:39.800 by Musk and Xai before a court could even rule 0:15:39.840 --> 0:15:42.080 on the dismissal for the case. So we're really getting 0:15:42.120 --> 0:15:44.320 our first look here as to whether or not there's 0:15:44.360 --> 0:15:47.400 anything to the allegations that have been brought by Musk. 0:15:47.640 --> 0:15:50.520 And here this is where the case gets a little crazy. 0:15:50.600 --> 0:15:54.080 There are twenty six distinct, distinct counts claims in this 0:15:54.160 --> 0:15:56.920 case alone, so really every corner of the law that 0:15:56.960 --> 0:15:59.560 you could think of is involved with this litigation. Really, 0:15:59.560 --> 0:16:01.880 looking back to my own first year of law school here, 0:16:02.160 --> 0:16:04.360 I can't tell you how many different classes have really 0:16:04.400 --> 0:16:07.160 come into play, but trying to understand what's happening with 0:16:07.240 --> 0:16:11.680 the litigation here moving forward, the case appears personal in 0:16:11.800 --> 0:16:14.720 several different ways. It's really aimed at slowing the growth 0:16:14.720 --> 0:16:17.400 of a open AI, we think, but it does purport 0:16:17.440 --> 0:16:20.400 to open a space to more AI competitors for consumer 0:16:20.760 --> 0:16:25.160 facing aspects of AI and how it develops moving forward. So, 0:16:25.320 --> 0:16:28.160 originally the case was just Elon Musk and XAI versus 0:16:28.240 --> 0:16:31.240 Sam Altman and open AI on a series of claims 0:16:31.240 --> 0:16:35.040 that stemmed from Musk's original fifty million dollar donation to 0:16:35.120 --> 0:16:38.200 open AI that was made several years ago. Other claims 0:16:38.200 --> 0:16:41.000 in the lawsuit now are really the standing comes in 0:16:41.080 --> 0:16:44.080 on the grounds of Xai being a competitor of open ai. 0:16:44.480 --> 0:16:47.160 And the chief issue here is really Musks asked to 0:16:47.200 --> 0:16:50.280 block open ai from becoming a for profit entity on 0:16:50.440 --> 0:16:54.400 grounds that that would violate open AI's nonprofit charter, which 0:16:54.440 --> 0:16:56.680 generally says that it's supposed to exist for the greater 0:16:56.760 --> 0:16:59.840 good of humanity. So Musk's claim was relation to that, 0:17:00.240 --> 0:17:02.480 is that to convert to a for profit status, it'd 0:17:02.520 --> 0:17:06.120 be a breach of treedable trust under California state of law. Now, 0:17:06.200 --> 0:17:09.359 whether Mosk has any standing to bring that particular claim, 0:17:09.600 --> 0:17:11.920 that is in and of itself a whole issue that 0:17:12.000 --> 0:17:14.159 is about to be the subject of ongoing motion to 0:17:14.200 --> 0:17:17.320 dismiss briefing in the case. The case has also got 0:17:17.359 --> 0:17:20.720 claims related to breaches of fiduciary duty, breaches of contract, 0:17:20.920 --> 0:17:23.479 reco violations, you name it. It is here in this 0:17:23.560 --> 0:17:26.040 litigation every last kind of claim you could think of 0:17:26.080 --> 0:17:29.960 in a business context. The most recent complaint added Microsoft 0:17:30.040 --> 0:17:33.560 and Microsoft's Cena Templeton along with ried Hoffman, has defended 0:17:33.680 --> 0:17:36.360 in the case, and this is really on the basis 0:17:36.400 --> 0:17:40.679 of Microsoft's fourteen billion dollar investment into open Ai and 0:17:40.800 --> 0:17:43.840 their partnership that involves exchange of technology is back and 0:17:43.880 --> 0:17:47.240 forth between each other to develop their consumer facing products. 0:17:47.600 --> 0:17:49.520 So that's really caused us to take note now that 0:17:49.520 --> 0:17:52.600 there's Microsoft involved in the case. It continues to be 0:17:52.720 --> 0:17:55.760 organized in chief open AI as a nonprofit entity, but 0:17:55.800 --> 0:17:59.240 there's several arms of the organization that are LLC's and 0:17:59.280 --> 0:18:02.040 also named as defendants in the litigation. I kind of 0:18:02.040 --> 0:18:05.040 piggyback in what Jen was saying just now about Epic vehple. 0:18:05.200 --> 0:18:08.359 The same judge hearing that case is hearing this litigation. 0:18:08.520 --> 0:18:12.000 She's very steep in technological issues, very steep in edge 0:18:12.000 --> 0:18:13.960 a dress law, which we'll get to in a minute, 0:18:14.040 --> 0:18:16.760 and the original hearing she had on a preliminary injunction 0:18:16.840 --> 0:18:19.560 related to some of these claims. She expressed her to state, 0:18:19.680 --> 0:18:23.040 I think at the litigants involved in the litigation, she said, quote, 0:18:23.080 --> 0:18:27.040 I've got billionaires versus billionaires involved in this litigation. She 0:18:27.080 --> 0:18:29.639 couldn't believe that there was no contract in place for 0:18:29.680 --> 0:18:32.600 a fifty million dollar donation that Mosk made to open AI. 0:18:32.960 --> 0:18:36.040 Just really critical of this whole situation before her in 0:18:36.080 --> 0:18:38.159 the courtroom. And what we have here is there's a 0:18:38.240 --> 0:18:41.600 practice around a preliminary injunction and emotion to dismiss happening 0:18:41.640 --> 0:18:44.080 at the very same time, we think there's an eighty 0:18:44.080 --> 0:18:47.719 percent chance that preliminary injunction fails on the grounds that 0:18:47.760 --> 0:18:49.680 the accounts that were included as part of that motion, 0:18:49.800 --> 0:18:52.400 there's really not a showing of a reparable harm here 0:18:52.520 --> 0:18:55.280 that would meet that standard for issuing a preliminary injunction. 0:18:55.760 --> 0:18:58.240 Musk is saying, Look, if you allow this entity to 0:18:58.280 --> 0:19:00.680 convert to a for profit status, it's going to be 0:19:00.720 --> 0:19:03.680 too difficult to unwind that later on. If you don't 0:19:03.720 --> 0:19:07.040 issue preliminary injunction as to interlocked boards of directors, then 0:19:07.080 --> 0:19:09.439 that's a problem for later on too. But at the moment, 0:19:09.520 --> 0:19:12.239 there's no interlocking of the boards. And the last thing 0:19:12.240 --> 0:19:15.480 that Musk is really accusing here under the preliminary injunction 0:19:15.520 --> 0:19:18.639 bucket is that there's this fund no competitors edict that 0:19:18.800 --> 0:19:21.960 basically claiming that open Ai and Sam Altman told folks 0:19:22.000 --> 0:19:24.520 who were investing in open Ai as part of a 0:19:24.520 --> 0:19:28.080 funding round that they couldn't invest in Xai or other competitors, 0:19:28.359 --> 0:19:30.920 and that's proceeding under this group boycott theory of anti 0:19:31.000 --> 0:19:32.560 dress law. We'll get to that why that's a little 0:19:32.600 --> 0:19:34.640 bit of a weak argument a second, but I think 0:19:34.680 --> 0:19:39.080 more importantly for the complaint itself and the preliminary injunction asks, 0:19:39.440 --> 0:19:42.919 there's really no evidence outside of just anecdotes in the 0:19:42.960 --> 0:19:47.680 media that these kinds of prohibitations were made on folks 0:19:48.200 --> 0:19:50.879 looking to invest in both open ai and Xai. So 0:19:51.640 --> 0:19:54.679 you know, again, Judge very skeptical of that claim. We 0:19:54.680 --> 0:19:57.200 think there's a seventy percent chance that the antitrust claims 0:19:57.200 --> 0:20:00.800 in the case are tossed as part of the dismissed 0:20:00.800 --> 0:20:03.160 but it does appear, based on our judges comments, at 0:20:03.200 --> 0:20:04.879 least some of these claims are going to make their 0:20:04.920 --> 0:20:08.879 way through to discovery and possibly on to trial. The 0:20:08.920 --> 0:20:11.159 one that really stood out as having an issue in 0:20:11.200 --> 0:20:13.960 the judge based on the judge's comments, was this issue 0:20:13.960 --> 0:20:17.320 of interlocked boards. Right, You've got Microsoft, who claims to 0:20:17.359 --> 0:20:21.119 be a competitor with consumer facing AI products, you know, 0:20:21.440 --> 0:20:24.440 with open Ai. But there are folks for Microsoft and 0:20:24.480 --> 0:20:26.320 out Temple To namely in the past, who served in 0:20:26.359 --> 0:20:30.119 an advisory function as an kind of an overseer on 0:20:30.160 --> 0:20:32.159 the board of directors and open Ai. The judge had 0:20:32.280 --> 0:20:33.919 had an issue with that, even though that's not in 0:20:33.960 --> 0:20:36.640 place anymore. Saw some problems with how that was kind 0:20:36.640 --> 0:20:39.080 of shape and how that rolls out from a competition standpoint, 0:20:39.080 --> 0:20:41.400 So we could see that Clayton that claim continuing on 0:20:42.040 --> 0:20:45.639 pass emotion to dismiss. Now, though the amended complaint doesn't 0:20:45.640 --> 0:20:48.439 really outline monetary damages that are sought, we think the 0:20:48.520 --> 0:20:51.919 real risk here probably stems to threats to Microsoft's partnership 0:20:51.960 --> 0:20:55.320 with and its investment in open Ai, including that effort 0:20:55.320 --> 0:20:58.120 to halt that conversion from open Ai to afford profitity 0:20:58.920 --> 0:21:00.639 and what we think, you know, also what be an 0:21:00.680 --> 0:21:03.760 issue here is alleged favorable pricing terms between the duo. 0:21:04.480 --> 0:21:06.960 Open ais technology is said to be behind many of 0:21:07.040 --> 0:21:10.440 Microsoft's new product launches, which could increase cloud revenue by 0:21:10.480 --> 0:21:13.160 five to seven billion dollars in the next year for Microsoft, 0:21:13.400 --> 0:21:16.200 outside of its cloud offerings like Microsoft three sixty five 0:21:16.200 --> 0:21:18.240 Copilot could bring in another one to two billion in 0:21:18.280 --> 0:21:20.840 sales during that span the next coming year. So not 0:21:20.920 --> 0:21:24.160 small change from Microsoft here with relation to its partnership 0:21:24.160 --> 0:21:28.199 with OpenAI. But really we think the risk here for 0:21:28.280 --> 0:21:31.720 this partnership comes from other sources. The FTC completed a 0:21:31.720 --> 0:21:35.480 six p study related to these Ai partnership situations just 0:21:35.520 --> 0:21:38.199 before Lena Khan left in January. Whether the new FTC 0:21:38.320 --> 0:21:41.040 will continue to be involved in competition issues related to 0:21:41.080 --> 0:21:43.600 this partnership, that remains to be seen. We're all kind 0:21:43.640 --> 0:21:45.680 of scratching our heads still as to what new leadership 0:21:45.720 --> 0:21:48.159 at the FTC will do. We also note there are 0:21:48.200 --> 0:21:51.439 already discussions underway with the California Attorney General's Office and 0:21:51.520 --> 0:21:54.880 the Delaware Attorney General's Office taking interest in this particular case. 0:21:55.280 --> 0:21:58.520