Speaker 1: Hello, and welcome to the Votes and Verdicts podcast, hosted
Speaker 1: by the Litigation and Policy team at Bloomberg Intelligence, the
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Speaker 1: in on the litigation and policy catalysts that we're watching
Speaker 1: and that we think will impact companies across a number
Speaker 1: of different sectors. My name's Elliott Stein. I'm an analyst
Speaker 1: with Bloomberg Intelligence covering litigation in the financial sector. Today
Speaker 1: is May fifteenth. It's around three pm Eastern daylight time.
Speaker 1: Since things move very quickly these days, we always think
Speaker 1: it's a good idea to timestamp things because some of
Speaker 1: what we say maybe out of date within an hour.
Speaker 1: I'm delighted today to be joined by a handful of
Speaker 1: my colleagues on the litigation and policy team, and as always,
Speaker 1: you can find all of our research on the Bloomberg
Speaker 1: terminal at big and more specifically on our litigation and
Speaker 1: Policy dashboard, which is available at BI Laws.
Speaker 2: Go.
Speaker 1: All right, so Nathan Dean, let's bring you in. Nathan
Speaker 1: is our financials policy analyst, but does a lot more
Speaker 1: than that. Covers a lot of things policy related, including
Speaker 1: all this stuff about reconciliation and tax cuts and the budget. Nathan,
Speaker 1: what is going on with reconciliation? I mean, there's a
Speaker 1: lot going on in the news, and I have a
Speaker 1: hard time tracking it, but I know you're all over it.
Speaker 1: It seems to me like there's a lot of competing
Speaker 1: interests between the deficit hawks, the Salt Caucus, those who
Speaker 1: are against Medicaid cuts. How are the Republicans going to
Speaker 1: thread the needle here?
Speaker 3: Apologize, folks. I was just on mute, and now that
Speaker 3: I've unmuted, I am going to get into Elliott's question.
Speaker 1: It's twenty twenty five and people still forget to unmute themselves.
Speaker 3: I was up on the Capitol Hill today and the
Speaker 3: amount of times that the witnesses didn't press the button
Speaker 3: and the millmakers were like leaning over and going pl
Speaker 3: with the button.
Speaker 1: Please, by the way, shout out you were on the
Speaker 1: hill because our colleague Guy Rid Jersey was testifying there today.
Speaker 3: So if anybody wants to go back, How's Financial Services Committee,
Speaker 3: mateenth one of the most interesting subcommittees that I've ever
Speaker 3: been a part of anyway. But to answer your question
Speaker 3: on the reconciliation and Dwayne, feel free to jump in
Speaker 3: here because Dwayne's covering the Medicaid cuts side of this
Speaker 3: as well, and that's such a really big piece here.
Speaker 3: He said, there's three committee that really happened this week,
Speaker 3: and that was the House Energy and Commerce Committee that
Speaker 3: was seeking to cut things like the Inflation Reduction Act provisions,
Speaker 3: the grant provisions, the carrots if you will, of the
Speaker 3: IRA plus the Medicaid portion that Dwayne covers. You have
Speaker 3: the House ad Committee, which covers the cuts of approximately
Speaker 3: two hundred and thirty billion for snap Benefits also known
Speaker 3: as formerly known as food Stamp. And then you have
Speaker 3: the House Ways and Means Committee, which is the tax
Speaker 3: provisions of this bill. Now, the provisions came out, the
Speaker 3: legislation came out, and to make this a two minute
Speaker 3: answer as opposed to a thirty minute answer, We were
Speaker 3: most surprised by how nice this bill was to the
Speaker 3: solar and wind industry, the renewables industry. In the IRA
Speaker 3: portion of this, for example, there's been and look, if
Speaker 3: you talk to some of the folks on the Hill,
Speaker 3: they will certainly say that this guts the Inflation Reduction Act.
Speaker 3: And they may not be wrong, because it does cut
Speaker 3: a lot of the grants and the loans and stuff
Speaker 3: of the IRA. But what they did is and for example,
Speaker 3: instead of getting rid of this tax credit called the
Speaker 3: forty five, which is key for the solar industry, they
Speaker 3: phased it out one year earlier. Even the wind industry,
Speaker 3: which President Trump does not like, the wind industry still
Speaker 3: has a little bit better of a phase out than
Speaker 3: the elimination. Now there is eliminations in here, though, of
Speaker 3: tax credits like the electric Vehicle tax credit, so for
Speaker 3: like Tesla for GM. You know, under this bill this
Speaker 3: tax credit for individuals purchasing evs would go away. So
Speaker 3: obviously there's a lot of moving parts here. For the
Speaker 3: folks that live in New York and New Jersey and
Speaker 3: Connecticut that are listening to this, you know, the salt
Speaker 3: deduction is certainly important. The salt deduction is currently a
Speaker 3: ten thousand dollars cap on state and local tax deductions.
Speaker 3: In this bill, they've offered it up to thirty thousand
Speaker 3: dollars with income phaseouts, which means that if you make
Speaker 3: more than a certain amount I think it's one hundred
Speaker 3: thousand dollars is when it begins to phase out, then
Speaker 3: obviously that salt deduction goes down. Now, the Salty Caucus,
Speaker 3: if you will, led by Representative Mike Lawler of New York,
Speaker 3: has been meeting with leadership in this speaker House Speaker
Speaker 3: Mike Johnson to try and come up with it's a
Speaker 3: better solution. The general thought here is a fifty thousand,
Speaker 3: but I just saw earlier today that the Chairman of
Speaker 3: House Weeds and Means Committee said to the Salty Caucus
Speaker 3: essentially take thirty or not. So we'll see what happens there.
Speaker 3: But they do have a lot of leverage they being
Speaker 3: the Salty Caucus, So I do anticipate that this will
Speaker 3: go up to about fifty thousand, maybe sixty four thousand,
Speaker 3: and then way it's potential for income phase outs. Now
Speaker 3: going forward, this is where the challenge is is because
Speaker 3: it has to go to the House Budget Committee, and
Speaker 3: one member of the House Budget Committee has already said
Speaker 3: they're going to vote no. And you know, but that's
Speaker 3: within our expectations. We think there are a lot more
Speaker 3: political hiccups coming. This bill is not the final bill.
Speaker 3: There's a lot of amendments coming. We think the House
Speaker 3: can eventually get to a point of agreement. And again
Speaker 3: this is this is you know, there's a lot of
Speaker 3: other folks around Washington who think it can't get done.
Speaker 3: But if it is going to get done, it would
Speaker 3: probably happen in June. It then goes to the Senate
Speaker 3: Senata says, thank you very much, they throw it out,
Speaker 3: they do whatever they want, They jam the House anyway,
Speaker 3: and then they potentially could try and get this wrapped
Speaker 3: up by the late July if the dead ceiling is included.
Speaker 3: If the dead ceiling is not included and they can't
Speaker 3: come to an agreement, the dead ceiling gets stripped out,
Speaker 3: and then this gets pushed off to probably October November.
Speaker 3: But ultimately something will happen that will increase or at
Speaker 3: least stave off those tax increases. And as of right now,
Speaker 3: our thesis is, you know, there are some cuts to
Speaker 3: snap benefits, and I'll let towain talking about Medicaid. And
Speaker 3: you know, it's the Inflation Reduction Act, but it's not
Speaker 3: as bad as it could have been for the sector's recover.
Speaker 1: Why do you think they were not as harsh as
Speaker 1: you expected on solar and wind.
Speaker 3: I think it was more of a realistic expectation on
Speaker 3: the Republican part to like, look times of the essence here.
Speaker 3: We could vote to just strip it all out, but
Speaker 3: we know that the Senate is going to jam us
Speaker 3: up anyway. And Senator Tom Tillis in North Carolina has
Speaker 3: already sent a letter and he had three other Republican
Speaker 3: senators joining him, which is four, which is already puts
Speaker 3: you in the no camp. They sent the letter to
Speaker 3: the House essentially saying, don't touch dan for Reduction Act.
Speaker 3: I have a plant being built in my district or
Speaker 3: in my state, don't touch it. And so I think
Speaker 3: they realized that there were going to be some people
Speaker 3: that are fighting tooth and nail in this. It's much easier,
Speaker 3: and I've said this multiple multiple times, it's much easier
Speaker 3: to vote to increase the deficit borrow today, pay for
Speaker 3: later than it is to vote to cut somebody's benefit.
Speaker 4: That's going to happen today.
Speaker 1: But how do you then get the deficit hawks on board?
Speaker 1: And they're just going to suck it up to give
Speaker 1: President President Trump will win.
Speaker 3: I think President Trump at a certain point has to use
Speaker 3: the bully pulpit, and I think the bully pulpit can
Speaker 3: get the deficit hawks in line. And look, Senator Ron
Speaker 3: Johnson Wisconsin came out and said this the way they're
Speaker 3: doing this right now, it does not cut enough. And
Speaker 3: he said I'd be an automatic no vote. So but again,
Speaker 3: you're at fifty three. You can only afford to lose
Speaker 3: three in the report in the Senate. But that's why
Speaker 3: for all the discussions we're having on this bill right now,
Speaker 3: we really have to see what the Senate comes up with,
Speaker 3: because they're going to be the ones that ultimately drive
Speaker 3: what the final package looks like.
Speaker 1: Yeah, got it all right? Good stuff, Dwayne, Why don't
Speaker 1: you jump in here too. I don't know if you
Speaker 1: want to pick up on any of this related to
Speaker 1: the IRA and Medicaid. And then obviously, the other big
Speaker 1: issue this week was executive order that President Trump signed
Speaker 1: I think on Monday regarding most favorite nation status for drugs,
Speaker 1: and you had a nice note out on the terminal
Speaker 1: today with the headline quote how Trump's MFN might find
Speaker 1: its way into IRA drug negotiations end quote. So it
Speaker 1: all sort of ties in together, it seems.
Speaker 5: Yeah. So thanks, I'll pick up where Nathan leftoff and
Speaker 5: talk about the Medicaid ACA side of things. I think
Speaker 5: when you think about the hospitals and the health insurers,
Speaker 5: they probably did better than folks maybe thought going into this.
Speaker 5: So if you think about the hospitals and you know,
Speaker 5: thinking about HCA's and tenants of the world, the biggest
Speaker 5: concerns they had were how Medicare pays for services and
Speaker 5: outpatient and patient settings. They're different, and there's been a
Speaker 5: desire to to close that gap, which could have been
Speaker 5: a worst case scenario or outcome one hundred and fifty
Speaker 5: billion dollars over ten years. That's a lot of lost
Speaker 5: revenue coming from the hospital secutor that's not in there.
Speaker 5: There are provisions relating to how states pay for their
Speaker 5: portion of Medicaid spending, the scheme that's called provider taxes.
Speaker 5: There are limits in current law, and there was some
Speaker 5: fear amongst providers that there be lower limits on that,
Speaker 5: so that requires states to pony up more money to
Speaker 5: fund their program that's not in there. But there's a
Speaker 5: limit on a new provider taxes, so to the extent
Speaker 5: that there is a recession or a budget shortfall, these
Speaker 5: states can't rely on those kind of schemes to fund
Speaker 5: their Medicaid. And there are some other things on the
Speaker 5: hospital side, but by and large they do fairly well
Speaker 5: coming out of this bill. On the health insurance side,
Speaker 5: I think people will gravitate to the number of people
Speaker 5: who will be uninsured compared to if this bill hadn't
Speaker 5: passed or the policies hadn't passed don't pass and it's
Speaker 5: roughly about seven to eight million people over a ten
Speaker 5: year period. Now that's probably on the face of it,
Speaker 5: that's not good for those individual people. But when you
Speaker 5: think about how Republicans get there by not going after
Speaker 5: the Medicaid expansion program, which there was some fear there,
Speaker 5: block raining was never really a fear, but some other
Speaker 5: issues or other policies. They do implement work requirements for
Speaker 5: the Medicaid population and there are some significant savings there,
Speaker 5: but that by and large everybody assumed what happened. So
Speaker 5: while most of these savings do come from Medicaid. It's
Speaker 5: not as bad as it could be, but it's still
Speaker 5: going to be a challenge, especially when you think about
Speaker 5: for ensures. What's not in this bill and may never
Speaker 5: happen is an expansion of the or extension of the
Speaker 5: ACA subsidies that expire at the end of the year.
Speaker 5: So it's probably a good outcome for hospitals, a mixed
Speaker 5: outcome for insurers. But to Nathan's point, this is just
Speaker 5: the first step. We're early innings, and depending on how
Speaker 5: the conversations go with the Deaf sitt Hawks and the Senate,
Speaker 5: some of these policies that we're talking about now that
Speaker 5: aren't in the bill may find their way into the
Speaker 5: version that goes to the President for a signature. So
Speaker 5: we'll be following this as this plays out over the
Speaker 5: coming coming weeks and months. But I do want to
Speaker 5: flag two things that are drug pricing related. One of
Speaker 5: them is actually in the Higher or the Reconciliation Bill
Speaker 5: and providing some expansion of protections for operent drugs from
Speaker 5: price cuts in the IRA. I think that's low hanging fruit,
Speaker 5: and we may see in addition to that some protections
Speaker 5: for drugs based on how long they've been on the market,
Speaker 5: the whole pill penalty, small molecule versus large molecule disparity,
Speaker 5: that's not in there, but this could find its way
Speaker 5: in there. I think it will at the end of
Speaker 5: the day now going to Monday or earlier in the
Speaker 5: week where the President announced his most Favored Nations policy.
Speaker 5: I think it's let's say a couple of things. One,
Speaker 5: no surprise that the president's going down this wrote. He
Speaker 5: tried to do this during his first term. He wasn't
Speaker 5: able to the court's blockne this time around, there was
Speaker 5: a lot of fear of the worst case outcome that
Speaker 5: he was going to actually implement an MFN on the
Speaker 5: spot and start the rulemaking process. That didn't really happen either,
Speaker 5: which is why we saw the pharma stocks search after
Speaker 5: his announcement. So, like any executive order, it doesn't have
Speaker 5: the force of law. But this executive order is defanged
Speaker 5: in a lot of ways because it really says HHS
Speaker 5: Secretary Kennedy start to discussion on forcing companies to set
Speaker 5: their prices to those overseas and there's little detail as
Speaker 5: to the size and scope of those drugs and there's
Speaker 5: also little detail of what happens if the farmer companies
Speaker 5: don't negotiate those prices down, and so there's the threat
Speaker 5: of rulemaking down the road. In my view, this is
Speaker 5: all is set up for the Inflation Reduction Act, because
Speaker 5: negotiation is on the next fifteen party. Drugs are already underway,
Speaker 5: and while the IRI Statute doesn't have anything in there
Speaker 5: about mfn or OUs prices, there's nothing stopping them. The
Speaker 5: administration I basically looking over to Canada or any European country,
Speaker 5: Australia or whatever, basically saying well, this is what they're paying.
Speaker 5: We'll do an average. We're not going to tell you
Speaker 5: that's what we're doing because that's not in the statute,
Speaker 5: but we'll get there eventually. And if it's all about optics,
Speaker 5: the objects of making demands and the objects of getting
Speaker 5: what you say you want it at the beginning of
Speaker 5: the conversation, this is a perfect setup for in November,
Speaker 5: when those prices are announced, the President basing saying, hey, look,
Speaker 5: I told the companies to come in and negotiate prices
Speaker 5: that are closer to what they're paying overseas, and I
Speaker 5: got it now. I think if you're following the IRA.
Speaker 5: It's take your or leave it for these drug companies,
Speaker 5: and if you don't like it, you can pull all
Speaker 5: your products from the Medicare program. It's not going to happen.
Speaker 5: So we'll see at the end of the day how
Speaker 5: far the President and the White House are willing to
Speaker 5: go to drive down prices, because one central key component
Speaker 5: of this is the IRA sets a ceiling but not
Speaker 5: a floor. So time will tell how they're willing to
Speaker 5: go about this.
Speaker 1: Do you anticipate lawsuits and do you think there's any
Speaker 1: legal problems with that approach?
Speaker 5: Well, so we know that there are lawsuits now over
Speaker 5: various definitions of the IRA. I think everything is on
Speaker 5: the table for litigation as it relates to as it
Speaker 5: relates to the law, and pricing in and of itself
Speaker 5: was not an issue once Biden announced. But if we
Speaker 5: start to see huge discounts off of net prices that
Speaker 5: actually do resemble what's being paid overseas, and the rationale
Speaker 5: for setting those prices in really clear, I think the
Speaker 5: door is open to that. But the truck companies have
Speaker 5: been very unsuccessful so far. Lawsuit sure, it's possible. How
Speaker 5: successful they'd be You know we'll have to wait and
Speaker 5: say got it?
Speaker 1: All right, great stuff, all right, thanks to Wayne. All right,
Speaker 1: let's bring in uh Jenree and Justin TREESI our anti
Speaker 1: trust analysts. They've both been down in DC for I
Speaker 1: don't know, it seems like a while now, several weeks. Right,
Speaker 1: you're you're, You're both in the same courthouse, but in
Speaker 1: different courtrooms, analysts passing in the night. I guess in
Speaker 1: the halls of the what is it the Brett Perryman Building?
Speaker 4: Is that all right? Pretty much?
Speaker 1: Pretty pretty man? Yeah, I always mess that up. Okay,
Speaker 1: which one of you wants to go first?
Speaker 5: Well?
Speaker 2: I will, This is Jen. I will say that given
Speaker 2: how many computer scientists from mi T were testifying at
Speaker 2: my trial, it seemed longer than three weeks.
Speaker 1: Sounds like a set up for a joke.
Speaker 2: It was a little bit like an episode of Big
Speaker 2: Bang Theory. So right, switching gears and moving to something
Speaker 2: that's even slower than Capitol Hill. And that's anti dress litigation.
Speaker 2: What I was listening to at the courthouse in Washington,
Speaker 2: d C. Was a remedies hearing in the United States
Speaker 2: Department of Justice lawsuit against Google over illegal monopoly maintenance
Speaker 2: of its search engine. Now it's a remedies hearing because
Speaker 2: for anyone who may not know, I mean, it's been
Speaker 2: widely publicized, but for anyone who may not know. Back
Speaker 2: in the third quarter of twenty twenty four, a judge
Speaker 2: ruled that Google was illegally maintaining its monopoly and search
Speaker 2: and search search text ads, and it was doing this
Speaker 2: by basically blocking out search engine rifles, being and Duck
Speaker 2: dot Go really are the main two rivals it has
Speaker 2: in the search engine world, and it was doing that
Speaker 2: by sort of creating agreements, getting into agreements that were
Speaker 2: taking all of the search access points available to consumers,
Speaker 2: search apps, browser apps, sery, alexa, et cetera. They pay
Speaker 2: the browser developers billions of dollars to place Google Search
Speaker 2: as the default option, right, and they also were giving
Speaker 2: revenue shares for advertising revenues to the OEMs, the makers
Speaker 2: of the Android bones to pre install Chrome and pre
Speaker 2: install Google Search and not to install rival browsers or
Speaker 2: search engines. And so what this really meant is that
Speaker 2: the only time people used bing or Ductugo was really
Speaker 2: if the person went in and took the steps to
Speaker 2: change their default, which a lot of people don't know
Speaker 2: they can do or don't know how to do, or
Speaker 2: maybe they use the Microsoft Edge browser and things already
Speaker 2: the default there. But really those two companies weren't getting
Speaker 2: a lot of searches and they couldn't improve without the
Speaker 2: data that they would get from the searches. So now
Speaker 2: the judge has to decide what to do about it,
Speaker 2: and the DJ's really asked for an extensive list of actions.
Speaker 2: They want the judge to force Google to sell Chrome,
Speaker 2: that would be a big one. They want to force
Speaker 2: Google to share a lot of user and advertiser data
Speaker 2: as well as it's search index with these rival search engines.
Speaker 2: And they want Google to be prohibited from provider anything
Speaker 2: of value to browsers or OEMs or other third parties
Speaker 2: to essentially favor Google Search and disfavor competitor search engines.
Speaker 2: They want to remove these barriers to entry right and
Speaker 2: break down these walls so that others can new search
Speaker 2: engines could come in, AI can flourish, because because AI
Speaker 2: actually does work with search engines, it's not really a replacement.
Speaker 2: I kind of learned in this trial. And and by
Speaker 2: the way, all of these remedies would extend to Google's
Speaker 2: AI products as well, and you know, right and right now,
Speaker 2: we learned that it is currently in the process of
Speaker 2: asking OEMs to pre install its Gemini chatbot app in
Speaker 2: the Android phones that they make, and also they're trying
Speaker 2: to get an agreement with Apple for Gemini to be
Speaker 2: part of Apple Intelligence. Apple Intelligence doesn't have a large
Speaker 2: language model behind it, so it's basically got an agreement
Speaker 2: already now with open Ai, and it will make agreements
Speaker 2: maybe with Perplexity, maybe with Gemini so that people use
Speaker 2: Apple Intelligence and want access to that sort of broader
Speaker 2: AI product, confuse to use one of those others.
Speaker 1: Wow.
Speaker 5: Yeah, it's a big deal.
Speaker 4: Yeah, it's a big deal.
Speaker 2: It really is. And of course Google says all of
Speaker 2: this is overkill and it should be able to do
Speaker 2: really whatever it wants to.
Speaker 1: And I mean, but they were unliable, so I mean
Speaker 1: they must they must have, they must have to come
Speaker 1: up with sort of some sort of remedy, but not
Speaker 1: anything that egregious.
Speaker 2: You know, that's exactly right, Elliot. What they're saying is, well,
Speaker 2: we should really be able to keep paying revenue shares
Speaker 2: for companies that use Google Search, but just make it
Speaker 2: non exclusive, right, in the bath past, these agreements were exclusive.
Speaker 2: We should just make it non exclusive. So in other words, OEMs,
Speaker 2: we're not going to make and put any conditions on
Speaker 2: you pre installing Gemini. You can you can have Android,
Speaker 2: you have the license to Android, you can have YouTube,
Speaker 2: you can put Chrome on, you can put Gemini on,
Speaker 2: but we're not going to tell you can't put open
Speaker 2: Ai on or Perplexity or anybody else, right, which is
Speaker 2: what they kind of did before. So you know, our
Speaker 2: view after listening to the trial and reading transcripts, really
Speaker 2: is that the judge, I think, as you would expect,
Speaker 2: is going to meet them in the middle. That's what
Speaker 2: I think, and I thought that going in and I
Speaker 2: still think it coming out. I don't think Google's going
Speaker 2: to have to sell Chrome. I do think it's going
Speaker 2: to have to share some of its search data, which
Speaker 2: it really doesn't want to, but I think it will,
Speaker 2: and also stop paying for this preferential and default treatment
Speaker 2: for Google Search. And I do think the judge is
Speaker 2: probably going to require Google to provide choice screens as
Speaker 2: well for default search engines. For Chrome users can't bores
Speaker 2: Apple to do anything with Safari, but Chrome is a
Speaker 2: Google product. Now Google internally modeled the impact of loss
Speaker 2: of default positions at a net loss of twenty eight
Speaker 2: to thirty two billion dollars, So that's a pretty big impact.
Speaker 2: I was surprised by that because I would think even
Speaker 2: without paying for those default positions, people will still continue
Speaker 2: to use BING. Nonetheless, it'll be about what people do
Speaker 2: when these remedies have to go into effect. The judge
Speaker 2: said he's going to decide in August, and once that
Speaker 2: decision comes out, Google's likely going to appeal and try
Speaker 2: to stay the remedy pending the appeal, So we'll find
Speaker 2: out this year.
Speaker 1: That was going to be my nice question. So decision
Speaker 1: in August, are they still closing all you? And so
Speaker 1: ahead of that ye?
Speaker 2: May thirtieth, okay, yeah, and then that's it, and then
Speaker 2: after that some briefing post trial briefing, and then we'll
Speaker 2: get the decision.
Speaker 1: And then a decision when everyone's on vacation exactly, All right,
Speaker 1: good stuff. And that's judge Meta, right, yes, which is
Speaker 1: my segue to justin who's covering FTC versus Meta? Not
Speaker 1: the judge but the company.
Speaker 4: I haven't heard that joke before, Elliott. That's the first
Speaker 4: time anybody said that the last few weeks.
Speaker 1: Noah, I'm sure, yeah, yeah.
Speaker 4: So yeah, piggyback in what Jen said. You know, I've
Speaker 4: been attending the FDC versus Meta anti trust trial and
Speaker 4: DC and this case really involves the acquisitions Meta made
Speaker 4: over a decade it now a decade ago now of
Speaker 4: WhatsApp and Instagram, in charging that those acquisitions were anti
Speaker 4: competitive in nature, the reason being allegedly that that Meta
Speaker 4: made these acquisitions in an effort to kill competition for
Speaker 4: these nason competitors that were growing rather rapidly at the time.
Speaker 4: So moving forward here, the FTC is resting its case
Speaker 4: now and are our review is largely unchanged from the
Speaker 4: first week of the trial, that being that we really
Speaker 4: do give Meta the advantage here and its effort to
Speaker 4: defeat these claims right now, holding about a sixty percent chance,
Speaker 4: we think that Meta is able to do so through
Speaker 4: the conclusion of this trial and the main reasons why
Speaker 4: there are two of them. Number one, you know, the
Speaker 4: FTC really has been able to put on you know,
Speaker 4: a host of evidence through bad documents and some live
Speaker 4: witness testimony saying that look, you know, these acquisitions might
Speaker 4: have been made with this anti competitive intent, right, that
Speaker 4: there might have been this desire to cush this competition
Speaker 4: before it really got off the ground. But even that
Speaker 4: being the case, even if that intent was in fact there,
Speaker 4: in many ways we think that's a bit of relevant
Speaker 4: because the reality is, you know, it's really difficult to
Speaker 4: point to these actual consumer harms here in this case
Speaker 4: that outweigh the actual benefits that have been conferred upon
Speaker 4: consumers through the Metas acquisition of these two apps. We
Speaker 4: don't really know what's app or Instagram would look like
Speaker 4: today in a BUTT four world. If there's a positions
Speaker 4: had never taken place, there's a high chance that neither
Speaker 4: of those apps would even exist anymore today if those
Speaker 4: acquisitions hadn't actually taken place. So that's really been on
Speaker 4: the minds a lot of folks in the courtroom. It's
Speaker 4: been really elicited from the testimony that we just don't
Speaker 4: know what that world would actually look like. But through
Speaker 4: the case, you know, on that point, you know, we've
Speaker 4: really seen the STC put forward this evidence, right, we'd
Speaker 4: have witnesses on this dand saying, look, there was this
Speaker 4: kind of bad intent here on the part on the
Speaker 4: part of Meta or there were things that Meta did
Speaker 4: once it acquired Instagram and WhatsApp that really wasn't to
Speaker 4: the benefit of Instagram or WhatsApp. But you know, for
Speaker 4: whatever forward kind of whatever, whatever progress the STC has
Speaker 4: made with regard to that testimony, the cross exams have
Speaker 4: been really good, I would say, in kind of dialing
Speaker 4: that back, and really by the time witnesses have been
Speaker 4: done on this dand things have really been a bit
Speaker 4: of a wash, and I don't think the FDC's case
Speaker 4: has really been forwarded in a way where those again,
Speaker 4: those antiqu competitive anti competitive conduct might have outweighed the
Speaker 4: pro competitive benefit.
Speaker 1: It's here, and just to jump in those witnesses are
Speaker 1: these experts, are these inside company insiders or what?
Speaker 4: Yeah? Yeah, so both And you know, I'll point to
Speaker 4: the example to two particular examples for witnesses here where
Speaker 4: that's really been the case. The first is Kevin Systrom,
Speaker 4: who is the actual founder of Instagram, right, and he
Speaker 4: was at the company for a good six years after
Speaker 4: the sale of Instagram to Meta. You know, when he
Speaker 4: took the stand, he really had expressed his view that
Speaker 4: he thought, you know, whether tubris or not, he thought
Speaker 4: Instagram really could have survived on its own here, right,
Speaker 4: and that even though Meta might have conferred some benefits
Speaker 4: upon the company when it made its acquisition that you know,
Speaker 4: Instagram could be alive and thriving today if that buy
Speaker 4: never happened. But across exam, you know, Meta was really
Speaker 4: successful I think in getting system to say, look, no,
Speaker 4: there were these benefits that we actually did receive here.
Speaker 4: You know, there are all these new features that were
Speaker 4: added to Instagram after that acquisition took place. And you know,
Speaker 4: at the time of the acquisition, Instagram was having a
Speaker 4: really hard time with spam right there. There was a
Speaker 4: huge problem on the app with that and once it
Speaker 4: Meta made the acquisition, they were able to clean up
Speaker 4: those issues really quickly and allowed Instagram to thrive and
Speaker 4: focus on other aspects of its business. So that's one
Speaker 4: example there. The same really from Adam as Ai who's
Speaker 4: heading Instagram right now, same kind of viewpoint that you
Speaker 4: know for all of the kind of detracting in a
Speaker 4: way that Meta might have done from Instagram. Around twenty eighteen,
Speaker 4: when it was worried that Facebook, Facebook's main app wasn't
Speaker 4: really getting the traction need of the time, there were
Speaker 4: just all of these different these benefits conferred to Instagram,
Speaker 4: they were added reels for example, that really gave it
Speaker 4: the ability to compete against TikTok. So really, you know,
Speaker 4: the witnesses took the sand, they said what they said,
Speaker 4: but by the time cross examination was finished, things kind
Speaker 4: of washed out.
Speaker 1: So this is interesting these two When is the two
Speaker 1: you just mentioned, this is ft This is the FTC's case, right, Yes,
Speaker 1: and yeah, And they called them as witnesses. Are they
Speaker 1: call I mean, this is sort of like sort of
Speaker 1: too nerdy, but are they calling them as hostile witnesses
Speaker 1: and then essentially asking them cross examination questions and then
Speaker 1: meta comes in and basically does it direct on them?
Speaker 4: Yeah, you've got it. That's exactly the way that it's
Speaker 4: kind of gone.
Speaker 3: Right.
Speaker 4: They called Mark Zuckerberg for example too in Shales and
Speaker 4: Berg the first week of the trial. So that's exactly
Speaker 4: how it's been planning out thus far. And the majority
Speaker 4: of the witness is called by the FTC have been
Speaker 4: those company insiders, right, And I think they feel like
Speaker 4: we have these bad documents here, right, So that's how
Speaker 4: we're going to get them into evidence, is to have
Speaker 4: these folks come and talk about these emails that might
Speaker 4: have said, you know, a decade ago, but that's how
Speaker 4: it's rolling out, you know. I think there's also vulnerability
Speaker 4: here for the FTC with regard to its market definition.
Speaker 4: You know, there's been a lot of testimony, you know
Speaker 4: about you know, how things have evolved since this case
Speaker 4: was brought, and in many ways, if we were trying
Speaker 4: this case maybe in twenty twenty or twenty twenty one,
Speaker 4: before TikTok really got off the ground, you know, the
Speaker 4: FTC might have a better, you know, better chance of
Speaker 4: being victorious at trial. The reason being that so much
Speaker 4: of this activity that you're seeing on Instagram is really
Speaker 4: morphed into this kind of real based you know, consumption
Speaker 4: of content that's not connected to friends and really as
Speaker 4: a head on a head competitor a TikTok, much more
Speaker 4: than it might be to Snapchat or another social media
Speaker 4: kind of traditional social media service.
Speaker 1: So interesting, all right, So just quickly, what what what's next?
Speaker 5: Yeah?
Speaker 4: So at the trial should wrap I think within the
Speaker 4: next couple of weeks, probably the first or second week
Speaker 4: of June at latest, and then I think we can
Speaker 4: expect a decision from Judge Boseberg by the end of
Speaker 4: the year in liability.
Speaker 1: Sounds good. All right, well, thank you Justin and Jen.
Speaker 1: All right, so Matt Shettenhelm, let's we'll move on from
Speaker 1: anti trust and talk a little bit. Well, well, we'll
Speaker 1: move from tech anti trust to other tech related issues.
Speaker 1: You had a headline in a note that you wrote today.
Speaker 1: I think it was today, Maybe it was yesterday, and
Speaker 1: it was The headline was EchoStar encircled by SCC's inquiry,
Speaker 1: but risk of licensed loss low. What what is? What
Speaker 1: is EchoStar? Maybe start there and then what is the
Speaker 1: SCC trying to do?
Speaker 6: Yeah, I think you know, building off of Jen and
Speaker 6: Justin's discussion, if you go back to the to the
Speaker 6: big T Mobile Sprint deal that had to win antitrust
Speaker 6: approval a couple of years ago, the only way that
Speaker 6: the FCC and the dj would approve that is if
Speaker 6: they said, we need to create a fourth competitor, which
Speaker 6: is Dish to provide broadband service. Dish has since been
Speaker 6: acquired by EchoStar, and so the company has been working
Speaker 6: to become a fourth broadband provider to compete with T Mobile,
Speaker 6: AT and T Verizon. It's been building out its network
Speaker 6: since twenty nineteen and it has, you know, thirty billion
Speaker 6: dollars worth of FCC licenses that it's acquired over the
Speaker 6: past you know, decade or so to do that. And
Speaker 6: so that's why this attracted so much attention this week
Speaker 6: when Brendan Carr came out with a letter to the
Speaker 6: company and also the opening of two dockets at the FCC,
Speaker 6: and the more important of those two was to take
Speaker 6: a look at whether the Biden era FCC properly granted
Speaker 6: an extension to Dish for its final build out deadline
Speaker 6: to finish that broadband network. And so what they did
Speaker 6: last November September, I believe it was was was to say, look,
Speaker 6: we'll give you two more years to finish up that
Speaker 6: the deadline was supposed to be June twenty twenty five.
Speaker 6: Everything's operational, You're going to have seventy percent coverage in
Speaker 6: every market. EchoStar came in and said, look, we're not
Speaker 6: quite there because of COVID, because of supply shortages and
Speaker 6: things like that. We need two more years in a
Speaker 6: number of these markets. The Biden FCC granted that now
Speaker 6: there's a risk of a reversal on that from this FCC,
Speaker 6: which is being pushed by SpaceX that want access to
Speaker 6: these licenses, you know, to the same band of spectrum.
Speaker 6: All of a sudden there's pressure from this FCC and
Speaker 6: so what the technical step that's happened is there is
Speaker 6: a reconsideration of that grant of that three year delay,
Speaker 6: and so there's the risk worst case scenario. What does
Speaker 6: this mean for EchoStar is that the FCC comes back
Speaker 6: and says, nope, we reconsider that grant to that extension.
Speaker 6: June twenty twenty five is your deadline to build the
Speaker 6: whole thing, and FCC rules says if you don't meet
Speaker 6: that deadline, you lose your license. So you invested thirty
Speaker 6: billion dollars in these licenses, you lose them automatically by law.
Speaker 1: How I mean, can Echo start challenge that. It seems like,
Speaker 1: you know, they sort of relied on this previous approval
Speaker 1: by the Biden administration and now there's sort of you know,
Speaker 1: getting the rug pulled.
Speaker 6: Out absolutely, and so that's sort of you know, the
Speaker 6: immediate reaction in the market was pretty severe when you
Speaker 6: saw these headlines because it's it's such an important asset
Speaker 6: to to think about losing these licenses entirely and technically
Speaker 6: it's true that if you don't, you know, I think
Speaker 6: the SCC can reconsider it's deadline, and technically, if you
Speaker 6: don't meet the milestone, you lose the licenses. But the
Speaker 6: technical I think is a little different than the reality
Speaker 6: because there is going to be a court sitting behind
Speaker 6: anything the FCC does here, and I think it's going
Speaker 6: to have major due process concerns. If the FCC were
Speaker 6: to come out and take the hard line that hey,
Speaker 6: that extension we granted, forget about it, you're back to
Speaker 6: June twenty twenty five the end. The Court's not going
Speaker 6: to go for that. So I think as a practical matter,
Speaker 6: Echo Star is going to have you know, maybe less time,
Speaker 6: maybe not three years that it was granted by the
Speaker 6: Biden administration. It's going to have pressure, but I think
Speaker 6: it's going to the FCC is going to have to
Speaker 6: act reasonably in everything it does here to avoid, you know,
Speaker 6: claims that it's acting in an arbitrary way or violating
Speaker 6: due process. So I think that that's sort of my
Speaker 6: big picture takeaway. Maybe this isn't as severe as it
Speaker 6: initially looked, but it is a risk to the company,
Speaker 6: and clearly the signals are bad. From Brendan Carr, certainly
Speaker 6: he's looking to align with SpaceX, maybe not so interested
Speaker 6: in facilitating this broadband network to be a success as
Speaker 6: much as he has been in the past.
Speaker 1: So you think without SpaceX and the picture, this might
Speaker 1: not have happened.
Speaker 6: I mean, it's that certainly was a driver of it,
Speaker 6: because you can look through recent filings at the FCC
Speaker 6: and see, you know, letter after letter from SpaceX saying, look,
Speaker 6: Echo Stars not not using this frequency the way it
Speaker 6: should be, and we we would and and and so
Speaker 6: I certainly think that it's it's a very likely catalyst
Speaker 6: for for what's been going on at the FCC on
Speaker 6: this issue. I think it will continue to play a
Speaker 6: factor as we go ahead.
Speaker 1: And then, I mean June twenty twenty five is coming up, right,
Speaker 1: I mean it's today's May fifteen, so we're almost there.
Speaker 1: So what happens next is it just like a series
Speaker 1: of letters back and forth and then the FCC decide.
Speaker 6: So what the FCC did this week is it created
Speaker 6: a comment period on that petition for reconsideration of the extension.
Speaker 6: And that comment period runs through from late May to
Speaker 6: mid June, almost right until I think June fourteenth was
Speaker 6: the technical deadline, so I think the comment period closes
Speaker 6: a little bit before June fourteenth. In theory, the FCC
Speaker 6: could act pretty quickly. Then this is all done at
Speaker 6: the staff level, at the bureau level, so you don't
Speaker 6: need a full commission vote on this stuff. So in theory,
Speaker 6: if Brendan Carr really wanted to play hardball, he could
Speaker 6: act in June and just say you know, your deadline's
Speaker 6: back in place. I don't think he's going to do that,
Speaker 6: but that's what we'll be watching is how quickly will
Speaker 6: the FCC act on this. I don't know that it
Speaker 6: will be in June would be, but I think it
Speaker 6: will be shortly thereafter where there's some sort of action.
Speaker 6: I think the FCC is probably going to have to
Speaker 6: go for some sort of, you know, a tougher deadline
Speaker 6: than three years from now, but not imminent. I think
Speaker 6: that there will be pressure on the company h but
Speaker 6: but not in an imminent threat of hey, you're going
Speaker 6: to lose your licenses.
Speaker 1: I'm envisiting Elon Musk getting like a million people to
Speaker 1: write a letter in favor of a SpaceX.
Speaker 4: Yeah.
Speaker 6: Yeah, it would wouldn't wouldn't surprise me at all.
Speaker 1: All right, well that's super interesting and mark and market
Speaker 1: moving right because all right, well, great stuff all around,
Speaker 1: Thank you everybody. I think we'll leave it there. We'll
Speaker 1: wrap up this episode of Votes and Verdicts as always,
Speaker 1: thank you for listening. If you have any questions about
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