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: business policy and law, and today's our weekly check in
Speaker 1: on the litigation and policy catalysts that we're watching, or
Speaker 1: at least some of them, and that we think will
Speaker 1: impact companies across a number of different sectors. My name
Speaker 1: is Elliott Stein. I'm an analyst with the Bloomberg Intelligence
Speaker 1: covering litigation in the financials sector. I'm delighted today as always,
Speaker 1: to be joined by a handful of my colleagues who
Speaker 1: cover litigation and policy for BI. As always, you can
Speaker 1: find all of our research on the Bloomberg terminal at
Speaker 1: big and more specifically, you can find our litigation and
Speaker 1: policy research on the Bloomberg terminal at BI laws go.
Speaker 1: Today is June twenty sixth, twenty twenty five. It's about
Speaker 1: nine am here in New York. And with that, let's
Speaker 1: get started. I want to bring in my colleague Tamlin Basin,
Speaker 1: who covers techp issues that are being litigated or in
Speaker 1: some sort of policy development. So, Tamlin, you have been
Speaker 1: covering a bunch of cases related to AI, artificial intelligence
Speaker 1: and potential copyright infringement. Super interesting issue. Just this week,
Speaker 1: in fact, I think just yesterday we got a really
Speaker 1: big decision involving META. A couple of days before that
Speaker 1: we got another sort of groundbreaking decision. I think, why
Speaker 1: don't you come in sort of give us, you know,
Speaker 1: the layer of the lay and what the overall context
Speaker 1: is here and what these decisions mean.
Speaker 2: Yeah, sure, thank you, Ellia, And you're right. So in
Speaker 2: the US alone, there's over forty lawsuits and these are
Speaker 2: lawsuits that are being litigated by copyright owners content owners.
Speaker 2: So this is print media, authors, books, films, music recordings,
Speaker 2: and they've sued developers of large language models. Now this
Speaker 2: includes both some of those pure play large language model
Speaker 2: firms like open AI, Anthropic Perplexity Stability AI as well
Speaker 2: as some of the larger tech firms that have also
Speaker 2: tried their hand in developing large language models. So Meta, Google,
Speaker 2: Microsoft have all been sued. Now, No, I have been
Speaker 2: covering this for a while, and just a few weeks
Speaker 2: ago we put out a deep dive report that really
Speaker 2: examines in more detail all of these issues that are
Speaker 2: at play. As you mentioned this week, there was sort
Speaker 2: of an acceleration moving this legal forward. And so first
Speaker 2: what we had was Anthropic. This was a case that
Speaker 2: was brought by a group of authors claiming that by
Speaker 2: training Anthropics large language model claud on these publications, that
Speaker 2: that was copyright infringement. Now, there was a summary judgment
Speaker 2: hearing that was held in the spring, and on I
Speaker 2: believe it was Monday night, the judge in that case
Speaker 2: came out and found in favor of Anthropic.
Speaker 3: On fair use.
Speaker 2: Now, I think it's important to note that there are
Speaker 2: four fair use factors. Really, what courts are looking at
Speaker 2: are sort of factors, one which is looking at whether
Speaker 2: this was a transformative use. In factor four, which is
Speaker 2: whether or not the way that the defendant used the
Speaker 2: content impacted the market for the original. So the judge
Speaker 2: in that case found in anthropics favor on both of
Speaker 2: those issues, but really focusing more on the transformative use side,
Speaker 2: saying this was highly transformative and sort of waved away
Speaker 2: the market harm issue. Then we had last night in
Speaker 2: the Meta case, and this was also a case it
Speaker 2: was brought by another group of authors challenging Meta's development
Speaker 2: of its own large language model Lama now Here. Although
Speaker 2: the court did again find in favor of Meta, he
Speaker 2: focused really a lot of attention on this potential market
Speaker 2: harm aspect, on the fourth factor, and he made it
Speaker 2: very clear that this was a ruling in metas favor,
Speaker 2: not necessarily because the overall law the landscape for use
Speaker 2: it self dictates that, like he said, the evidentiary record
Speaker 2: before him was not showing any impacts of mark harm. However,
Speaker 2: he sort of went to grow the great lengths to
Speaker 2: say that this might be an outlier overall in terms
Speaker 2: of these AI copyright cases, and if there had been
Speaker 2: a better record of market harm that this would go differently.
Speaker 2: So I think the broad takeaway is that this is
Speaker 2: a positive development for AI firms, at least in terms
Speaker 2: of whether inputs used to train large language models were infringing. However,
Speaker 2: I don't think it was quite a resounding victory that
Speaker 2: those firms would have been looking.
Speaker 1: For somewhat of a victory for this, and that it
Speaker 1: sounds like the judge in the medic case sort of
Speaker 1: gave a like a playbook for future plaintiffs to potentially prevail.
Speaker 2: Yeah, he really did, and it was quite interesting to
Speaker 2: see him do that. He really took quite a bit
Speaker 2: of issue with sort of the lack of evidence on
Speaker 2: this in this case about potential market harm, and I
Speaker 2: think what he was really concerned about was whether or
Speaker 2: not the proliferation of AI generator materials could down the
Speaker 2: line be rode demand for those original content works. And
Speaker 2: he sort of explicitly said that maybe you're not going
Speaker 2: to see that in something like fiction works, where people
Speaker 2: might not be turning to a fiction book that was
Speaker 2: written by AI firm. However, he's had in other instances
Speaker 2: something like news paper reporting also sort of photographic imagery,
Speaker 2: where there might be a much stronger case for market harm.
Speaker 2: So I think we'll get the There are other cases
Speaker 2: that do alleged things closer along those lines, and I
Speaker 2: think if this judge's reasoning has followed, then those firms
Speaker 2: might have a much more difficult time getting somewhere in
Speaker 2: judgement on fair use, especially with respect to market impact.
Speaker 1: Yeah, and in this case against Meta, is that is
Speaker 1: that the case for Sarah Silverman's one of the planiffs.
Speaker 2: She is, well, she's one of the planeffs. In an interview,
Speaker 2: they've also sued I believe Google. Certainly they've sued open Ai.
Speaker 2: So yes, a lot of authors sort of had joined
Speaker 2: together on this and teamed up to follows a lot
Speaker 2: of the lms.
Speaker 1: And do you think the planeffs in the case against
Speaker 1: Mata are they gonna have another shot to bolster their record,
Speaker 1: to maybe show some of the facts that the judge
Speaker 1: said they needed to show.
Speaker 3: I'm not sure if on this they are.
Speaker 2: However, the case isn't actually over because specifically summary judgment
Speaker 2: was only on the reproduction of their works. That is,
Speaker 2: when when the Large Language Model reproduced the works to train.
Speaker 2: There's actually another issue where Meta sort of admittedly turned
Speaker 2: to BitTorrent to get a lot of these books, and
Speaker 2: is sue there was whether they subjected those books that
Speaker 2: they downloaded to BitTorrent.
Speaker 3: In doing that process, you can subject those works to
Speaker 3: other people who might be engaging in BitTorrent.
Speaker 2: So I think there's still going to be a potential
Speaker 2: distribution claim, and he's going to hold a hearing later
Speaker 2: in the summer.
Speaker 3: I believe, to decide what to do with that. I
Speaker 3: think it's relatively likely that he.
Speaker 2: May allow this to be appealed as it is, and
Speaker 2: I also think there's a potential that we might have
Speaker 2: a quick appeal of that anthropic case. Both of they're
Speaker 2: more in different courts, but both we'll go up to
Speaker 2: the Ninth Circuit.
Speaker 1: Right yeah, they're both in the Northern District of California,
Speaker 1: right yeah, yeah, yeah, And just give us a flavor,
Speaker 1: I mean, and I know you sort of quantified this
Speaker 1: in your research decks. Give us a flavor of how
Speaker 1: much does at stake here?
Speaker 2: I mean, truthfully, it's potentially trillions of dollars and the
Speaker 2: reason for that sort of eye popping number that we're
Speaker 2: highly unlikely to see, but just because statutory images under
Speaker 2: the US Copyright Act can be up to one hundred
Speaker 2: and fifty thousand dollars per copyrighted work, and in the
Speaker 2: sort of anthropic case alone, we know that they also
Speaker 2: turned a bit torrent, and the allegation was that they
Speaker 2: downloaded as many as seven million books to that BitTorrent,
Speaker 2: So if you add statute or damages across all of that,
Speaker 2: you could get really eye popping numbers. These are sort
Speaker 2: of just related to inputs, and again, I think both
Speaker 2: of these cases found fair use on inputs. I think
Speaker 2: it's going to be a much more challenging issue when
Speaker 2: you're looking at outputs. This is when a generative AI
Speaker 2: producer's output that more closely mimics what it trained on.
Speaker 2: I think that might be not only a reproduction, but
Speaker 2: a potential distribution.
Speaker 3: And we have later cases that are going to test that.
Speaker 2: I think both of if you read both of these decisions,
Speaker 2: they make it clear that if outputs were alleged in
Speaker 2: these cases and they weren't, that it would have been
Speaker 2: a much different outcome on fair use. So I think
Speaker 2: we're going to be paying a lot more attention to how.
Speaker 3: That's going to develop.
Speaker 2: One of the major cases that's going to be testing
Speaker 2: that is the New York Times first Open AI and
Speaker 2: Microsoft case. It's being litigated in New York, but that's
Speaker 2: gonna be quite a bit more delayed in terms of this,
Speaker 2: just because you have so many different more parties are
Speaker 2: litigating that one.
Speaker 1: Such an interesting issue and sounds like it's going to
Speaker 1: play out for a while. I guess just given how
Speaker 1: many different cases there are, and you mentioned your deep
Speaker 1: dive earlier, I just want to plug that again for
Speaker 1: our listeners. This is Talent's really put out a comprehensive,
Speaker 1: very comprehensive report covering all these issues that he's talking about.
Speaker 1: You can get a hard copy version, just reach out
Speaker 1: to us if you're interested, and then if you're a
Speaker 1: terminal subscriber, there's a report as well on the terminal.
Speaker 1: All right, Talent, thank you so much. Speaking of deep dives,
Speaker 1: let's turn to Jen ree are one of our anti
Speaker 1: trust gurus here, because Jen is also working on a
Speaker 1: deep dive related to antitrust enforcement under the Trump administration
Speaker 1: and what that looks like. So Jen, why don't you
Speaker 1: you come in and maybe give us a sense of
Speaker 1: you know, what you are writing in your report about
Speaker 1: what we know so far in terms of anti trust
Speaker 1: enforcement under President Trump.
Speaker 4: Yeah, thanks, Elliott.
Speaker 5: I mean this has really been the subject of a
Speaker 5: lot of speculation because, you know, stepping back, you know,
Speaker 5: antitrust for many many years was really predictable I mean really,
Speaker 5: particularly with respect to how mergers and acquisitions that need
Speaker 5: to be filed with the government in reviewed, the way
Speaker 5: they would be treated. It's kind of been the same
Speaker 5: and the same changes since nineteen seventies, since the nineteen seventies,
Speaker 5: and you know, we would expect when a new administration
Speaker 5: would come in there would be slight changes a matter
Speaker 5: of degree. The Republicans tended to be a little bit
Speaker 5: more business friendly in certain ways to deal treatment, and
Speaker 5: the Democrats tended to be just slightly tougher, but again
Speaker 5: a matter of degree. Everybody kind of knew what the
Speaker 5: play of the land was and how things were going
Speaker 5: to go, and that all change changed. And that's why
Speaker 5: we've been watching so carefully what's going to happen with
Speaker 5: Trump's because it all changed when Biden was elected president
Speaker 5: and he put in place enforcers that were really on
Speaker 5: a mission. They wanted to revitalize antitrust enforcement. They really
Speaker 5: thought big was bad, they didn't like deals in combinations,
Speaker 5: and they wanted to do whatever they could to slow consolidation.
Speaker 5: And I think that after Trump was elected in the
Speaker 5: fourth quarter of twenty twenty four, there was kind of
Speaker 5: a reaction of glee for you know, those interested in
Speaker 5: deal making because of this expectation, well, everything was going
Speaker 5: to go back to the way that it was before Biden,
Speaker 5: and now we're going to get predictability again, and these
Speaker 5: deals are going to go through. And honestly, you know,
Speaker 5: we took the position here that that's probably not the case,
Speaker 5: that it's still going to be sort of heightened. There's
Speaker 5: still going to be this heightened level of aggression. And
Speaker 5: we saw that President Trump appointed people who are professed
Speaker 5: economic populists, right, so they are a little bit different
Speaker 5: than some of the Republicans of old that have run
Speaker 5: the Trade Commission and Department of Justice, and so we've
Speaker 5: been watching carefully to see what they're going to do
Speaker 5: with deal making. And now we've got a few months
Speaker 5: of track record, right, so we're watching to see what
Speaker 5: they're going to do. It's been very unclear based on
Speaker 5: their speeches and what they've said, Hey, we're going to
Speaker 5: continue to be aggressive. But I am beginning to see
Speaker 5: some of the pathways opening up to deals getting done,
Speaker 5: and I think that's going to be you know, all
Speaker 5: of those companies out there looking have a lot of money,
Speaker 5: looking to do a combination are going to be very
Speaker 5: happy about it. And what that is is a renewed
Speaker 5: acceptance of remedies to resolve otherwise problematic deals. So when
Speaker 5: I'm talking about remedies, when merging companies come together, let's
Speaker 5: say they have one product line, they each have the
Speaker 5: same product line, they compete, they're going to bring those
Speaker 5: product lines together in a concentrated market. So even for
Speaker 5: that one product line, and let's say they have thirty
Speaker 5: product lines, you're going to have a problematic anti trust issue.
Speaker 5: So what with a remedy. You can sell off that
Speaker 5: one product line, remove that overlap, and then get the
Speaker 5: bigger underlying deal closed, get rid of the bad part,
Speaker 5: hold on to what's good about the deal, and let
Speaker 5: it go forward. And likewise, if they don't compete, but
Speaker 5: they're vertically related and the merger would result in vertical integration.
Speaker 5: And if the deal raises a concern that companies that
Speaker 5: come together like that could foreclose their rivals because they
Speaker 5: secure a needed input for their rivals, so long as
Speaker 5: they made a commitment that they'd make that input available
Speaker 5: on a non discriminatory, fair and reasonable basis, they could
Speaker 5: usually get the deals closed. So the vast majority of
Speaker 5: deals that raised antitrust problems for many, many many years
Speaker 5: closed during the Biden administration, though instead the vast majority
Speaker 5: either got student court or were abandoned or this is
Speaker 5: what they really wanted. Deals didn't get signed to begin
Speaker 5: with because the companies realized this is going to be
Speaker 5: a tough road. We don't have the time, we can't
Speaker 5: do it. Deals can't really last the long road of
Speaker 5: litigation in most cases. So we had this huge spike
Speaker 5: and abandoned deals. But what we've seen now is that
Speaker 5: President Trump's FDC and DJ have cleared with remedies for
Speaker 5: deals in the last two months. That is more than
Speaker 5: occurred under the Biden administration in his last two years.
Speaker 4: And for three of those deals there were divestitures.
Speaker 5: That was Synopsis Ansis Key Sites Byront and Saffron, which
Speaker 5: acquired some assets from RTX formerly Raytheon.
Speaker 1: After litigation has already been commenced. This is in lieu
Speaker 1: of litigation.
Speaker 4: So it's in lieu of litigation.
Speaker 5: I think sometimes there's confusion, to be honest, because a
Speaker 5: complaint has to be filed in order for it to
Speaker 5: be settled.
Speaker 4: There's a settlement.
Speaker 5: So what happens is the agencies file a complaint, but
Speaker 5: simultaneously with that complaint, they file a settlement what's called
Speaker 5: a consent agreement, which shows what the companies agreed to
Speaker 5: do that allowed them to settle this complaint. It's interesting
Speaker 5: that you say that because the ones that were settled
Speaker 5: under Biden actually went into litigation. They've got sued, they
Speaker 5: started the litigation, they might have even gotten into trial.
Speaker 5: I think the FDC or DJ whoever it was that
Speaker 5: was responsible was reading the tea leaps seeing they probably
Speaker 5: weren't going to win, and ended up settling mid litigation.
Speaker 5: But these are pre litigation settlements simultaneous is with the complaint.
Speaker 5: And the interesting thing too, is that there was one
Speaker 5: other deal that was cleared with the behavioral commitment. That
Speaker 5: was Omnicom, Interpublic, two huge ad agencies, which was a
Speaker 5: particular interesting circumstance because these enforcers have said that they
Speaker 5: don't like behavioral commitments, but they went ahead and accepted
Speaker 5: that one. So we're getting to it's a pretty significant rollback,
Speaker 5: in my mind, slightly back to that more conventional approach,
Speaker 5: because it does allow a way for deals that might
Speaker 5: raise some minor problems or problems with pieces of their
Speaker 5: business to actually have a way to convince the agencies
Speaker 5: to let them get the deal closed. And I think
Speaker 5: that there are many factors in the economy that caused
Speaker 5: deal making to pause, such as inflation and tariffs and
Speaker 5: interest rates and things like that, but antitrust has also
Speaker 5: been a contributor, and I think that's going to sort
Speaker 5: of fall to the wayside Aside from that, you know,
Speaker 5: we're still reading the tea leaves with respect to how
Speaker 5: aggressive they're going to be, And we have a bunch
Speaker 5: of pretty interesting deals that are pending, like Google Whiz,
Speaker 5: which will be a really good one to watch because
Speaker 5: these agencies have said we're going to be really tough
Speaker 5: on big tech platforms. But I really don't think the
Speaker 5: facts in that case support any theory of harm that
Speaker 5: would hold up in court. So we'll have to see
Speaker 5: what happens there.
Speaker 1: Remind us what Whiz is.
Speaker 5: So Whiz is cloud security, cybersecurity and the cloud. So
Speaker 5: you have a Google which has a cloud, have cloud business,
Speaker 5: and then you have their buying cybersecurity for that cloud,
Speaker 5: and Whiz right now is free to be used by
Speaker 5: any cloud company, any.
Speaker 4: Company that has a cloud business.
Speaker 5: But then they will be again, it's, as I said,
Speaker 5: Google is going to be taking on the ownership of
Speaker 5: an input needed by some of its competitors, and so
Speaker 5: there's always that possibility of foreclosure. But the reason I
Speaker 5: say there's not really a good theory here is because
Speaker 5: usually that kind of harm can only occur when the
Speaker 5: company has market power in one or in both of
Speaker 5: the markets that we're talking about. And Google is third
Speaker 5: buy and has a less than twenty percent share in
Speaker 5: the cloud market, and wiz has a lot of big
Speaker 5: competitors in cybersecurity, and so when there are a lot
Speaker 5: of other options out there in the market, they usually
Speaker 5: don't have the ability to do something that would harm
Speaker 5: the market.
Speaker 1: Interesting at Google's thurn, who are the top two?
Speaker 4: Amazon and Microsoft?
Speaker 6: Yeah, yeah, that makes sense.
Speaker 1: And okay, what other interesting deals are you watching?
Speaker 6: Right?
Speaker 5: So you mentioned well the other the other deals really
Speaker 5: interesting Dick's foot locker.
Speaker 6: Which is you know, Weekend.
Speaker 5: Yeah, everybody knows those companies, So not for myself, that's
Speaker 5: going to be an interesting one. I do think they're
Speaker 5: probably going to have to divest some stores, but as
Speaker 5: I said, under Biden, that wouldn't have been an option
Speaker 5: for them. But under Trumpet looks like that will be
Speaker 5: an option. So, you know, this is one of those
Speaker 5: things where if this deal had been struck during the
Speaker 5: Biden administration, I would have said, I don't think it
Speaker 5: can get closed without litigation. But today I'm saying I
Speaker 5: do think it can get closed if they're willing to
Speaker 5: invest the stores that need to be sold.
Speaker 4: Charter Cox cable companies. That's another big one.
Speaker 5: It's going to be interesting to see if the agencies
Speaker 5: acknowledge the way the industry changed with respect to how
Speaker 5: people view view content, video content and the way they
Speaker 5: can access it. You know, we have five G now,
Speaker 5: which we didn't have in the past when broadband companies
Speaker 5: came together. We have Getty Images, shutter Stock they supply
Speaker 5: stock photographs, but they're the two really Biggies and Disney Fubo.
Speaker 4: Which is really interesting.
Speaker 5: So, and we had mars Kelenova, which I've been writing
Speaker 5: about in the FTC cleared that last night. Oh really yeah,
Speaker 5: chocolate company buying prinkles.
Speaker 4: I know.
Speaker 5: The European Union actually just opened up an in depth
Speaker 5: investigation for that one. The Commission is concerned about something
Speaker 5: called portfolio effects, which we do not think is a
Speaker 5: viable theory here in the US. But they're worried that
Speaker 5: the company is going to have too many must have
Speaker 5: products and it will give them leverage because they'll have
Speaker 5: that big bundle and they can engage in like full
Speaker 5: line forcing for the supermarkets that buy the products. But
Speaker 5: it's interesting to me that they think that, you know,
Speaker 5: Pringles is a must have product or grain bars or
Speaker 5: kind bars, which are the products that these companies own.
Speaker 5: Obviously Mars, we all know owns a lot of chocolate
Speaker 5: and candy.
Speaker 1: And just one last question, are you I know, like
Speaker 1: in the monopolization cases, there are some differences between the
Speaker 1: industries and it seems like they're more aggressive against tech,
Speaker 1: but maybe less AGGRESSI against other industries. Are you seeing
Speaker 1: anything some like that in the M and A space,
Speaker 1: Well not yet.
Speaker 5: I mean I sort of suspect that we will, but
Speaker 5: we haven't yet. And I say that because I do
Speaker 5: think that there could be some political influence, more so
Speaker 5: than in the past, on the outcome of these deals.
Speaker 5: I say that because we saw it during Trump's first
Speaker 5: term where it seemed that it deals he took a
Speaker 5: particular interest in that he wanted to get cleared. He
Speaker 5: pushed his regulators to clear them, and the deals that
Speaker 5: he wanted to have blocked, he pushed the officials to
Speaker 5: try to block them. And so I think if you
Speaker 5: have companies that he are his favorites or donated a
Speaker 5: lot of money or something, and he wants their deal cleared,
Speaker 5: you'll push for that. And if we see companies that
Speaker 5: are engaging in M and A that are not his
Speaker 5: favored industries or companies, then maybe he'll push them to
Speaker 5: block it.
Speaker 4: We'll have to see what happens there.
Speaker 1: That makes sense. I mean, it doesn't really make sense,
Speaker 1: but yeah, but I think that's probably a fair assessment.
Speaker 1: All right, Cool, So you're just again for listeners, look
Speaker 1: out for a deep dive report that Jenre and Justin Taresi,
Speaker 1: who we're going to talk to in a second, are
Speaker 1: putting out on all this, on all things anti trust
Speaker 1: under the Trump administration. But if you are a terminal subscriber,
Speaker 1: there's already a version on the terminal that you can read,
Speaker 1: and if you can't find it, just reach out to
Speaker 1: any of us. All right, thanks, Jen, Justin, let's bring
Speaker 1: you in. We're going to stick with anti trust, but
Speaker 1: switch industries, switch sectors, to pharma. Here, you're following a
Speaker 1: case by CBS and signa express Scripts challenging in Arkansas
Speaker 1: law that would ban operators of PBMs pharmacy benefit managers
Speaker 1: from holding pharmacy licenses. Hopefully I got that all right,
Speaker 1: but you'll correct me if I'm wrong. Come in, tell
Speaker 1: us what this case is about in why it matters?
Speaker 6: Yeah, you bet, thanks Elliott.
Speaker 7: And you know so easy to follow a discussion of
Speaker 7: snack foods with a discussion of pharmacy benefit managers.
Speaker 6: So try to bear with me, folks.
Speaker 7: But in a nutshell, what's happened here is just in
Speaker 7: April of this year, Sarah Huckapee Sanders, a governor of Arkansas,
Speaker 7: signed into law the first of its kind, first of
Speaker 7: its kind bill across the nation.
Speaker 6: And what it would do, basically.
Speaker 7: Is prevent any company with a direct or indirect interest
Speaker 7: in a pharmacy benefit manager from being issued a pharmacy
Speaker 7: license in the state of Arkansas.
Speaker 6: Well what does that mean?
Speaker 7: So we're talking about folks like CVS, who operates those
Speaker 7: brick and mortar retail locations that most of us are
Speaker 7: familiar with. They also operate mail order pharmacies sick as
Speaker 7: express Scripts operates a mail order pharmacy, many of which
Speaker 7: do business with the federal government through other trycare or
Speaker 7: other kinds of employee benefit programs. There and then there's
Speaker 7: also United Health often which operates a mail order service
Speaker 7: as well, so making these companies also operate large PBMs.
Speaker 7: They are the largest three PBM operators in the United
Speaker 7: States today, having over eighty six percent of the actual
Speaker 7: market share in that space from what I believe combined.
Speaker 7: So what this does though, is it basically if it
Speaker 7: polled licenses from pharmacy licenses from folks who operate a PBM,
Speaker 7: what that would mean was that would be the closure
Speaker 7: of CVS physical retail locations within the state of Arkansas,
Speaker 7: and also would apply to mail order services coming into
Speaker 7: the state as well, so these PBMs would be these
Speaker 7: companies would be prevented from operating any pharmacy services within
Speaker 7: the state. The argument behind the law is that, look,
Speaker 7: what this is really doing is these companies who operate
Speaker 7: the PBMs are funneling or steering business into their own
Speaker 7: pharmacies and away from local independent pharmacies, cutting off their
Speaker 7: ability to survive. No surprise here, the law assigned in
Speaker 7: April it's it's set to take effect in January, but
Speaker 7: there are significant lawsuits with a significant number of issues
Speaker 7: that have been filed to halt implementation of that law.
Speaker 7: A bunch of different grounds here, one being a dormant
Speaker 7: commerce clause, one being their Privileges and Immunities clause. Like
Speaker 7: all all this really scintilating constitutional law. But I think
Speaker 7: at the end of the day, what's most applicable here
Speaker 7: probably is this really evolving case law right now around
Speaker 7: federal preemption for ARISA plans, for Medicare plans, and for
Speaker 7: Tricare the Militaries Pharmacy plan for service members and former
Speaker 7: service members. So why is that important or why is
Speaker 7: that what's really relevant here? The statutes are really broad
Speaker 7: with their federal preemption powers, and basically, whenever anything starts
Speaker 7: to touch the design of plans that operate under Medicare
Speaker 7: or Tricare, then it's preempted under federal law. Here, the
Speaker 7: question is does this actually touch that issue of plan design, right?
Speaker 6: And I think probably it does.
Speaker 7: But there's really avolving precedent here too, And really what
Speaker 7: it would do is it would restrict who these folks
Speaker 7: could contract with and providing their services under the plants.
Speaker 7: I think that probably crosses the threshold throw the necessary
Speaker 7: threshold for it to become an interference with the plan
Speaker 7: of the design of the planet itself. Other arguments though, too,
Speaker 7: and one other wrinkle to point out here. You know,
Speaker 7: I don't think the legislature in Arkansas necessarily did itself
Speaker 7: any favors with some of the history that I've read
Speaker 7: in coming about to pass the bill. But they did
Speaker 7: include an exception for pharmacy employers who operate at PPM
Speaker 7: only for the benefit of their own employees. I know
Speaker 7: that's a mouthful, but you know they're exempted from this law.
Speaker 7: And what that does basically is it exempts Walmart, the
Speaker 7: largest corporation in Arkansas that also operates pharmacies, from coverage
Speaker 7: under the statute. So they'd still be able to operate
Speaker 7: their pharmacies from a retail perspective even though they operate
Speaker 7: at PBM, but only for their employees. It is, it is,
Speaker 7: and you can imagine that that's what folks are screaming
Speaker 7: about and all of the complaints that have been filed
Speaker 7: against the law. However, there's a couple of wrinkles here though,
Speaker 7: and I don't think that's necessarily the issue that's going
Speaker 7: to carry water the way folks think it's going to.
Speaker 7: It's not just Walmart that would be exempted. There is
Speaker 7: a grocery store called Harps, for example, which would also
Speaker 7: be exempted.
Speaker 6: Under the law.
Speaker 7: And also, you know, there are all of these other
Speaker 7: mail order pharmacies who have business coming from out of
Speaker 7: state who don't operate a PBM, and the statute does
Speaker 7: nothing on its face to stop them from joining business
Speaker 7: in Arkansas. So you've got folks like Amazon Pharmacy, even
Speaker 7: does a substantial amount of business in all fifty states now,
Speaker 7: don't operate a PBM, so they would likely.
Speaker 6: Be exempted as well. And you've got Walgreens right who.
Speaker 7: Operates, so it's physical retail locations too, but they don't
Speaker 7: own a PBM. So I think again that those physical
Speaker 7: locations are fine. The whole argument that is just to
Speaker 7: protect in state interest really has a hard time carrying
Speaker 7: water when you have facts I like that standing in
Speaker 7: the face of the law.
Speaker 1: That's interesting on the federal preem SERSU has the federal
Speaker 1: government weighed in on that at all.
Speaker 7: Not in this case, but they have went in another
Speaker 7: case right now that that's been filed with the Supreme
Speaker 7: Court for Sircherai right, and it's been conference now. I
Speaker 7: think we're tended to its third conference today June twenty sixth,
Speaker 7: after the federal government filed position in that case. And
Speaker 7: what happened there is the Tenth Circuit struck down an
Speaker 7: Oklahoma law that kind of dealt with certain aspects of
Speaker 7: how a PBM does business, basically requiring PBMs to open up,
Speaker 7: you know, their their plans to any willing pharmacies or
Speaker 7: pharmacies they might not want to include as part of
Speaker 7: their preferred their preferred networks. That the Tenth Circuit struck
Speaker 7: down that law in Oklahoma as saying that that actually
Speaker 7: was a preemption issue in terms of ARISA and medicare.
Speaker 7: There seems to be some disagreement with us obviously, some
Speaker 7: interest in the court here to hear the case. They've
Speaker 7: conferenced it so many times. The federal government says, no,
Speaker 7: that's actually should not have been upheld. You know, it's
Speaker 7: fine to toss it away because it does have this
Speaker 7: preemption issue going on. But those issues there are part
Speaker 7: and part of what the we're seeing in this case
Speaker 7: in Arkansas.
Speaker 6: I think so if.
Speaker 7: The Supreme Court does take the case, everything, that really
Speaker 7: could have a huge impact on the direction of the
Speaker 7: litigation there in Arkansas.
Speaker 1: Oh interesting, So is that what you're looking for next
Speaker 1: or is there some other catalysts you're watching in the
Speaker 1: Arkansas case?
Speaker 7: So I think that's the biggest one, you know, and
Speaker 7: we might know by Monday even whether or not the
Speaker 7: Supreme Court will plan to take that case, you know,
Speaker 7: in the coming term, So that that's one catalyst, you know.
Speaker 6: I think, you know.
Speaker 7: It's likely that we're going to see a preliminitary injunction
Speaker 7: at least issued with regard to the Arkansas Statute. I
Speaker 7: think there's just too much on the table, and there
Speaker 7: is you know, may perhaps not a high likelihood that
Speaker 7: these companies would win, but a likelihood for sure. Right,
Speaker 7: So I think that all being what it is, we're
Speaker 7: likely to see a preliminary injunction issue before the law
Speaker 7: can go into effect, probably sometime this fall, you know,
Speaker 7: but we've got years ahead here, I think for how
Speaker 7: this ultimately plays out. This certainly is not an issue
Speaker 7: that's going to be designed at the district court level
Speaker 7: and finality, and.
Speaker 1: Just one last question, are do you expect other states
Speaker 1: to pass similar laws.
Speaker 7: I do, and I think, you know, obviously what happens
Speaker 7: in Arkansas is going to be influential. What happens at
Speaker 7: the Supreme Court, whether or not they take this case,
Speaker 7: the Mulready case, is going to be influential. But just
Speaker 7: just last month or this month actually in Louisiana, at
Speaker 7: the close of their legislative session, there was a huge
Speaker 7: push to pass a similar bill in Louisiana. Donald Trump
Speaker 7: Junior gun involved on Twitter and advocated for the passage
Speaker 7: of that legislation. CVS CBS Health is actually now accused
Speaker 7: of texting its customers within the state to encourage their
Speaker 7: state legislators to vote no on the bill. And you know,
Speaker 7: whether or not that actually happened, that's that is up
Speaker 7: for debate. But Louisiana Attorney General has actually filed suit
Speaker 7: against CVS for a violation of privacy, privacy laws and
Speaker 7: all these other things. Now, you know, I was saying, hey,
Speaker 7: you can't do that, that's not the reason you collected
Speaker 7: those phone numbers for.
Speaker 6: So there's a lot rolling out, you know, I.
Speaker 7: Think Louisiana, there there's talk of a special session even
Speaker 7: to pass legislation that would do the same there.
Speaker 6: I think likely it spreads. It's a hot button issue.
Speaker 7: Everybody seems to want to do something about PBMs, but
Speaker 7: the one actor who probably should and has the power
Speaker 7: to Congress, has yet to do so.
Speaker 1: Shocking. All right, good stuff, thanks justin. All right, let's
Speaker 1: bring in Matt Sentenhelm. We're gonna pivot back to TMT.
Speaker 1: I guess in some ways, so Matt. Last week, the
Speaker 1: Senate confirmed President Trump's Republican nominee to the FCC, Olivia Trustee.
Speaker 1: Great last name. I know you've been tracking the potential
Speaker 1: for major changes to broadcast regulation. You know, just give
Speaker 1: us the brief overview of where things stand now.
Speaker 3: Yeah, that's right, Elliott.
Speaker 8: The Senate confirmed trustee on June eighteenth, and as a
Speaker 8: result of that move, Republicans now have an advantage. There's
Speaker 8: a two to one advantage at the FCC. Brendan Carr
Speaker 8: and Olivia Trustee are the two Republicans. There's one Democrat,
Speaker 8: Ana Gomez. So that frees up Republicans to move ahead
Speaker 8: with some of the more aggressive moves that they couldn't
Speaker 8: do when the f CC was evenly split. The FCC
Speaker 8: requires three members to have a quorum, so they have three,
Speaker 8: and so pretty much they're good to go now. And
Speaker 8: so one of the most significant issues to watch, I
Speaker 8: think for investors in the space are people that watch
Speaker 8: TV and radio broadcast companies. The FCC's had media ownership
Speaker 8: limit dating from the nineteen seventies that limit how many
Speaker 8: stations these companies can own. They're very different from the
Speaker 8: environment faced by new media companies like internet platforms or
Speaker 8: streaming platforms. They offer very similar services, they don't face
Speaker 8: any of this regulation, and so Republicans have been calling
Speaker 8: for years for an easing or an elimination of those
Speaker 8: rules for the traditional broadcasters. I think it may now
Speaker 8: get done in a significant way. And so the same
Speaker 8: day the Senate confirmed Olivia Trusty, the FCC put out
Speaker 8: a public notice on this issue for TV broadcasters and
Speaker 8: it said, we'd like to refresh our record on this
Speaker 8: rule making about the rule that limits how many TV
Speaker 8: stations a company can own right now, the rule says
Speaker 8: you can only reach thirty nine percent of US households,
Speaker 8: subject to a discount and a little tinkering around the edges,
Speaker 8: but it's a significant limit on how many stations one
Speaker 8: company how many households one company can reach, how many
Speaker 8: stations they can own effectively. NAB National Association of Broadcasters
Speaker 8: has asked the FCC scrap.
Speaker 3: That rule, get rid of it, no limit.
Speaker 8: And so what that means for companies like Nextstar, Sinclair
Speaker 8: Tegna is that while they're limited now to only reaching
Speaker 8: a small fraction of US households, after this change is adopted,
Speaker 8: they could reach every US household In theory, it's a
Speaker 8: huge change, enormous economies of scale, opportunities to buy up
Speaker 8: stations across the country if this goes ahead. And as
Speaker 8: I said, two to one, now Republicans are in the
Speaker 8: driver's seat and they can move ahead with this sort
Speaker 8: of sort of change.
Speaker 1: And that give us a sense of the time. And
Speaker 1: I mean, how quickly you know is this going to happen?
Speaker 1: I assume they have to go through the normal rule
Speaker 1: making notice time.
Speaker 8: Yeah, So in twenty seventeen they put out a notice
Speaker 8: of proposed rulemaking and never closed it. So they kind
Speaker 8: of took that initial step already. What they put out
Speaker 8: last week is a call for a refresh of the
Speaker 8: record on that old notice of proposed rulemaking. And so
Speaker 8: the timing there when you sketch out how long those
Speaker 8: comments will be filed, it takes you to about mid August.
Speaker 8: We're waiting for publication in the Federal Register, so a
Speaker 8: little little movement around the edges, but basically mid August
Speaker 8: they'll be done with the record. Then it's just a
Speaker 8: question of how quickly car wants to call it for
Speaker 8: a commission vote. Typically you'd wait a couple of months well,
Speaker 8: you know, while you put together a final decision. He
Speaker 8: could move faster or slower on this, but I i'd
Speaker 8: ballpark October as a good good time to you.
Speaker 3: Know, a reasonable target for this.
Speaker 8: The FCC often acts that it's monthly meetings on these things,
Speaker 8: So October twenty eighth is the one to circle. And
Speaker 8: if that's correct, you want to really want to watch
Speaker 8: three weeks before it is when he'll release the agenda.
Speaker 8: So October seventh is what I'll be circling on my
Speaker 8: calendar as the date where you could see, you know,
Speaker 8: a major driver for companies like like Next Star, Sinclair Tegna.
Speaker 1: That's pretty quick.
Speaker 8: Yeah, that would be fast and so and and it's
Speaker 8: off in a good bet with the FCC that things
Speaker 8: take longer than you think so I might might be
Speaker 8: regretting that, but that's but I do think car wants
Speaker 8: to move quickly on this stuff. He seems to be
Speaker 8: aggressive on this front, so it seems reasonable. But the
Speaker 8: whole fourth quarter is a possibility. There there are monthly
Speaker 8: meetings in November and December. It's also hosip he tries
Speaker 8: to do this outside of a monthly meeting that usually
Speaker 8: still takes thirty to forty days.
Speaker 3: So fourth quarter is likely, I.
Speaker 8: Think to see action, then you're gonna have litigation over
Speaker 8: it going into next step.
Speaker 1: That was going to be my nice question. Do you
Speaker 1: expect anyone to see Yeah?
Speaker 3: Absolutely.
Speaker 8: There's a big question about whether only Congress can change
Speaker 8: that thirty nine percent limit or whether the FCC can
Speaker 8: do it. And that's really what stemy the FCC in
Speaker 8: twenty eighteen. The Republicans couldn't agree on this, and so
Speaker 8: there's there's inevitably going to be a big fight over that.
Speaker 8: I think the FCC can win it and say that
Speaker 8: the FCC has the power to change the rule itself,
Speaker 8: but it might who who would see So you're likely
Speaker 8: to see opposition from public interest groups on this who
Speaker 8: defend these rules. You're likely to see opposition from the
Speaker 8: companies that sit across the table from broadcasters in negotiations
Speaker 8: about carriage of their station. So cable companies have to
Speaker 8: pay the broadcasters for distribution rights. And if the broadcasters
Speaker 8: are suddenly much bigger players, they have much more leverage
Speaker 8: over the distributors, and so the cable companies, you know,
Speaker 8: resist these changes in the rules as much as they can.
Speaker 8: So there's definitely going to be oppositioned from from different angles,
Speaker 8: and they're likely to file lawsuits.
Speaker 1: Well, that'll be fun for you to cover after the
Speaker 1: rulemaking process gets completed. It's always fun to cover the litigation.
Speaker 1: All right, Matt, good stuff.
Speaker 3: Thank you.
Speaker 1: All right, I think we're gonna leave it there. We'll
Speaker 1: wrap up this episode of Votes and Verdicts. As always,
Speaker 1: thank you for listening, and also, as always, if you
Speaker 1: have any questions about anything that we discussed on this episode,
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