Speaker 1: Hello, and welcome to the Votes and Verdicts podcast, hosted
Speaker 1: by the Litigation and Policy team at Bloomberg Intelligence, the
Speaker 1: investment research platform of Bloomberg LP. This podcast series examines
Speaker 1: the intersection of business policy and law, and today we'll
Speaker 1: be looking at the litigation and policy catalysts that we're
Speaker 1: watching in June twenty twenty four and that we think
Speaker 1: will impact companies across a number of different sectors. My
Speaker 1: name is Elliot Stein. I'm a senior litigation analyst covering
Speaker 1: litigation in the financial sector, and I'll be your host
Speaker 1: for today May thirty first, twenty twenty four. If you
Speaker 1: have any questions about any of the matters that we'll
Speaker 1: be talking about on this episode, please don't hesitate to
Speaker 1: reach out to us at your convenience with questions. So
Speaker 1: we'll be discussing a handful of sectors today. First, we'll
Speaker 1: start with our TMT litigation and policy analyst, Matt Shettenhelm,
Speaker 1: who's waiting for a Supreme Court decision concerning how the
Speaker 1: First Amendment shields companies like Google, Meta and other big
Speaker 1: tech platforms from regulation. Matt will also update us on
Speaker 1: lobbying efforts by broadband Internet service providers to extend federal
Speaker 1: subsidies for low income Americans. After that, Justin Teresi will
Speaker 1: tell us about an upcoming hearing seeking approval of a
Speaker 1: thirty billion dollars settlement between Visa and MasterCard on the
Speaker 1: one hand and merchants on the other hand, in decades
Speaker 1: long antitrust litigation over interchange fees. Sticking with antitrust, jen
Speaker 1: Ree will then update us on the Justice Department versus
Speaker 1: Google Search case, where she expects a liability verdict very soon,
Speaker 1: as well as a key ruling that she expects in
Speaker 1: Epic versus Apple litigation over app store rules. I'll then
Speaker 1: talk about the latest in litigation challenging the CFPB's rule
Speaker 1: capping credit card late fees, and I'll also talk about
Speaker 1: a ruling I expect in litigation challenging the SEC's private
Speaker 1: funds rule. After that, Holly Frome, who covers nonpatent healthcare litigation,
Speaker 1: among other things, will tell us what she's watching for
Speaker 1: in cases alleging that Zantac causes cancer. After that, Dwayne Wright,
Speaker 1: who covers healthcare policy in Washington, d C for US,
Speaker 1: will tell us about bipartisan support to expand the inflation
Speaker 1: reduction acts, orphan drug exemption, and whether it's enough to
Speaker 1: pass Congress this year. And then last but not least,
Speaker 1: we'll end with Nathan Dean, our financials policy analyst in DC,
Speaker 1: and he'll tell us what's going on with a major
Speaker 1: crypto bill making its way through Congress. As always, all
Speaker 1: of our research is available on the Bloomberg terminal at
Speaker 1: big And just a quick word about Bloomberg Intelligence for
Speaker 1: those who don't know. We are the investment research platform
Speaker 1: on the Bloomberg terminal, providing in depth research on industries, companies,
Speaker 1: and markets and delivering key data from bi analysts in
Speaker 1: their given industries. All right, So with all that, let's
Speaker 1: get started with the content.
Speaker 2: Matt.
Speaker 1: Let's start with you and talk about the Supreme Court
Speaker 1: and big tech platforms. Google, Meta and other big tech
Speaker 1: companies are set to get a key decision from the
Speaker 1: Supreme Court about how the First Amendment shields them from regulation.
Speaker 1: You expect the companies to win on the most important questions,
Speaker 1: but can you sort of remind us what this case
Speaker 1: is about?
Speaker 3: Yeah, thanks Elliott. Yeah, we are expecting a decision in
Speaker 3: June in these cases, and they concerned laws in Florida
Speaker 3: and Texas that were really motivated by political concerns, but
Speaker 3: they have a significant business impact depending on how they
Speaker 3: will be decided. Basically, the laws were driven by the
Speaker 3: by the concern that Alphabet and Meta have an anti
Speaker 3: conservative bias. But fundamentally, the laws effectively try to make
Speaker 3: the platforms operate as common carriers or as passive hosts.
Speaker 3: That and they would be potentially subject to liability lawsuits
Speaker 3: if they remove content in a way that is biased
Speaker 3: or one sided, that if they aren't passive in passing
Speaker 3: along content. And that's a huge deal for the companies
Speaker 3: because content moderation is critical to how these companies operate
Speaker 3: their businesses. They're flooded with social media content, and if
Speaker 3: they can't make editorial choices to prioritize or to deprioritize content,
Speaker 3: that risk jeopardizing the experience for users and ultimately for advertisers,
Speaker 3: which is fundamental to their business.
Speaker 1: I feel like it's popular to criticize big tech companies
Speaker 1: these days, but but it seems like you like the
Speaker 1: company's chances here. Can you tell us why?
Speaker 4: Yeah?
Speaker 3: So so? I mean, despite the politics, you know, sort
Speaker 3: of the bipartisan you know, inclination to go after these companies.
Speaker 3: The Court is still very protective of the First Amendments
Speaker 3: and and I don't think you're going to see a
Speaker 3: majority of the Court that is willing to say that
Speaker 3: these companies don't have First Amendment rights as they operate
Speaker 3: as content moderators. I think there's going to be a
Speaker 3: decision from the Court that that that solidifies that principle,
Speaker 3: and that's important for the companies. And you know, it's
Speaker 3: not a total win, a huge win, because a big
Speaker 3: win could wipe out the potential to do, you know,
Speaker 3: a lot of regulation of these companies, but it will
Speaker 3: at least knock out these sorts of laws that force
Speaker 3: the companies to be common carriers. And I think that's
Speaker 3: important for the business model going forward. Based on the
Speaker 3: February oral argument, I had Justices Kavanaugh, Roberts, Kagan, and
Speaker 3: Barrett all pretty strongly inclined to protect that principle, and
Speaker 3: I think Justices Soda, Mayor, and Jackson will go along
Speaker 3: with them. Three justices, Justices Alito, Thomas, and Gorsich, I
Speaker 3: think are probably more likely to rule for the States.
Speaker 3: So at the end of the day, I expect a
Speaker 3: ruling in June that is supportive of the key and
Speaker 3: most important principle for these companies, but still leaves room
Speaker 3: for regulation going forward.
Speaker 1: Got it all right, Matt, Let's turn to policy. It
Speaker 1: seems like the path is a little shaky for an
Speaker 1: extension of the Affordable Connectivity Program in Congress this year.
Speaker 1: I guess the program runs out of money this month,
Speaker 1: and it has, but it has bipartisan support. So why
Speaker 1: do you think Congress won't pass an extension.
Speaker 3: Yeah, this is one that kind of leaves you shaking
Speaker 3: your head because you have lawmakers on both sides saying
Speaker 3: we need to extend this program, and yet Congress hasn't
Speaker 3: been able to do so. And my take, I'm at
Speaker 3: twenty percent right now whether they can do an extension.
Speaker 3: As you said, the money runs out in May, and
Speaker 3: so there was a real push to get this done
Speaker 3: as part of the FAA reauthorization that ultimately didn't get done.
Speaker 3: And so now it's just it's I think you're going
Speaker 3: to see continued pressure from some lawmakers to try to
Speaker 3: get something done, but there's real resistance from House Republicans
Speaker 3: and certain Senate Republicans to include this. I think it's
Speaker 3: unlikely to get done. This year. They're trying to get
Speaker 3: it seven billion dollars of additional funding for twenty twenty four,
Speaker 3: and it's significant for company like Charter that has five
Speaker 3: million subscribeds that benefit from this program. But I just
Speaker 3: don't think it looks good in terms of any sort
Speaker 3: of vehicle to pass this year. More likely in twenty
Speaker 3: twenty five twenty twenty six, there's going to be a
Speaker 3: remake of all of the FCC's universal several service programs.
Speaker 3: I think this gets wrapped into that. But kind of
Speaker 3: bad news, I think in terms of the prospects for
Speaker 3: an extension this year.
Speaker 1: I guess it wouldn't be the first time that Congress
Speaker 1: leaves people shaking their heads, right, which I guess is
Speaker 1: better than leaving people shaking their fists. All right, thanks Matt, Okay, justin,
Speaker 1: let's bring you in. Why don't you come in? Tell
Speaker 1: us what's going on with this thirty billion dollar interchange
Speaker 1: fees settlement between Visa and MasterCard on the one hand,
Speaker 1: merchants on the other hand. It feels like this case
Speaker 1: has been going on forever. What's the latest?
Speaker 5: Yeah, Eliet, absolutely right. This case has now been going
Speaker 5: on for almost two decades. The litigations older than my
Speaker 5: law degree. And I've been doing this for a little while.
Speaker 5: So when we say the case is old, that certainly
Speaker 5: is not an understatement. But what we're seeing now in
Speaker 5: this case, it's a thirty billion dollar equitable relief class
Speaker 5: proposed settlement between Visa and a MasterCard and issuing and
Speaker 5: banks that issue credit cards or Chase, Bank of America
Speaker 5: and the like on the one hand, and then several
Speaker 5: merchants who accept those credit cards as are forms of
Speaker 5: as a form of payment nationwide. There's a June thirteenth
Speaker 5: preliminary approval hearing set before Judge Brode, Chief Judge Brodie
Speaker 5: in the Eastern District of New York where this has
Speaker 5: been pending now for almost twenty years. But first and foremost,
Speaker 5: what are interchange fees? So these are the fees that
Speaker 5: are collected by issuing banks whenever there's a credit card
Speaker 5: transaction that occurs, and those typically range between one percent
Speaker 5: and three percent of the total transaction costs. How that
Speaker 5: works is that cheaper credit cards are those credit cards
Speaker 5: you see that don't have really any rewards associated with them,
Speaker 5: so just a straight away credit card. But there's cards
Speaker 5: that we all know and love the ones that come
Speaker 5: to airline miles or cash back wards. Those typically carry
Speaker 5: a higher interchange fee with them every time the card
Speaker 5: is swiped, so more money going to the issuing bank
Speaker 5: when those cards are used. So what the issue here
Speaker 5: is too, is that, you know, a few years ago,
Speaker 5: there was a settlement that folks might remember with this
Speaker 5: case two and then address a monetary damages class. And
Speaker 5: the way to think about that versus what's on the
Speaker 5: table now is the previous settlement that was approved by
Speaker 5: the court was one that really addressed the past harms,
Speaker 5: you know, the damage that had already been done to
Speaker 5: folks by virtue of these alleged antitrust harms when issuers
Speaker 5: collect at these interchange fees. What we're looking at now
Speaker 5: in this settlement is really an attempt to address the
Speaker 5: future harms that could happen if rules aren't changed in
Speaker 5: the way that these fees are collected, and what the
Speaker 5: fees and the rates associated with them actually are moving forward.
Speaker 5: So moving into kind of the details of the settlement
Speaker 5: very complicated, but what proponents of the deal say is
Speaker 5: that currently less than twenty percent of all transactions nationwide
Speaker 5: can be surcharged right now with the fees passed on
Speaker 5: to consumers. So what the deal would do when it
Speaker 5: would raise that percentage in ninety six percent, and when
Speaker 5: it's also say that the deal opens interchange fee competition
Speaker 5: between those issuing banks who actually collect the fees. What
Speaker 5: would permit is discounting un surcharges, so basically steering customers
Speaker 5: to use what would be less costly cards, those cards
Speaker 5: that might not have those rewards associated with them, and
Speaker 5: discounting could happen both on the product level, so that's
Speaker 5: the individual cards, you know, an airline rewards card versus
Speaker 5: a different non reward bearing card issued by the same issuer.
Speaker 5: Discounting could also happen on the issuing level, so bank
Speaker 5: to bank, you know, being accepted a particular merchant. And
Speaker 5: then also it can be discounting could be happening on
Speaker 5: a more branded type as well, so kind of splintered
Speaker 5: across the different types of discounting that can happen to
Speaker 5: the terms of the deal. But perhaps most importantly and
Speaker 5: where that thirty billion dollar figure comes from, is the
Speaker 5: fact that for a five year term there'd be a
Speaker 5: cap on these interchange fees. What's actually charged to merchants
Speaker 5: by the issuing bank. It couldn't be raised for five years,
Speaker 5: and that would be effective on the date of preliminary
Speaker 5: approval if the deal reaches that point this month. It
Speaker 5: would also roll back the existing fees by three to
Speaker 5: four basis points per merchant, and then a seven basis
Speaker 5: point reduction on the average fees that are collected in
Speaker 5: that five year period. It also removes some of the
Speaker 5: limitations in the agreements between merchants and the credit card
Speaker 5: companies that would limit the ability to collect SIR charges
Speaker 5: on Visa and MasterCards when the same aren't collected for amex.
Speaker 5: If the merchant also accepts for payment, and then it
Speaker 5: also gives them a little bit more flexibility as to
Speaker 5: whether or not to accept a particular company's digital wallet
Speaker 5: like Apple Pay or Google Pay if a merchant isn't
Speaker 5: necessarily in favor of the terms for those wallets when
Speaker 5: they accept them at their point of sale. So what
Speaker 5: we're seeing here too is a situation where buying groups
Speaker 5: from merchants are also part of the deal. So what
Speaker 5: that does is smaller merchants that might not have a
Speaker 5: strong negotiating ability when they go to make a deal
Speaker 5: with the credit card company as to the terms of
Speaker 5: their acceptance, can band together and hope to get a
Speaker 5: better deal than they would otherwise. Larger merchants typically are
Speaker 5: having an easier time getting more favorable terms. But again,
Speaker 5: all of this is only valid for five years. The cap,
Speaker 5: the rollbacks, the terms that make acceptance favorable in terms
Speaker 5: of Visa MasterCard even when they might not be able
Speaker 5: to for Amex, the buying groups, all of that is
Speaker 5: a five year term here, and the question then becomes,
Speaker 5: does this just open the door to future litigation after
Speaker 5: that five year period. Do we see appause in this
Speaker 5: twenty year litigation and then the restarts again five years later,
Speaker 5: or is this really the finality that everybody's looking for
Speaker 5: at this point. So that's one big question is whether
Speaker 5: or not this deal can actually be approved. But really,
Speaker 5: you know, I think standing in opposition here to the
Speaker 5: deal are a lot of big retailers who say, not
Speaker 5: so fast. What we're really getting out of this deal
Speaker 5: isn't so much at all. We've just got an over
Speaker 5: or some summary judgment motions that were opposed by the
Speaker 5: credit card companies. We're try already, and what we could
Speaker 5: do now is take us swipe with these these rules
Speaker 5: and their entirety. So why would we accept the settlement
Speaker 5: at this point that limits these rules for a five
Speaker 5: year term when what we're doing is trying to eliminate
Speaker 5: these rules as anti competitive altogether in the first place.
Speaker 2: So that's the.
Speaker 5: Argument they're making.
Speaker 3: Now.
Speaker 5: Large retailers are saying, we should be able to opt
Speaker 5: out from this deal. We should be able to continue
Speaker 5: forward on our own. We're ready to do so. We've
Speaker 5: just gone over some Rey judgment and that's what's on
Speaker 5: the table here in terms of the deal. Isn't aren't
Speaker 5: really making a financial impact on our business and the
Speaker 5: way that these fees are collected anyway, They note that
Speaker 5: role the rollback associated with the fees actually reduces the
Speaker 5: fees to a point the tire when the litigation even
Speaker 5: began in two thousand and five, So really, what is
Speaker 5: the what is the benefit here for a larger retailer?
Speaker 5: And also, I think an important aspect of this too
Speaker 5: is that compliance with existing state laws is really questionable
Speaker 5: under the terms of the deal. There's a whole a
Speaker 5: lot out there in terms of stay consumer protection statutes
Speaker 5: that needs to be addressed and it's unclear whether the
Speaker 5: terms of the deal really have taken that into account
Speaker 5: last week. Kind of looking forward here from a prediction standpoint,
Speaker 5: if the deal is going to have opt outs to it,
Speaker 5: and these larger folks like Walmart, Target, Starbucks can walk
Speaker 5: away and say we're going to go it alone here,
Speaker 5: and smaller merchants still have this ability to continue on
Speaker 5: with the settlement, it makes sense for them to participate
Speaker 5: right now because from a standpoint of kind of insurance,
Speaker 5: how this works is they'll be able to take advantage
Speaker 5: of things like buying groups and surcharging customers right now. Well,
Speaker 5: the larger folks still duke it out and say, hey,
Speaker 5: you know, we're going to fight these rules as being
Speaker 5: anti competitive on their face. So in the meantime, smaller
Speaker 5: folks get to take advantage of the of the lay
Speaker 5: of the land. Larger folks fight it out, and if
Speaker 5: the deal is anti competitive for them, it's anti competitive
Speaker 5: for everybody.
Speaker 1: And just remind us again, what's the date that you're watching.
Speaker 5: Yeah, so it's going to be June thirteenth, is the
Speaker 5: preliminary approval here. Planning to attend that in person wouldn't
Speaker 5: be surprised if it gets pushed back, But you know,
Speaker 5: I think that's going to be a pivotal date here
Speaker 5: for whether preliminary approval happens. And important to mention too,
Speaker 5: the Second Circuit turned rejected the first attempt at this
Speaker 5: deal years ago, saying that there was an inadequate representation
Speaker 5: of everybody in the class here. And I think for
Speaker 5: the same reasons that we're seeing here that could be
Speaker 5: a problem in the sense that the smaller merchants and
Speaker 5: their interests really are being covered by the plaintiff's council
Speaker 5: here who's who's really fought for this deal to be approved.
Speaker 5: But the larger folks, led by National Retail Federation and others,
Speaker 5: are saying, yes, that's great for small emerchants, but our
Speaker 5: interests really aren't accounted for right now, and the way
Speaker 5: to settlem is laid out.
Speaker 4: Got it?
Speaker 1: Thanks? Justin all right, Jen, let's bring you in and
Speaker 1: you know we'll stick with anti trust. Why don't you
Speaker 1: come in give us an update on the DOJ versus
Speaker 1: Google case and the Epic Games versus Apple case. Since
Speaker 1: you're what you're you're waiting for key decisions in both
Speaker 1: those cases.
Speaker 2: Yeah, sure, thanks Elliott.
Speaker 6: So we'll start with Epic Games versus Apple, because like
Speaker 6: what Justin was just talking about with credit cards, it
Speaker 6: has to do with fees also charged by a big company.
Speaker 6: This lawsuit was filed by Epic Games against Apple over
Speaker 6: Apple's rules and policies with respect to its app store,
Speaker 6: and everybody thought it was pretty much done in January
Speaker 6: this past January, because that's when the Supreme Court refused
Speaker 6: both companies' requests for a review of an appeals court
Speaker 6: decision that affirmed the trial court. But somehow the companies
Speaker 6: have managed to continue the fight. And that is because
Speaker 6: when the Supreme Court denied review, it meant Apple had
Speaker 6: to comply with an injunction that was issued by the
Speaker 6: trial court, and that injunction directed Apple to eliminate something
Speaker 6: called its anti steering rules for app developers because it
Speaker 6: was found that they violate a California state law against
Speaker 6: un their business practices. Now, I should say Apple won
Speaker 6: on all the other claims, including the federal laws and antitrust,
Speaker 6: but this one law they were found to violate. And
Speaker 6: what these anti STI rules were, essentially were rules that
Speaker 6: banned developers from communicating with any of their users that
Speaker 6: the user could buy the app or make an in
Speaker 6: that purchase more cheaply for less a lower price in
Speaker 6: the developer's website instead of in the app store. So
Speaker 6: the purpose of the injunction was to open a path
Speaker 6: for developers to be able to offer apps and in
Speaker 6: that purchase is at lower prices to consumers, because if
Speaker 6: the consumer bought through the developer's website, the developer doesn't
Speaker 6: have to pay Apples fifteen to thirty percent fee. That's
Speaker 6: what it charges some developers fifteen percent, some thirty percent
Speaker 6: if the purchase is made through the app Store. So
Speaker 6: what Apple did in order to comply with the injunction
Speaker 6: was to tell developers, sure, you can steer customers, no problem,
Speaker 6: but if a user clicks out of the app Store
Speaker 6: to make the purchase in your website, hey, by the way,
Speaker 6: you still have to pay us twelve to twenty seven
Speaker 6: percent fees. So, given that most developers have to pay
Speaker 6: about three percent to a payment processor to handle the
Speaker 6: transaction in their own website, they're not able to do
Speaker 6: their costs and therefore they're not able to reduce the
Speaker 6: price to consumer. So while Apple didn't really technically violate
Speaker 6: the Judge's order. It certainly violated the spirit of the order,
Speaker 6: and Epic challenged Apple's compliance, and now the judge has
Speaker 6: been holding hearings on this that the last or at
Speaker 6: least the penultimate hearing is actually this afternoon morning because
Speaker 6: it's in California, but for me, this afternoon, and I
Speaker 6: think the judge is probably going to decide pretty quickly.
Speaker 6: That's why I think will have a decision in June.
Speaker 6: She's clearly been very angry with Apple, so she's made
Speaker 6: that very clear through the hearings. She's been hard on
Speaker 6: the Apple witnesses, and I think Apple will probably be
Speaker 6: held in contempt of court and also have to change
Speaker 6: the way it's complying with the injunction, and I think
Speaker 6: that's going to result in some forced.
Speaker 2: Reduction of those fees.
Speaker 6: I don't think a judge is ever going to tell
Speaker 6: Apple what they can charge, but I do think what
Speaker 6: she's going to do is say, look, you've got to
Speaker 6: provide some justification or basis for the value that you
Speaker 6: provide developers in allowing distribution through your app store and
Speaker 6: with respect to the use of your IP, and then
Speaker 6: you can sort of charge in a way that's commensurate.
Speaker 2: With that value.
Speaker 6: Now, I think it's unclear what that's going to be,
Speaker 6: but it's highly likely it's going to be a lot
Speaker 6: less than the twelve to twenty seven percent charge now,
Speaker 6: so that could be a pretty significant hit on Apple's revenues.
Speaker 6: And I do think a decision will probably come in June,
Speaker 6: maybe July, but more likely June.
Speaker 1: Got it all right, Let's turn to doj versus Google
Speaker 1: and the company's search business. This was the first major
Speaker 1: monopolization suit brought by the Justice Department, I think in
Speaker 1: several years. You want to give us a brief summary
Speaker 1: of the case and its timeline.
Speaker 6: Sure, it actually is the first monopolization suit, as you said,
Speaker 6: brought and tried in many, many years. So it's significant
Speaker 6: in both the anti trust and business world, and it
Speaker 6: could really bring changes about to the way we use
Speaker 6: our computers, tablets, and mobile phones.
Speaker 2: This was tried last September.
Speaker 6: Closing arguments were held in May, and that's why I
Speaker 6: think a decision could issue any day, because even though
Speaker 6: we just had closing arguments, that judge had about six
Speaker 6: months in between to review the evidence. And I think
Speaker 6: he knows it's important and he's going to really try
Speaker 6: to get it out. It could slip into July sometime
Speaker 6: in second half, but it's also possible in May, and
Speaker 6: just a quick recap of this case. Google was sued
Speaker 6: for monopoly maintenance with respect to its dominant position in
Speaker 6: search and certain search advertising. The primary accusation is that
Speaker 6: it blocked search engine competitors, which are really just being
Speaker 6: in duc dung go, primarily in the US, by paying
Speaker 6: off third parties to install Google Search as the default
Speaker 6: search engine pretty much wherever a search engine is needed,
Speaker 6: somewhere behind a website or behind an app. And these
Speaker 6: payments that Google was making to third parties were well
Speaker 6: over twenty billion a year, so you know, obviously really
Speaker 6: important to Google to have that default position. We lean
Speaker 6: toward the DOJ on this one. The reason is because
Speaker 6: in the trial the agency presented really strong evidence about
Speaker 6: how sticky and important that default search position is. I mean,
Speaker 6: people can go in and change it, but I guess
Speaker 6: they don't know that, or don't know how, or just
Speaker 6: don't do it. And they also provided pretty compelling evidence
Speaker 6: showing that these agreements prevented Being and other startup search
Speaker 6: engines from developing into a better product because they lack
Speaker 6: the scale the volume of search is necessary to gather
Speaker 6: the data needed to actually improve their own search engine.
Speaker 2: So go ahead.
Speaker 1: I was just going to say, so, I mean, if
Speaker 1: Google is unliable, what happens.
Speaker 6: So, yeah, it's that's phase one. So if Google's found liable,
Speaker 6: we're just at the beginning of phase two of the process,
Speaker 6: because there will be a separate hearing on remedy I
Speaker 6: think probably at some point later this year, maybe early
Speaker 6: next year, and the judge that'll just be a judge
Speaker 6: and they'll present witnesses on what those remedies should be.
Speaker 6: And I think they could be anything from a prohibition
Speaker 6: on paying off third parties for the default position, or
Speaker 6: some force sharing of search data or algorithm data, or
Speaker 6: choice screens for new Android phones and then Chrome as
Speaker 6: they've done in Europe, or any combination of those measures.
Speaker 6: So I do think the dj may actually seek some
Speaker 6: kind of a breakup of the company, but I highly
Speaker 6: doubt that will be the result here, even if it's
Speaker 6: a strong decision on my ability.
Speaker 1: Got it all right? Thanks? Jen?
Speaker 2: Sure?
Speaker 1: All right? I will jump in here and talk about
Speaker 1: a couple cases in the financial sector that I'm watching.
Speaker 1: I'll start with litigation challenging the CFPB's credit card late
Speaker 1: fee rule. I spoke about this case last month, but
Speaker 1: I'm going to talk about it again because it's one
Speaker 1: of the crazier procedural cases that I've seen, certainly in
Speaker 1: this job. For those who don't follow this closely, the CFPB,
Speaker 1: of course, is the Consumer Financial Protection Bureau, which is
Speaker 1: the main regulator for the consumer finance sector. In March,
Speaker 1: the agency issued a rule that would effectively reduce the
Speaker 1: typical late fee that credit card issuers charge from thirty
Speaker 1: two dollars down to eight dollars. And that would and
Speaker 1: eight roughly ten billion dollars in credit card late fees
Speaker 1: for credit card issuers that have at least one million
Speaker 1: open accounts, so think of banks like JP Morgan or
Speaker 1: other companies like American Express, City Bank, Capital One, Bank
Speaker 1: of America, Discover, and Synchrony Financial Bank. Trade groups are
Speaker 1: challenging the rule in court, and they've succeeded in putting
Speaker 1: the rule on hold at least. But the fight that's
Speaker 1: happening now is over venue because the lawsuit was filed
Speaker 1: in Texas Federal Court, which is generally pretty hostile to
Speaker 1: the government and the CFPB is trying to move the
Speaker 1: case to federal court in Washington, DC, which would be
Speaker 1: more favorable to the CFPB. The trial court judge on
Speaker 1: May twenty eighth transferred the case to Washington, DC, but
Speaker 1: that transfer has since been put on hold already by
Speaker 1: the Fifth Circuit Appeals Court while the party's briefed this
Speaker 1: venue issue in more detail. So what I'm watching for
Speaker 1: in June is a ruling by the Fifth Circuit as
Speaker 1: to whether the case will indeed be transferred to Washington,
Speaker 1: d C. Or whether it will stay in Texas. I
Speaker 1: expect we'll get a decision on that in mid to
Speaker 1: late June, and I think the Fifth Circuit will rule
Speaker 1: that the case should stay in Texas, which we think
Speaker 1: will further bolster the chances that the bank trade groups
Speaker 1: ultimately prevail in getting this CFPB credit card late feed
Speaker 1: rule struck down. I won't go into the details of
Speaker 1: why I think this case will stay in Texas, except
Speaker 1: I'll just say that the reasons for transfer that the
Speaker 1: trial judge articulated are things like the location of the
Speaker 1: attorneys on the case, and you know the business. You
Speaker 1: know how busy the DC courts are versus the Texas Court.
Speaker 1: But these are reasons that we're already rejected in this
Speaker 1: case by by the Fifth Circuit one judge on the
Speaker 1: Fifth Circuit when the venue issue surfaced earlier in the litigation.
Speaker 1: So I think that was sort of a preview of
Speaker 1: how the Fifth Circuit is going to see these arguments again.
Speaker 1: All right, let me turn to the second case I
Speaker 1: want to talk about. This is yet another Fifth Circuit case.
Speaker 1: This one is a lawsuit by trade groups on behalf
Speaker 1: of hedge funds and private equity firms challenging SEC rules
Speaker 1: from August that increase that would increase regulations for private
Speaker 1: fund advisors. Specifically, the rules require private fund advisors to
Speaker 1: give investors quarterly statements detailing performance, fees, and expenses. The
Speaker 1: rules also call for private fund advisors to obtain annual
Speaker 1: audits for each private fund. The rules also prohibit prohibit
Speaker 1: providing preferential treatment to investors. They impose restrictions on expenses
Speaker 1: and fees related to government investigations. You know, so a
Speaker 1: lot of things. And all told, the rules are estimated
Speaker 1: to cost funds about five billion dollars per year to
Speaker 1: comply with, and it could result in you know, loss
Speaker 1: of investor capital and higher fees for investors. So oral
Speaker 1: argument was held in the Fifth Circuit on February fifth
Speaker 1: before three judge panel, and you know, like I said earlier,
Speaker 1: this is a very business friendly court. We expected ruling
Speaker 1: by the end of June, although you know it could
Speaker 1: come after that. And we went into oral arguments thinking
Speaker 1: that the bank trade groups that are suing had a
Speaker 1: seventy percent chance of striking down the rules, since we
Speaker 1: thought they had a strong argument that the SEC is
Speaker 1: exceeding its authority by relying on a section of Dodd
Speaker 1: Frank that doesn't really mention private funds but instead is
Speaker 1: focused on retail investors, which aren't really at issue here.
Speaker 1: And indeed oral arguments confirmed our view. You know, the
Speaker 1: judges did appear to be wrestling with ambiguities in the
Speaker 1: statutory text, and they pointed to Congress history treating retail
Speaker 1: investors differently from private funds. And so as a result,
Speaker 1: we think the court will find that the rule violates
Speaker 1: the Major Questions doctrine because Congress didn't explicitly give the
Speaker 1: SEC this power to regulate private funds in this manner.
Speaker 1: And so if the SEC loses, as we expect it
Speaker 1: can you know, it can try to get what's called
Speaker 1: nbank review by the full Fifth Circuit Court of Appeals,
Speaker 1: or it could go to the Supreme Court. But you know,
Speaker 1: I just don't think the agency is going to do
Speaker 1: any better with either of those options. So we're waiting
Speaker 1: for a ruling, like I said, probably in June, possibly
Speaker 1: after all. Right, So that's what I'm watching in the
Speaker 1: financial sector. Let's keep on moving here and we'll bring
Speaker 1: in Holly Frome to talk about litigation that alleges that
Speaker 1: heartburn medicine Zantech causes cancer. Holly, why don't you come
Speaker 1: in here remind us what this case is about and
Speaker 1: what you're watching for this month?
Speaker 7: Sure, thanks, Elliot. So manufacturers, JSK, Bowinger Advisor, and other
Speaker 7: space thousands of claims that an ingredient in Zantac causes cancer.
Speaker 7: The cases were filed all over the country, and federal
Speaker 7: cases were consolidated in a multidistrict litigation in Florida. Significantly,
Speaker 7: in four Q tw twenty two, the court there decided
Speaker 7: what are called delvert motions, which are motions to bar
Speaker 7: plaintiffs experts in these types of cases, a planet can't
Speaker 7: prove their case without an expert. And so what happened
Speaker 7: in the Florida multi district case is that the court
Speaker 7: found that the experts Planeffs put forth were unreliable, so
Speaker 7: she refused to allow them to testify and then dismissed
Speaker 7: about fifty thousand claims. But there are still thousands of
Speaker 7: cases pending. In a Delaware court where we estimate about
Speaker 7: seventy thousand cases are pending, and the court there is
Speaker 7: deciding whether planiffs experts can be admitted. It held earrings
Speaker 7: in January and we expect a decision as early as June.
Speaker 7: If the court there also decides that experts are unreliable,
Speaker 7: the cases most likely will be dismissed. And what we
Speaker 7: said is we think that the case will be narrowed
Speaker 7: but not completely dismissed. So, in other words, we think
Speaker 7: the court will bar experts from testifying. The FanTac causes
Speaker 7: certain types of cancer where the scientific evidence reporting to
Speaker 7: show causation is particularly weak. Those were so called abandoned
Speaker 7: cancers in the MDL, But we think the court will
Speaker 7: allow experts to testify us to some cancers. We've estimated
Speaker 7: the cases could settle for around two point five to
Speaker 7: four billion among all manufacturers, which which estimate assumes the
Speaker 7: number of cases will be dismissed. Recently, it was announced
Speaker 7: that Fizer settled more than ten thousand claims for twenty
Speaker 7: five million, which is in line with our per case estimate,
Speaker 7: assuming the Delaware court allows those cases to proceed to trial.
Speaker 1: Got it, Thanks Slier And how you know, how does
Speaker 1: this court's decision influence the outcome of the litigation in
Speaker 1: your mind?
Speaker 7: So this is really important decision because the majority of
Speaker 7: the vast majority of claims are penning in Delaware. So
Speaker 7: if the court allows cases to get past it, from
Speaker 7: our experts, we expect that the manufacturers will settle the
Speaker 7: vast majority of cases. I'll note that the first trial
Speaker 7: which was held recently resulted in in a defense win,
Speaker 7: and that happened in May, but we think the case
Speaker 7: there was particularly weak. It'll let one of the cancers
Speaker 7: that were abandoneding an MDL colon cancer. Only five cancers
Speaker 7: were pursued in the multi district case, and colon cancer
Speaker 7: was not one of them, And for that reason, we
Speaker 7: don't think that verdict has much read through if other
Speaker 7: cases are allowed to get to trial. But if the
Speaker 7: court decides that the experts are unreliable and dismisses those
Speaker 7: experts bars them from testifying. It's likely that, you know,
Speaker 7: the vast majority of cases will be dismissed.
Speaker 4: Got it.
Speaker 1: Thanks all right, Dwayne. Let's let's bring you in. We'll
Speaker 1: stick with health care. Why don't you come in and
Speaker 1: talk about this, the Inflation Reduction Act and orphan drugs
Speaker 1: to start. Why don't you remind us how the orphan
Speaker 1: drug process even works.
Speaker 4: Yeah, sure, thanks, Elliott. So just to set the stage
Speaker 4: when we're talking about orphan drugs, we're talking about those
Speaker 4: drugs that affect fewer than two hundred thousand people in
Speaker 4: the US. And the key here is that to get
Speaker 4: the benefits of being an orphan drug, you have to
Speaker 4: be designated and get a designation by the FDA. This
Speaker 4: designation usually occurs early in the development process and before
Speaker 4: a submission is made to the FDA. And that's because
Speaker 4: it allows companies to qualify for various intentives, including R
Speaker 4: and D tax credits and eventually marketing exclusivity. FDFD is
Speaker 4: proved for additional context. The tax credits worth about twenty
Speaker 4: five percent of clinical trial costs. The designation gives an
Speaker 4: exemption from market marketing application fees, which is roughly about
Speaker 4: three million dollars, and the drug, if approved for marketing,
Speaker 4: gets exclusivity or market exclusivity for seven years. As an example,
Speaker 4: Astrosenica has two orphan drugs to Griso for lung cancer,
Speaker 4: cal Quins for lymphoma and leukemia. Even though Astrosenica is
Speaker 4: this big company, they still get the benefits of the
Speaker 4: orphan drug designation. And when we look at the data,
Speaker 4: we find that there's roughly sixty one hundred designations in
Speaker 4: the database since two thousand. Granted not all of them
Speaker 4: ended up getting approved by the FDA, some were withdrawn,
Speaker 4: but that said, roughly a third are cancer related with myloma.
Speaker 4: Lymphoma leukemia is with the most designations.
Speaker 1: And how would the IRA affect the drug sluction process?
Speaker 4: So the IRA, stepping back just a bit, basically says,
Speaker 4: if you're high cost drug no competition, no generic competition
Speaker 4: or by similar competition, and you've been on the market
Speaker 4: for seven years as a small molecule or eleven or biologic,
Speaker 4: you are then eligible for negotiation and negotiated price cuts
Speaker 4: two years later. But the IRA exempts those drugs that
Speaker 4: are orphaned drugs and designated for one rare disease or condition,
Speaker 4: where the approved indication is for the disease. Drugs with
Speaker 4: multiple or with designations for multiple rare diseases aren't exempt,
Speaker 4: even if the additional indications haven't been approved by the
Speaker 4: by the FDA, And so when an orphan drug does
Speaker 4: lose or if it loses its exemption when the drug
Speaker 4: is approved for an additional orphan or a non orphan disease,
Speaker 4: the time elapsed from the initial drug approval, not subsequent approvals,
Speaker 4: would determine negotiation eligibility. So I mentioned two drug drugs
Speaker 4: earlier by Astrosenca that Griso for lung cancer has multiple
Speaker 4: designations sorry multiple indications within the same disease area, it
Speaker 4: is exempt. Otherwise it would be negotiation eligible, probably for
Speaker 4: twenty twenty seven based on how much Medicare drug spending
Speaker 4: we saw last year. Astrosonicca's other drug, Calcuins for lymphoma
Speaker 4: and leukemia wouldn't be exempt because it has two different
Speaker 4: designations for rare two different rare diseases, and so we
Speaker 4: expect Calquins to make it onto the truck selectionalist if
Speaker 4: not in February twenty twenty five the following year for
Speaker 4: price cuts in twenty twenty seven or twenty twenty eight.
Speaker 4: Got it.
Speaker 1: And our lawmaker is interested in tweaks to the law
Speaker 1: that would favor orphan drug development. You know what's the
Speaker 1: outlook for that.
Speaker 4: Yeah, there's been concern as you can imagine, by the
Speaker 4: drug companies about what this means for their investment in
Speaker 4: these areas where you know, they the population size isn't
Speaker 4: big and so they need time to recoup some of
Speaker 4: their investments. There's concerns from the patient stakeholder community about
Speaker 4: what that might mean for future therapy. So we have
Speaker 4: seen bill a bill introduced right now. It's a message
Speaker 4: bill because the likelihood of passages this year is slim.
Speaker 4: But really we're looking at an environment. What's needed is
Speaker 4: an environment where there's an openness and willingness to think
Speaker 4: about tweaks to the ira H. That's not this year,
Speaker 4: that could be next year, and it might largely be
Speaker 4: depended on who wins the election and who controls the
Speaker 4: White House. I'm sorry that the House and Senate and
Speaker 4: just overall a willingness to make improvements to the law,
Speaker 4: and with the Obamacare there was always this threat hanging
Speaker 4: over it of a potential appeal with very few opportunities
Speaker 4: for fixes. This might be an area where there there
Speaker 4: might be a willingness to look past repeal and look
Speaker 4: at some potential tweaks that wouldn't massively overhaul the program
Speaker 4: and would still provide some protection for those companies that
Speaker 4: would like to do additional research into different rare diseases.
Speaker 4: So I think it's it's too early in the negotiation
Speaker 4: process too, you know, to make some changes without some
Speaker 4: clear cut evidence that we're seeing some changes in the market,
Speaker 4: and we could get that over the next few years.
Speaker 1: Got it?
Speaker 4: Okay?
Speaker 1: Great? Thanks Dayne. All right, let's stick with DC. Nathan.
Speaker 1: Let's bring you in last, but not least. When you
Speaker 1: come in, tell us a little bit about crypto in Washington, DC.
Speaker 1: It feels, Nathan like crypto had a good week. Last
Speaker 1: week in DC, we saw the House pass with seventy
Speaker 1: one Democrats in support this Financial Innovation and Technology for
Speaker 1: the twenty first Century Act that are known as FIT
Speaker 1: twenty one. This is, you know, I guess, one of
Speaker 1: the major crypto bills that, among other things, would give
Speaker 1: cryptocurrency a new regulator framework. And it also comes after
Speaker 1: both the House and Senate, including Senator Schumer, voted to
Speaker 1: disapprove an sec staff accounting bulletin. So, long story short,
Speaker 1: has the policy momentum shifted in favor of crypto platforms
Speaker 1: and advocates in DC?
Speaker 8: You know, I I think this was the week that
Speaker 8: did it. And what I mean by this is that,
Speaker 8: you know, historically cryptocurrency has not been a partisan issue.
Speaker 8: It's more of a generational issue. But however, there are
Speaker 8: a lot of folks out there that think that cryptocurrencies
Speaker 8: can either be deemed commodities or securities based off of
Speaker 8: nineteen thirties areas securities law, and that we don't need
Speaker 8: a new regulatory framework, you know, we just need to
Speaker 8: follow those those laws which have worked for the last
Speaker 8: ninety years. Now, as Elliot and I have written about,
Speaker 8: in many many cases, it's now going to the courts.
Speaker 8: But there is this bill out there called the FIT
Speaker 8: twenty one. This came to the House Financial Services Committee
Speaker 8: and the House Agricultural Committee. Because Financial Services Committee has
Speaker 8: authority over securities, the agricultural community has authority over our commodities.
Speaker 8: And what this bill would do is it would establish
Speaker 8: a regulatory framework for digital assets. So the Commodity Futures
Speaker 8: Trading Commission would be able to regulate digital assets as
Speaker 8: commodities if the block or the digital ledger is functional
Speaker 8: and decentralized. Essentially, this means that if it's decentralized, if
Speaker 8: no one person has unilateral authority to control it, or
Speaker 8: if no one person has more than twenty percent of
Speaker 8: the digital assets or the voting power of the digital assets.
Speaker 8: The Securities and Exchange Commission, on the other hand, would
Speaker 8: regulate digital assets as a security if the blockchain is
Speaker 8: functional but not decentralized. So essentially it requires the CFTC
Speaker 8: and the SEC to most the jointly issued rules to
Speaker 8: define the terms in how they would actually exempt each
Speaker 8: other's platforms from having to be a security or as
Speaker 8: a commodity. Great, well, so this is the bill. It's
Speaker 8: the most comprehensive bill, but there are still many detractors
Speaker 8: out there that think that this nineteen thirty thirties era
Speaker 8: securities laws still applies.
Speaker 4: Now.
Speaker 8: Up until this vote, we didn't think many Democrats were
Speaker 8: going to go forward. But as Elliott just pointed out,
Speaker 8: we had seventy one Democrats join two hundred eight Republicans
Speaker 8: for a final vote of two seventy nine to one
Speaker 8: thirty six. Now that is not just bipartisan warmth. That
Speaker 8: is bipartisan support. Now this bill is now past the House,
Speaker 8: and Patrick McHenry, who is the chairman of the House
Speaker 8: Financial Services Committee, was even on Bloomberg TV on May
Speaker 8: thirty of saying that Senator Schumer now needs to take
Speaker 8: this up. But I don't think Senator Schumer is going
Speaker 8: to do that. I actually think that this bill has
Speaker 8: a low chance of success this year thirty percent. We
Speaker 8: saw language from Representative Tom Emmer, the Republican from Minnesota,
Speaker 8: talking about how he thinks this bill is a lame
Speaker 8: duck possibility possible. It really just depends, I think, on
Speaker 8: the election. But the momentum shift has changed, and why
Speaker 8: I think that this bill, if it doesn't pass this year,
Speaker 8: could come back next year. And whether you get a
Speaker 8: Biden scenario or a President of Trump scenario, I think
Speaker 8: this bill has much better chances because you know, we
Speaker 8: have seen in addition to this, elliots talked about the
Speaker 8: SAB twenty one. We saw a handful of Democrats, including
Speaker 8: Senator Chuck Schumer vote to overturn an SEC staff accounting
Speaker 8: bullet done. That's what SAB stands for staff accounting bulletin.
Speaker 8: That would make it much harder for banks to service
Speaker 8: digital assets. And the fact that you have Senator Schumer
Speaker 8: Nancy Pelosi voted in favor of the FIT twenty one,
Speaker 8: that's just a lot of political cover that the White
Speaker 8: House could potentially use to shift their philosophy on crypto. Now,
Speaker 8: the White House has until June third to make their
Speaker 8: decision on SAB one twenty one, so by the time
Speaker 8: that the listeners listened to this episode, it may have
Speaker 8: come and gone. As of right now, I think President
Speaker 8: Biden may still veto it, but I certainly can see
Speaker 8: a path where he says that he's going to allow
Speaker 8: the overturn of SAB one twenty one to move forward.
Speaker 8: But ultimately I do think the crypto momentum has changed,
Speaker 8: and whether it doesn't and even if it doesn't get
Speaker 8: done this year, I certainly think it's a crypto regulatory
Speaker 8: framework has a decent chance of success within the first
Speaker 8: nine to twelve months.
Speaker 1: So interesting. Thanks Nathan, and just a reminder for the listeners,
Speaker 1: we're recording this on Friday, May thirty. First, all right,
Speaker 1: I think with that we will wrap up this episode
Speaker 1: of Votes and Verdicts. As you can see a lot
Speaker 1: of interesting things to watch in June and beyond. As always,
Speaker 1: thank you for listening, and as a reminder, you can
Speaker 1: find all of our research on the Bloomberg terminal at
Speaker 1: big and we encourage you to reach out to us
Speaker 1: with any questions that you may have, and we also
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Speaker 1: Thank you again and have a great day.