This is Bloomberg Law with June Brusso from Bloomberg Radio.
The evidence is in in the US government's landmark antitrust case against Google. During a ten week trial, DC Federal Judge Amitt Meta heard from more than fifty witnesses, including Google's CEO, Microsoft's CEO, and Apple executives. But the most
damning evidence may be the internal documents. The Justice Department introduced the email slides and other records to show how Google's lavish payments to other companies ensured its search engine became the pre selected option almost everywhere that people access the Internet. Joining me is Bloomberg Intelligence Senior litigation analyst Jennifer ree Jen. Were the documents more convincing than the testimony?
You know, I think so, And I actually tend to agree that that is the case most of the time in the anti trust trials, because the testimony as to whether something causes harm or whether a business strategy is pro competitive and legitimate. You know, the testimony will be whatever it will be, and it's as good as the trustworthiness of the witness. But the documents tell the truth.
I mean, the documents show what the business was thinking about, what was presented to the board, how it was viewed, how competition was viewed, and what the intention of certain strategies are. And those speak the truth because they're made in the ordinary course, they're not made with litigation in mind. So I do think, particularly in this case, these documents are very important.
This got so much attention that Google spends twenty six billion dollars to be the default. So what documentary evidence are we talking about there?
Well, I mean this is just their profit law statements.
I mean it was a document that showed what they call their traffic acquisition costs, and this is sort of translates into you know, what they have to pay to be the default search engine in many different places where somebody might go to search like Safari, let's say, or you're going to Chrome and you're searching something on the Internet, the default that's set is basically Google Search. So the twenty six billion was this cost, and what that is are payments that are made in order to have that
default position. One to Apple, there are payments made to the phone makers like Samsung that make the Android mobile devices, and I should say mobile devices because it's not just phones, it's tablets and computers as well, so there was a document that showed this number, and Google was actually trying to keep this hidden in trial, but the judge decided, no,
We're going to make it public. And I think it was a bit of a shock because there were some estimates of what this number might be and people were talking about eighteen billion, maybe ten billion paid to Apple, maybe another eight So this was a surprise when we got to that twenty six.
It's a very high number.
We all know about search ads because they're annoying, and there were notes prepared for a speech by a Google finance executive in twenty seventeen talking about just how lucrative search ads are.
They are annoying and in fact getting more and more prevalent June, and this is one of the things that DJ is saying, Look, Google, you have this monopoly on general search. And because of the monopoly on general search, that means that advertisers feel they must advertise via your search results. And I don't know if you've noticed most people have, but sometimes the top results that come up when you do a search, they look like their search results,
but they are actually sponsored ads. And so this is part of what the DJ says is degradation of quality. And I think that we saw in the Google documents. You know that they make this huge profit and what they charge for advertising, and there were also some documents that supported the idea that they could kind of raise the prices to advertisers as they saw fit and not
really suffer from it. I mean, one of the ways that you can understand that a company has a monopoly is that it can raise its prices and not see demand go down, but demand stays the same. When the prices are raised, it means, you know, the advertisers don't go somewhere else they need to advertise there. So there
were documents that bore that out. They bore the enormous amount of profit they make from advertising, but they also showed that when they needed to show a little bit of a better margin, at one point, they were able to just raise advertising prices and it didn't hurt them.
Google's most important default deal was with Apple, and there was a provision negotiated in twenty sixteen that the two would support and defend their packed against antitrust scrutiny. Yeah.
I mean that showed up in the documents too, and that's why those documents are so important because I'm not so sure that that's something that would have been elicited through testimony. There was an agreement that if there was some antitrust challenge to the default agreement that was struck between Google and Apple, that they would both defend it in cord or defend it as needed. Now, let me say one thing about that, because it sounds really bad, right, Yeah,
it sounds bad. But at the end of the day, antitrust monopolistic conduct is adjudged by a reasonableness standard.
I know that sounds kind of strange, but it's very very much of a gray area.
So companies are often asking lawyers, well, we would like to do X, we want this new strategy. Is this going to violate the anti trust laws? And a lot of times the answer is, well, maybe and maybe not. You might get challenged. We think this is OA, We think that the benefits of this outweigh the harms that could come from this. But it doesn't mean you won't
be challenged. So just the fact that they've decided they had this side agreement where they will both defend this agreement if they are challenged doesn't necessarily mean that it's illegal.
I know, we talked about being the default before and whether it matters. I think it matters to most people. But what kind of testimony or documentary evidence was there about that?
You know, first of all, I think that the fact that Google's paying twenty six billion dollars a year in order to have that position suggests there's some serious value to being there. And if people willing nearly were changing their default search engine to Being or DUC dot Go, which are the two main competitors to Google Search, I don't think they'd be paying that kind of money. So
that's one thing that speaks for itself. But the other thing, I thought there was really compelling evidence from a Department of Justice expert who was an expert in behavioral economics, and he has spent his time studying how people behave when they're confronted with the default, not just in the digital world, but in many types of different examples.
He was even looking at organ.
Donation right, And I thought his testimony was really compelling because my personal position going into this was.
Well, I changed the defaults. I think it's easy to do. I think it's quick.
I use Microsoft and I change from Being which is set to Google because I like it better people can just do this and there's nothing exclusive about it. But you know, he kind of changed my mind on it because he showed how people simply don't change defaults. That a very small percentage, I think, I don't remember the exact numbers, but it's low people who know and actually
would change the default. And he had studies that showed even if somebody knows they can change the default, if they're going to have to do something to figure out.
How to do it, they don't do it.
So sadly, I think the upshot of his testimony was that people tend to be uninformed and a little lazy.
But that was his testimony and it was pretty compelling.
There's an argument that the more and more people are on Google and inputting information, the better and better Google gets and that's an advantage over other search engines. Was that part of the trial.
Oh yeah, that is a big part of the trial because that is one of the issues that the reason that Google wanted to hold down, let's say, wanted to have these default positions and sort of not provide a place in the marketplace for being or for ductut go to have a lot of search activity is because they're aware of this wheel right where the more searches you have, the better you get, and it was a way for them to keep the quality of those two rivals down
and improve its own quality at the same time. And absolutely the Department of Justice has made that allegation. Google has said we are the best and we are better, and they have also said, oh, by the way, it's not just about the data, it's about the algorithm.
We have a great algorithm. We put in loads of resources.
We've spent billions of dollars over the years with R and D, we hire great people, we put loads of resources towards this, and that's why we're great. And you know what, Microsoft hasn't put those same kind of resources toward it. But on the other side, the Department of Justice would argue, well, Microsoft wouldn't put the resources when there's no place for them to get out there and get people to use being other than maybe on some Microsoft computers.
But there was a presentation by a Google engineer called Google is Magical.
Well, I will say that from the testimony, many who work for Google and have worked on the search engine are very proud of what they've done. And no one is saying that they shouldn't be, and no one was saying that it wasn't completely innovated. Google's very innovative and that you know, years ago when it first introduced a search engine, that it wasn't innovative. It's just a fantastic, useful product for consumers.
But what the DJ has alleged is that.
At some point in time, along the road of developing and becoming this massively popular search engine, I mean a verb, you know, that along the time they decided, not only have we developed this great search engine and we're fantastic and we're innovative, but now we're going to stop any threats. We want to stay where we are and we want to block any threats. That's really what they're claiming, not that it's not a great search engine and not an innovative company.
I'm sure we've spoken before about things being put in writing that shouldn't be put in writing, and I always wonder why in companies they put things in writing. So Google actually told its employees what not to say, and the Jaluas department has quote Google's five rules of Thumb for written communications.
To prove it that's exactly right. But let me say this that looks awful.
But as an ex anti trust lawyer, I'll make one comment about this, or maybe many comments about this, But this is one of the jobs of outside council two big, huge companies. They do what's called anti trust compliance training, and many companies are actually advised and in writing exactly as Alphabet employees were advised. You shouldn't talk about dominance, you shouldn't talk about your market power, you shouldn't say, hey, you're number one in the market. It's actually pretty commonplace.
So that kind of advice that came from I'm guessing the Anti Trust Council for Alphabet, I think for very very big companies is fairly common.
But don't use the.
Terms like crush, kill, hurt, or block when talking about rival.
That's I myself have written compliance manuals that said almost that exact same thing. They're even online and maybe some compliance attorneys go online and see, hey, what are all the words that a big dominant company shouldn't use.
So honestly, it looked so bad.
I get that, But at the end of the day, it is pretty common practice for a really big company to have that kind of guidance internally.
So how did Google do on defense or on defense, I should say.
Well, I think actually they did fairly well, because you know, I'm going to go back to something I said earlier that monopolization cases are judged on what's called reasonableness, and it's called the rule of reason. That's the standard. And what the rule of reason asks the judge to do, which sounds incredibly difficult and I'd never want to be faced with this as a judge, is to ask does the conduct cause harm? That the conduct that's highlighted by
the DJ is anti competitive? Has it caused harm to a market? And the DJ has to prove that. But once the DJ has proved that, the other side, the defense and this is an any case, not just this Google search case, has to show well, what are the pro competitive aspects of what we do? And once they've shown that there are pro competitive aspects and they've kind of verified those through the evidence it's not just made up or pretextual, the judge they have to weigh it.
They have to ask which one is stronger, there's some harm, there's some benefit, which one stronger, and whichever one wins out that's the answer. It's really it sounds like a crazy thing. To have to do and very difficult, and it sounds really subjective, and I think this judge knows that he's going to be faced with that.
And it's going to be difficult.
And what Google did, which I think is a good defense, is they said, look, you know, we have some of these agreements because we want ease of consumer use. We want them to be able to take out a new phone that they just bought and.
Have a great experience.
We don't want them to be faced with a million things they have to pick, like a choice screen going okay, you have a default search engine here, which one do you want? You have a default search engine in this other place, which one do you want. We want these phones to come pre installed with all the Google apps that somebody really wants an Android phone, like YouTube and
Google Play, Stoor and Chrome. And it's a really seamless consumer experience to just automatically use Google Search because it's the best. And Apple would say the same thing. They'd say, hey, we looked into it, we thought about it, we looked at some of the other options. We've even talked to Microsoft at some point about having being but we also want our users to have the best experience and having the best experience is having Google Search installed as default,
and that's certainly pro competitive. And they've also said, look, we're just the best. We put loads of money into this, loads of time, loads of people, loads of resources, and we're constantly innovating to get better. So, you know what, even if our advertising prices are going up and some companies believe they have to advertise through general search, it pops up when somebody does a search.
They're getting better value, They're.
Getting more clicks there, maybe getting more buys from that because of all the innovation that we do.
So I think they did a good job.
Face with some not so great facts like twenty six billion a year you know, paid for this. They did a good job of showing that there was this pro competitive side and that the judge is really going to have to weigh them against each other.
Closing arguments will take place in early May, and the judge has actually said that he has no idea what he's going to do. Thanks so much, Jen, that's Bloomberg Intelligence Senior litigation analyst Jennifer Ree. What should you do when a regulator doesn't respond to your petition? Well, you could just proceed as planned but one cryptocurrency exchange has
taken a less used path. Coinbase Global, has decided to sue the sec over its alleged foot dragging on the company's request for crypto ruling, and it's asking an appellate court to order the agency to respond. Joining me is Anthony Sabino, a professor in the law department at the Peter Tubin College of Business at Saint John's Universe. How unusual is it to sue a securities regulator to get them to make rules.
It is highly unusual. But what we're witnessing here is it might be the beginning of a trend where it becomes a little more frequent, although I don't think it would ever become commonplace, because essentially, for business, the best mode of operations to say, okay, don't prod these securities in Exchange Commission or for that matter, any other governmental regulator, especially at the federal level. Never bother them, don't post the sleeping bear, leave them alone, okay, and let them
make rulemaking on their own. However, we're seen in the cases that we've been discussing here June is the fact that these are companies that are more innovative, more on the cutting edge again, especially in the crypto space, and they really are impatient. They can't wait, and one can sympathize with that, and one can understand it to a fair degree. But by the same token, you know, the possibility is they may get a result that they don't really want, and this may rebound to their detriment. But
again it remains to be seen. But the good news, if you will, is the fact that under the Administrative Procedure Act, which was inaugurated in the nineteen fifties to deal with the plethora of administrative agencies that had cropped up thirty years before into Franklin, Ellen or Roosevelt, it does provide an avenue of relief where by a party can say, look, dear agency, all right, we're in such and such business. We're not sure what to do here. We would like you to promulgate a rule about that.
And it is basically Americans and American businesses saying, look, okay, we understand there has to be some modicum of government regulation, but we need clarity, we need predictability. Otherwise the wheels of free enterprise grind to a halt. And we're going to exercise our rights to say, okay, look, government works for the people, Government works for us, so therefore we want to get a result here. You just can't sit around and keep us waiting in Limba.
Do you think the SEC hasn't written the rules for crypto because they're not quite sure how it works yet and what the problems.
Are, June, I could not agree with you more exactly right, okay, because let's face it, okay, crypto is brand new for everybody, and again that's both good and bad. The crypto industry itself is constantly innovating. They're inventing new stuff up on the guardment. I'm sure as we're sitting here, in the next few minutes, some crypto entrepreneur is going to come out with a new device, okay, a new form of cryptocurrency. And that's wonderful because that's free enterprise and freedom at
its best. But on the other hand, what that means is the SEC isn't sure what to do. And I think really that's the danger here for the agency, and this I can sympathize with the agency on this account, is the fact that how can they make rules for things that they do not yet fully understand? How can they make comprehensive rules for situations that are constantly cropping up. Okay, is newer things come up, There is yet to know who's on the on the playing field, if you will,
and to understand what rules need to be made. So the agency to some extent is in the right when they say, look, we've got to look at this, we've got to analyze, et cetera. Because certainly no one in any industry wants to have rules that will stifle innovations, stifle competition in other ways, basically be detrimental to business. You want agencies to take a measured, logical approach and
to act on a fully informed basis. And again, as we have all these innovations cropping up like weeds in a field, the bottom line is you have to give them some space to do that, which I also think explains to some extent why as a general matter, and again this could be evolving into something else, but as a general matter, today courts are reluctant to push agencies to act because they understand the limitations agencies have in terms of personnel, resources, budget and also the fact that
again they need to make informed decisions because a rule that's made on a poorly informed basis is the one that's going to be challenged and most likely successfully in a court of law.
Tell us what Coinbase is asking for here? What happened here?
Yeah, well, as I understand it, basically, they had put forth a proposal to the SEC say look, we want some clarity here because we want to know whether you're going to regulate us or not. And again, the essence of that is something that we've been dealing with now for a couple of years, and we'll continue to deal
with the need more years to come. Is that is crypto a commodity which would be put under CFTC Commodity Futures Trading Commission jurisdiction or is it a security as to find under the long standing Supreme Court test of how we from decades ago and therefore in the SEC jurisdiction. And so they want some clarification here. But that's part of the problem because again, as Coinbase continues to innovate, as any crypto merchant continues to innovate, they come up
with new things. In the SEC isn't too sure what to do. Also, let's keep in mind that the SEC is absorbing the continued school diversity of court opinions. We had a few months ago, District Judge Anna Lisa Torres here in the southerns of New York, again the financial capital of America, if not the world, saying okay, this particular crypto product, I think it was a non fungible token, This digital token is not a security, so SEC, it's
not within your bailiwick. CFTC can regulate this as a commodity. But in other instances, a different kind of investment is a security. Therefore it's being offered. Therefore it's like an IPO in this instance, the corollary the ico initial coin offering. SEC go ahead and regulate this.
Now.
A couple of months after that, okay, we had Judge Raycoff Jed ray Coloff, the eminent securities expert, eminent judge of the Southern District, basically in the same building saying no, no, here's the case. I believe the name was terrorform and said, no, this is definitely a security under the Howie test, it's an investment made then exposition of profit, those profits derived from the efforts of others. So therefore, SEC, you regulate this. This is your job to do, and the SEC is
currently trying to absorb that. We all are trying to absorb that, and we don't know what the next judge, not necessarily in New York, but anywhere in the country June is going to say about this. And until we have further judicial clarification, the SEC is going to be reluctant to basically issue its own rules in that process.
Didn't Gary Gensler say it was a security?
He did? He did? And again that's interesting because and I say this with respect for mister Gensler, because I think pretty much he's doing a very good job, and he did a very good job at the CFTC where he was saying, crypto is a commodity, so my agency regulates it. Now he changed task in an office addresses. Now he's at the SECC. No, no, crypto is a security. So now my agency, my new agency, we get to
regulate that. And again, this is one of the reasons why we can understand the Commission's reluctance to promulgate comprehensive rules, or maybe even the inability to do so, because they're still not sure their contention is. Look by and large, as I understand, if mister Genzu's contention is basically, it doesn't matter what form, what iteration of crypto it is. Crypto is a security under our long standing definition, and
therefore we get to regulate it. But he's got to reconcile that position, because really that's nothing thing more than a position of the Commission the SEC with what the courts are telling him and trying to find a balance here. And once again, the agency doesn't want to over commit.
And as Americans and especially those of us in interesting free market, we don't want the agency to over commit because if they again have these overly stricts, okay and poorly informed rules, that's going to stifle innovation in the market and it's going to create more regulatory problems for folks who honestly don't deserve it.
The SEC has received eighteen petitions for rulemaking so far in twenty twenty three, which is in line with previous years. Cara Rowlands of the New Civil Liberties Alliance, which is a Washington, DC based civil rights group, in a recent study, found the SEC substantively responded to only five of the nearly eighty petitions filed from January twenty eighteen to May twenty twenty three. Right is that too much, even for an agency that's maybe overworked.
Yeah, and I would have to say this, I have not studied ms Rollin's research, but I have no reason to assume it's other than valid. So assuming that it is valid research, then I give for the right of that argument, because that's correct. The SEC is there too, again, a sure provide for investor confidence, provided for integrating the market to punish the wrongdoers. Part and parcel of that
is making rules. And when you have petitions where are specific parties asking for rulemaking in certain areas, then the agency is supposed to respond to that. And quite frankly, just based on that quantitative analysis by Ms Rollins, I have to say that that is an inadequate response by the agencies. Okay, they've got to get their numbers up. And yes, the SEC does have a limited budget, limited personnel. Okay, they've got a lot of irons in the fire to
use that expression. But again that's nothing new. The agency has always been in that mode of operation, always playing catch up since it was formed in nineteen thirty four. So they have to deal with these issues. And once again, if they want to instill confidence in the market, a sure market integrity. They've got to be proactive on this, and I think the bottom line is they've got to do better. They've got to do better. So I would agree with the critics than what the research is saying
in that regard. And so it's fine. And I think this is going back to your point, if I may, I understand it a little better now, is that if mister Gogeler says, look, okay, crypto is a security, we want to regulate it. Well, by golly, if you say it's a security, then promulgate some rules. And the rulemaking process, by itself, as I'm sure many of your listeners know, is quite complicated. It's a three step process. Provide a
full buy again the administrative proced Director of the fifties. First, the agency, any agency, and will be specific the SEC in this regard. They have to propose a new rule and allow for public commentary. Then they have to allow the public commentary to come in typically over a period usually ninety days, and listen to that commentary and take it into their calculus and as necessary, revised the rule, amended, tweak it a little bit, whatever. Then they promulgate a
final rule, and then that goes through the SSET test. Again, if somebody challenges and court so on and so forth. But once again, since that rulemaking process is already laborious and already close for public involvements, then I honestly think that the SEC has got to put more people into this push. Okay, get more folks involved and be responsive and get that big machinery known as the going to
make these rules when they need it. Because again, when you have a petition for rulemaking, you're having someone coming forward, and again, to their credit, they're not trying to play with the rules as they're not trying to guess. They're go into the Commission saying, look, you're the regulators in the securities domain, all right, help us out here. Okay, we want to follow the law, but we're not sure what your position is. We want you to make some
rules here. Okay. If they're asking for a rule, then again, try to satisfy that need.
I've done so many stories about challenges because an agency didn't follow the rule making process exactly as required. How long does it take the SEC from start to finish to draft a rule and put it into effect.
It varies, and I have no empirical evidence on that to share with your Jim. But the bottom line is it takes a lot longer than that ninety the typical ninety day public comment period because for one reason, sometimes that public commentary period is extended. I think a very stark example that's illustriof here is when the sec he promulgated regulation BIGBI best interests okay about what brokers have to disclose the clients to demonstrate that there's no conflict
of interest. That was met with the opposition, if not outright derision by the broken dealer industry, by the security stenizens, and they basically said, no, no, we don't want this rule. We know what our rules are in terms of you know, who's a fiduciary who's not where this pushion is too close to being classified as fiduciaries. So they had almost violently opposed it. The public commentary was absolutely massive. It ran into his I recall hundreds of thousands of pages.
The commission took a long time because it needed to be analyzed. Then the commission came out with i think, initially a position that again the industry opposed. They modified that a little bit to get something a little more palatable to the broken dealer sector. And then they finally came out with Regulation BI as you know as it exists today. But the bottom line, it was not a smooth path at all. Indeed was the antithesis of that. It was a very rocky road indeed, okay, with a
lot of opposition. And again that to me, as much as it creates a lot of work and creates difficulties, the bottom line for the agency is that, look, the road is hard enough. Okay, it's hard enough to promulgate rules as it is. The sooner you start down the path to promulgate the rules, the better off you are.
And also, and I think this is something that's been permeating, know DC with the agencies and certainly in the federal court systems more recently, is Americans and American businesses are demanding more and more accountability from regulators and federal agencies because, let's face it, nobody elected the five persons who sit on the SEC or any of the other members of the multi member commissions like the FTC, the FAA, etc. But these are public servants who are supposed to be
accountable to us. And I think this is just one iteration of that overall push to say, Look, government serves the people, not the other way around. So we want government to be more accountable to us. And again, rulemaking to satisfy the needs of any particular industry is part of that process.
According to the Bloomberg article, one court found the Occupational Safety and Health administration six year delay in responding to a petition was reasonable. Another court said the agency's three year delay and another request was simply too long. In this case, the third Circuit recently asked the SEC to respond to some questions. What do you think that indicates?
First of all, it indicates what the wonderful things about our justice system, which is, you have courts in different localities, even though they were all federal courts, reaching different decisions. But again, it also demonstrates that there is justice in that because every case is too generous. I for one, really can't comprehend how a six year delay by OSHA
could be deemed to be reasonable. But then again, I didn't sit on that panel, okay, so maybe there were remarkable circumstances there where that federal court said, okay, yeah, it takes that long because it's extremely complex. On the other hand, you have the other court saying look, three years is too long to wait for this particular regulation, and I'm sure they were right on that as well, because in that instance they didn't find sufficient grounds to wait.
And it's not until the Supreme Court steps in and basically provides guidance on these issues, a bright line rule, if you will, that it's going to be resolved. But you know what, I don't think that they will ever come because it's all very suet generous. It's all very much case by case basis, but upon the agency, the subject matter. And again one has to look at what's the question being asked Before one says okay, when is the answer to It's not like taking a test on
a specific day okay. There are a lot of complicated issues here, and that's why I think that the courts have generally been reluctant to step in, although they're being a little bit more proactive. And again part of that too, and I can understand the courts here that have been reluctant to push the agencies. You've got a very fundamental constitutional issue here, June, and that's separation of powers. Once again, the courts are there to resolve controversies between American citizens
and government agencies among other things. And the bottom line is, if they start to push agencies, isn't that tantamount to them making the rules. That's judicial legislation, and that is not the American way at all, just the way. We don't want the executive branch to push around Congress or the judicial branch. We don't want to have the judicial branch pushing around the administrative agencies because they are a
component of the executive branch. And the best avenue for addressed by all Americans is, well, all these agencies, who's their boss, the fellow who's at sixteen hundred Pennsylvania Avenue. So you right to the presidents. And since the agencies are accountable to the presidents and the president's accountable to the people, that's how we the people keep these agencies in line. So again, they serve us, not the other way around.
Thanks so much for being on the show, Anthony. That's Anthony Sabino, a professor in the law department at the Peter Tobin College of Business at Saint John's University. In other legal news today, crypto giant Binance and its chief executive officer, Chen Peng Jao pleaded guilty to criminal charges for anti money laundering and US sanctions violations, including allowing
transactions with Hamas and other terrorist groups. Under a sweeping deal with the Justice Department designed to keep the company operating, Binance agreed to plead guilty to criminal charges and pay more than four billion dollars in penalties. Joo, who agreed to step down and pay a fifty million dollar fine as part of the settlement, appeared in court and Seattle
Tuesday to plead guilty. Federal prosecutors say Binance wilfully looked away as terrorists, cyber criminals, and child abusers used the company's crypto exchange, and at a press conference, Attorney General Merrick Garland said Binance and its employees were well aware that criminals were using the crypto exchange.
In a February twenty nineteen chet, one compliance employee wrote that they needed a banner that said, quote is washing drug money too hard? These days come to Binance, We got cake for you.
Binance's violations included failure to prevent and report suspicious transactions with terrorists including Hama US Palestidian Islamic Jihad, Al Qaeda, and the Islamic State of Iraq, and Syria. Garland said that Binance placed profits over US national security.
In part because of the crimes it committed. Finance became the largest cryptocurrency exchange in the world. Now Finance is paying one of the largest corporate penalties in US history.
After entering his plea, Joo was released and free to return to his home in the United Arab Emirates while awaiting sentencing. His agreement includes a waiver of his right to appeal provided that his sentence doesn't exceed eighteen months. He's also barred from any involvement in Binance until three years after a monitor is appointed. Coming up next, AI class action lawsuits. I'm Jim Gross when you're listening to Bloomberg.
As generative AI continues to explode in popularity, attorneys have never been more mindful of the privacy and data security challenge is presented by its rising use and rapid development. Several class action lawsuits have already been filed against companies that provide these smart tools, alleging serious federal and state privacy violations. Recent survey data shows these challenges are putting attorneys on alert. Joining me is Michael Benedetti, senior legal
analyst at Bloomberg Law, who's written about this. Everyone seems to be worried about AI. Are attorneys any different? I know you did Bloomberg Law survey. What did it tell you?
So?
Bloomberg Law recently conducted a survey among four hundred plus legal practitioners and house some law from attorneys, and ninety seven percent of those attorneys indicated some level of concern with data privacy and generative AI. And actually seventy percent of those respondents admitted that they were either moderately or extremely concern So that's a fairly staggering number and attorneys are definitely thinking about this.
Will you explain how AI depends on these huge data sets.
Jude, That's where the devil's really in the details, is with the data. So I'm not an engineer. I'm an attorney, so I like to have the engineers in the room when I have this conversation. But the concern is around the webscraping practice. And what web scraping is is the mass collection of information off the open Internet, and once that data is selected, it's been aggregated and fed into AI training models that ultimately result in actual tools like chat GPT or Bard tell.
Us about some of the laws that involve AI.
AI's data appetite potentially clashes with privacy laws in Europe with GDPR and California CCPA, as well as Illinois biometric privacy law, and this is putting companies at legal red those laws, they're fairly dense, but some of the basic concepts that they require are transparency, that adequate notice is provided to individuals when their data is being collected or
used or shared. Consents, we're appropriate. Sometimes you have to get written consent to use, share, or do anything with this data.
Do you know how many class action lawsuits have been filed over AI alleging privacy violations.
We don't have a total number. This is a very new area. My article covers three very prominent ones against very large companies. There's Alphabet, parent company of Google. There's Open Ai, owner of the chat GPT service. And there's more of these cropping up at a pretty quick pace. Dinnerative AI like chat GPT and Google's barred hinge on on vast data sets, including personal and biometric data. And this is raising privacy red flags.
So give us some details about the JL versus Alphabet case filed in the Northern District of California.
Yeah, this is a class action comprised of anonymous plaintists, some of which are minors. And these plaintiffs are alleging that Google's webscraping practices used to train the AI services that Google offers, Barred and some others are violating users privacy rights by not providing sufficient notice and obtaining consent.
The case against Prisma Labs is a little different. Tell us about that.
There is a case against Prisma Labs, a mobile app developer that publishes photo and video editing tools enhanced by AI, and like the Open Ai case, that case is also alleging biometric privacy violations. And thank us here for claiming that billions of images found online containing people's faces, those facial images were scanned and used to train the AI algorithms that power the Prisma tools.
Just a few of the many cases that we'll be coming up having to do with AI. Thanks Michael. That's Michael Benedetti, Senior legal analyst at Bloomberg Law, and that's it for this edition of the Bloomberg Law Show. Remember you can always get the latest legal news on our Bloomberg Law podcasts. You can find them on Apple Podcasts, Spotify, and at www dot bloomberg dot com, slash podcast, Slash Law, and remember to tune into The Bloomberg Law Show every
weeknight at ten pm Wall Street Time. I'm June Grosso and you're listening to Bloomberg